Tracstar Investments Limited and Vs. Gordon Woodroffe Limited and ors. - Court Judgment

Excerpt:

.....the decision in c.p. no. 44 of 1993, would remove swc employees from the board of sspl. the only way to prevent the krc group gaining control of the sspl board from controlling the impugned shares is by transferring them. therefore, the new board of sspl consisting of employees of swc controlled by mrc not only transferred the shares but also benefitted gwl by payment of its dues. this we are noting only because, it is on the record of sspl in their annual report, that the funding for purchase of the impugned shares, was provided by tracstar and if the sale had been bona fide the amount of consideration received should have been applied to dispose of the dues of tracstar and not gwl.106. the role of gwl in this episode also shows lack of probity and fairness. we have already held that the issue of duplicate certificates by a committee consisting of 2 directors did not satisfy the requirements of provisions of the companies (issue of share certificates) rules, 1960, on the ground that there should have been at least three directors in the committee to constitute the quorum. it is an established principle of law that any decision taken by any forum without proper quorum is invalid.....

Judgment:

1. In this order, we are dealing with a petition in the form of an application under Section 111(4) of the Companies Act, 1956 (hereinafter referred to as "the Act"), filed by Tracstar Investment Company Limited (hereinafter referred to as "Tracstar") and 4 others seeking rectification of the register of members of Gordon Woodroffe Limited (hereinafter referred to as "GWL") in respect of 5 lakhs equity shares of GWL held in the name of Shoe Specialities Private Limited (hereinafter referred to as "SSPL").

3. Tracstar holds 24.91 per cent. of the paid-up equity capital of GWL.

The impugned 5 lakhs shares constitute 12.73 per cent. of the paid-up capital of GWL and were held in the name of SSPL but were in pledge with Tracstar. Tracstar became the beneficial holder of these impugned shares after it foreclosed the pledge for non-payment of dues by SSPL.

The second petitioner, namely, Standard Distilleries and Breweries Private Limited (hereinafter referred to as "Standard") and the third petitioner, namely, Stridewell Leather Private Limited (hereinafter referred to as "Stridewell", corporate entities, hold 20 per cent. and 40 per cent. respectively of the paid-up capital of SSPL and as such they are the majority shareholders of SSPL. The fourth and fifth petitioners respectively known as MDC and RDC are shareholders of the second and third petitioners.

4. Even though Standard and Stridewell are the majority shareholders of SSPL, the board of SSPL controlled by the employees of Shaw Wallace Limited (hereinafter referred to as "SWC") transferred the impugned shares to third parties which is not in the interest of the majority shareholders of SSPL. SWC is under the control of the third respondent, MRC who controls Gordon Woodroffe (UK) Limited which holds 24.9 per cent, of the paid-up capital of GWL. Originally, the impugned shares were offered to Tracstar but at the request of Tracstar, these shares were allotted to SSPL. However, the funds for purchase of these shares by SSPL were provided by Tracstar. The share certificate in respect of these shares was also sent to Tracstar and Tracstar has all along been in possession of this share certificate as a pledgee. These facts were known to all the parties in view of the proceedings in C.P. Nos. 19 of 1992 and 29 of 1992 before the Company Law Board. Standard and Stridewell being majority shareholders filed two petitions under Section 397/398 in C. P. Nos. 29 of 1992 and 44 of 1993 alleging acts of oppression and mismanagement in the affairs of SSPL.

5. The Company Law Board in its order issued in C. P. No. 29 of 1992 directed the removal of name of Malleswara Finance and Investments Company Private Limited (hereinafter referred to as "Malleswara") to which shares had been issued illegally to reduce the majority shareholders from 60 per cent. to 20 per cent. in the register of members of SSPL. This order was challenged through a writ petition by Malleswara in the Madras High Court which was dismissed on May 10, 1994, upholding the decision of the Company Law Board. After this, the Company Law Board also issued an order in C.P. No. 44 of 1993 on June 8, 1994. However, in between these two dates, fearing that loss of control of SSPL which holds 12.75 per cent. shares in GWL would also mean loss of control over GWL, MRC, with a view to ensure that the majority shareholders of SSPL do not realise and enjoy the fruits of their majority control, took action to ensure that SSPL is left without having any control over the impugned shares. To achieve this objective, the then existing directors of the board of SSPL were made to resign and new members, who were all employees of SWC were inducted on the board. This new board, under the directions of MRC, disposed of the, impugned shares which is nothing but a criminal conspiracy. Therefore, the impugned transfer is illegal, invalid and non est. The constitution of the new board is illegal, especially when there is a proceeding before the Company Law Board in C.P. No. 44 of 1993 seeking supersession of the then existing board. This board should not have taken any action especially when the Company Law Board in its order dated June 8, 1994, stipulated that the board shall not take any decision except relating to the requisition for an extraordinary general meeting.

6. Moving this instant petition, the petitioners sought for an interim order, restraining GWL not to register these shares and if registration had already taken place, then restraining GWL from effecting registration of further transfers. We granted this prayer on June 22, 1994, with the directions to serve copies of petition on all the respondents. Accordingly, copies of the petition were served on all the respondents. When the replies were filed by SSPL and GWL, they disclosed the names of the three transferees and also the fact that the transfers had already been registered by GWL on June 8, 1994.

Accordingly, on an application filed by the petitioners to implead these 3 transferees, we allowed them to be impleaded as respondents Nos. 17 to 19. All the respondents except respondents Nos. 9 and 16 have filed their replies.

7. From the replies filed, it is seen that the sequence of events relating to registration of transfer of impugned shares is as follows : On June 2, 1994, the board of directors of SSPL passed a resolution to seek duplicate certificates in respect of the impugned shares from GWL on the ground that the original certificates had been lost as they had been illegally removed from the custody of SSPL, sub-dividing these 5 lakhs shares into 3 lots of 1.75 lakhs, 1.75 lakhs and 1.5 lakhs shares. The board also resolved that the necessary indemnity bonds would be executed by SSPL in favour of GWL for issue of duplicate certificates. On June 3, 1994, again, in a board meeting of SSPL, it was resolved to sell and dispose of these impugned shares at the best available market price but at a price not below Rs. 12.75 per share net of brokerage. Two directors of SSPL were authorised to sign the requisite transfer deeds. The requisition for issue of duplicate certificates and sub-division thereof was considered by a share transfer committee of GWL on June 4, 1994, and the committee approved the request of SSPL. Between June 4 and 7, 1994, these 3 lots of shares were transferred to respondents Nos. 17 to 19, and these transfers were registered by GWL on June 8, 1994. The total consideration received by SSPL towards these shares was Rs. 63.75 lakhs and out of this, SSPL paid GWL a sum of Rs. 55.40 lakhs to clear its liability to GWL as also the liability of Gordon Woodroffe Agencies Private Limited.

8. The grounds on which these transfers have been questioned by the petitioners may be summed up as follows : (a) Tracstar held the impugned shares as a pledgee, the fact of which was known to GWL and as such the transfer of the shares through duplicate certificates was illegal and void.

(b) In an earlier petition before the Company Law Board in C. P. No. 29 of 1992, SSPL had given an undertaking that it would not dispose of any of its shares held by it in GWL, and, therefore, these transfers are in violation of the undertaking and as such should be set aside.

(c) The impugned shares were the only assets of the company and as such disposal of these shares would mean sale of the undertaking which is ultra vires the board and the provisions of Section 293 of the Act.

(d) The decision to transfer the shares by SSPL was patently illegal inasmuch as the board did not enjoy the majority support and the same is mala fide, fraudulent and has been done only with the view to deprive the majority shareholders of SSPL from controlling these shares.

(e) Registration of these shares was in contravention of the provisions of Section 108 of the Act as the share certificates did not accompany the transfer deeds. (This has become irrelevant as it later transpired that duplicate certificates accompanied the transfer deeds).

(f) GWL erred in issuing duplicate certificates without being fully satisfied that the share certificates had been lost or destroyed and thus the decision to issue duplicate certificates was in violation of the provisions of Section 84(2) of the Act.

(g) The approval given by the share transfer committee consisting of only two directors of GWL was in violation of Rule 3(b) of the Companies (Issue of Share Certificates) Rules, 1960.

9. We heard the matter on a number of days. C. A. No. 150/SRD/95 was filed by Shri A.K. Agarwal, advocate, on behalf of one Mr. V.Jayaraman, director of Stridewell, with the prayer that the name of Stridewell be deleted from the list of parties on the ground that the board of Stridewell has not authorised any one to institute the instant petition on behalf of Stridewell. It is also alleged in the application that Shri M.D. Chabaria is not a shareholder of Stridewell and his claim to be a shareholder is already under challenge in C. P. No. 14 of 1994, and as a matter of fact even the rejoinder filed by Mr. Shyam Luthria on behalf of Stridewell has no authority as he is not a director of Stridewell. It is further stated that the observation of the Company Law Board in its order dated May 28, 1993, in C.P. No. 29 1992, has been interpreted wrongly by the KRC group as if the Company Law Board has held that the board of directors constituted by the KRC group is the legitimate board of Stridewell. It is further stated in the application that Stridewell controlled by the applicant group has already filed a case against the board of directors of Stridewell constituted by the KRC group in the Delhi High Court. Under these circumstances, it has been prayed that the name of Stridewell should be deleted from the list of parties.

10. We noted the contents of the application. There have been two sets of board of directors in Stridewell, one controlled by the MRC group and the other by the KRC group. We have recently passed an order in C.P. No. 30 of 1993 to the effect that the board of directors constituted by the KRC group is the legitimate board and since this petition has been filed by this board there is no need to delete the name of Stridewell from the list of parties.

11. Counsel representing various respondents raised two preliminary objections, that, none of the petitioners has any locus standi and that the matter should be relegated to a suit for various reasons, elaborated later. However, we asked them to argue both on these preliminary objections as well as on the merits of the petition and the matter was heard at length.

12. From the pleadings and arguments, the following issues emerge for our consideration : (1) Whether the petitioners have locus standi to present the petition (3) Whether SSPL has violated the undertaking given to the Company Law Board (CLB) in C. P. No. 29 of 1992 (4) Whether the sale of shares of SSPL is deemed to be the sale of the undertaking (5) Whether GWL has violated the provisions of Section 84(2) of the Act and the Companies (Issue of Share Certificates) Rules, 1960 (6) Whether the removal of the name of SSPL and consequent entry of the names of respondents Nos. 17, 18 and 19 in the register of members of GWL was "without sufficient cause" (7) Whether the prayer for rectification of register of members is to be granted The objection taken by the respondents is that none of the petitioners has any stake in the impugned shares nor any of them seeks to put its/ their names in the register of members consequent to the prayer for rectification and as such none has any locus standi to present the petition.

13. Petitioner No. 1 has presented the petition both in the capacity as pledgee of the impugned shares as well as a member of SSPL. Elaborate arguments were advanced by counsel for the respondents as well as by Shri Sarkar, senior advocate for the petitioners, on the fact of pledge, rights of a pledgee and the locus standi arising out of this pledge, citing a large number of decided cases. We are not dealing with this aspect of pledge in this order inasmuch as Shri Sarkar, at the final stages of the arguments, stated that he did not want us to adjudicate upon the claim of the pledgee but only wanted us to take note that the claim of pledge by Tracstar was known to both SSPL and GWL and that the share certificate is with Tracstar and in spite of this knowledge they had decided to adjudicate upon the claim by transferring the impugned shares in favour of respondents Nos. 17 to 14. Therefore, the only question with regard to Tracstar is, whether being a member of GWL, it could present the petition for rectification of the register of members of GWL and whether other petitioners have any locus standi. According to Shri Raghavan, senior counsel for respondents Nos. 2 and 10 to 15, the petition has been filed with an oblique motive. Even though Tracstar claims to be the pledgee of the shares, it does not seek its name to be put on the register of members but has sought for putting the name of SSPL on the register of members.

In other words, with the statement of Shri Sarkar that the Company Law Board need not have to adjudicate on the pledge, Tracstar has no interest in the impugned shares. Its right to apply for rectification on the basis of it being a member of GWL, cannot arise unless and otherwise it shows some personal interest in the shares in question.

According to him it has been decided in Dhelakhat Tea Co. Ltd., In re, AIR 1957 Cal 476 ; [1958] 28 Comp Cas 62 that a member who does not seek to put his name in the register of members cannot invoke the provisions of Section 111(4) seeking rectification. He further stated that the very fact that there is contradiction in the averments in the petition that Tracstar is a pledgee and the relief sought that the name of SSPL should be put back on the register of members, the law of estoppel should be applied and Tracstar should be barred from seeking the relief sought. SSPL took a decision in its board meeting to transfer the shares and when the lawful owner, with proper authority, transfers shares it cannot be termed as "without sufficient cause". He further stated, that, if any shareholder of a company, without any personal interest in the shares, could seek rectification, especially in the case of a listed company, it will only result in confusion and chaos and the Company Law Board should not be a party to it. As far as the other petitioners are concerned, Shri Raghavan stated that they are not shareholders of GWL. Petitioners Nos. 2 and 3 are only shareholders in SSPL and they cannot agitate against the decision taken by validly constituted board of directors of SSPL and against GWL. As far as petitioners Nos. 4 and 5 are concerned, they are neither shareholders of GWL and SSPL and as such they have absolutely no right to present the petition.

15. Shri Anil Diwan, senior counsel for GWL, Shri S.N. Mukherjee, counsel for respondents Nos. 3 to 8 and Shri Mitra, counsel for respondents Nos. 17 to 19, also concurred with the arguments of Shri Raghavan. Shri Mukherjee additionally cited [1989] BCCL 697 to state that unless otherwise a person seeks to put his own name in the register of members, consequent on rectification, he cannot present a petition under Section 111(4).

16. Shri Sarkar, replying to the arguments of counsel for the respondents, stated that even though the question of pledge need not be decided by the Company Law Board yet his claim for seeking rectification can be entertained on the ground that Tracstar is a shareholder of GWL. He stated that Tracstar holds 24.91 per cent.

shares in GWL and being a shareholder of GWL, it can maintain a petition. On this, he relied on the decision in Killick Nixon Ltd. v.Dhanraj Mills P. Ltd. [1983] 54 Comp Cas 432 (Bom). He also stated that the facts in the case of [1989] BCCL 697 are different from the one before the Company Law Board. He drew our attention to the provisions of Section 111(4) to state that the section itself gives right to a member of a company to seek rectification and there is nothing in the section to stipulate that such a member should be an aggrieved person in the sense that he should have some personal interest in the shares.

Therefore, according to him, as a member of GWL, Tracstar has locus standi. He also relied on the provisions of Rule 1 of Order 1 of the Civil Procedure Code, 1908, to state the joining of plaintiff by parties with common grievance is permissible.

17. As far as petitioners Nos. 2 and 3 are concerned, Shri Sarkar stated that they are definitely aggrieved persons within the meaning of Section 111(4) of the Act. They are majority shareholders of SSPL and the board of directors of SSPL does not enjoy the support of the majority shareholders. It has already been held by the Company Law Board in other proceedings that the majority shareholders are being oppressed by the board of directors of SSPL. The impugned shares are the only assets of SSPL and, therefore, the disposal of these assets by a board not enjoying the majority support would definitely be against the interest of the majority shareholders and, therefore, they have every right to question the impugned transfer. He further stated that as far as petitioners Nos. 4 and 5 are concerned, they are majority shareholders of petitioners Nos. 2 and 3 and, therefore, they can also in their representative capacity, file this petition.

18. To sum up, he stated that all the petitioners have locus standi and their grievance is that the name of SSPL was omitted from the register of members of GWL without sufficient cause and, therefore, they can seek rectification of the register.

19. We have considered the arguments of counsel. Admittedly, Tracstar's name is in the register of members of GWL even though it was stated that the same is disputed in civil proceedings. As it is, since its name is in the register of members, we have to go by that and admittedly Tracstar is a member of GWL. Arguments were advanced regarding the right of a member to seek rectification when the personal rights of the petitioner are not affected. Instead of dealing with various case law cited by various counsel, we would like to go by the relevant provisions of the Companies Act, 1956, namely, Section 111(4).

Under this sub-section, a petition can be filed by (i) an aggrieved person ; or (ii) any member of the company ; or (iii) the company itself. In other words, the Act itself specifically provides that any member of a company can prefer a petition as long as he establishes that the name of any person is entered in or omitted from the register of members "without sufficient cause". There is nothing in the section to indicate that a member of a company has to show some interest in the shares in respect of which rectification is sought. The very fact that the two terms "aggrieved person" and "any member of the company" having been separately indicated, it is evident that even without any personal grief in regard to the shares, a member can, for sufficient reasons to be shown, seek rectification. If the intention of the Legislature were that only an aggrieved member can seek rectification, then the wording of the section could have been "any person or any member aggrieved" instead of separately stating as "any person aggrieved" or "any member of the company". Thus, the Legislature's intention is crystal clear that any member of a company can seek rectification.

20. It is worthwhile quoting from Killich Nixon Ltd. v. Dhanraj Mills P. Ltd. [1983] 54 Comp Cas 432 (Bom) as stated by Shri Sarkar (page 441) "thus, the section makes it clear that not only the person aggrieved but also any member of the company may apply to the court for rectification, . . Read as a whole, it appears that one of the intentions of the Legislature is to ensure a register of members which reflects reality at any particular point of time. That is why, the Legislature has extended this right to any member of the company without compelling him to show a particular or special prejudice caused to him by an incorrect or wrong register of members. Hence, to confine the right to file the application only to an aggrieved member or a member who is in a position to show some special prejudice, will go counter to the object of the section." 21. The arguments of Shri Raghavan that in such a situation any member of the company, without any valid reason could always seek rectification in the register of members in respect of others, cannot be accepted as a ground for questioning the locus standi, as the bona fides of the petition can always be looked into by us. Therefore, the contention that, as long as a member has no personal interest in the shares, he has no locus standi does not appeal to us. Therefore, we cannot, on this ground dismiss the petition as not maintainable.

Accordingly, as far as Tracstar is concerned, it being a member of GWL, has locus standi.

22. In regard to petitioners Nos. 2 and 3, both of which are corporate entities, they are members of the transferor company, namely, SSPL.

They are not shareholders of GWL. They have come before us as aggrieved persons.

23. They are the majority shareholders of SSPL. It is also an admitted fact that the board of directors of SSPL does not enjoy the majority support of the shareholders. Obviously, the grievance of the majority shareholders of the transferor company is that the transfer of the impugned shares is not to the benefit of the company and has been done mala fide. Since they are questioning the conduct of the transferor on the basis of their majority shareholding and are seeking to restore the name of SSPL we are of the view that they do have locus standi. In this connection, the case cited by Shri Sarkar, viz., Satya Charan Law v.Rameshwar Prosad Bajoria [1950] 20 Comp Cas 39 ; AIR 1950 FC 133, is relevant.

24. As pointed out by Shri Sarkar, we may also refer to Rule 1 of Order 1 of the Civil Procedure Code, 1908, which deals with joining of the plaintiffs. It reads as follows : (a) any right to relief in respect of, or arising out of, the same act or transaction or series of acts or transactions is alleged, to exist in such persons, whether jointly, severally or in the alternative ; and (b) if such persons brought separate suits, any common question of law or fact would arise.

26. In this present petition, rectification has been sought on allegations against GWL and SSPL and the transferees. Admittedly, petitioners Nos. 2 and 3 being shareholders of SSPL Could independently impugn the sale of shares by SSPL. In such a case, the common question of law or facts that arises in the petition would also arise.

Therefore, we are of the view that even as per the Civil Procedure Code, 1908, petitioners Nos. 2 and 3 can join as petitioners in this petition.

27. As far as petitioners Nos. 4 and 5 are concerned, it is worth quoting the observation of the Division Bench of the Madras High Court in the proceedings relating to the same parties in C. P. No. 29 of 1992 (para 77): "The next contention that was taken is that the application is bad for misjoinder of parties. According to the appellant, petitioners Nos. 3 and 4 should not have been allowed to join the application since they are not shareholders in both the petitioner companies and they have no locus standi to join along with them. The same is not accepted by petitioners Nos. 3 and 4. According to them, they are shareholders in petitioners Nos. 1 and 2 company. They have proved that they are shareholders. At any rate, it is not disputed that petitioners Nos. 3 and 4 are directors of the petitioners-companies, and are entitled to make submissions and objections before the Company Law Board. They are parties under Section 2(p) of the Regulation framed by the Board. In fact, no argument was made that they are not shareholders of petitioners Nos. 1 and 2. Hence, the contention that the application is bad for misjoinder also falls to the ground".

28. Therefore, even if these two cannot be treated as petitioners as contended by the respondents, they can be parties in these proceedings in view of their being members of petitioners Nos. 2 and 3.

29. In view of the foregoing, we are of the view that petitioners Nos.

1, 2 and 3 have locus standi to present the petition and petitioners Nos. 4 and 5 can be joined as parties and, accordingly, we hold so.

30. Regarding the second objection that the matter should be relegated to a civil suit, counsel for the various respondents stated that, in the petition, at various places, allegations of fraud, mala fides, collusion, etc., have been made. They cannot be established by affidavits and as such oral evidence is necessary. In addition, it was contended that the petition also lacks full particulars in regard to the various allegations. Since the proceedings under Section 111(4) are summary in nature, the matter should be relegated to a civil suit and the Company Law Board should not entertain this petition and, therefore, the petition is not maintainable before the Company Law Board.

31. According to Shri Raghavan, in addition, the matter is beset with various questions of law and facts which require oral evidence especially, as is evident from the pleadings, the petition itself has been filed with an oblique motive and for a collateral purpose. He cited the following cases in support of his various submissions : (1) Smith and Fawcett Ltd., In re [1942] Ch 304 ; [1942] 1 All ER 542 : "Affidavit in evidence is unsatisfactory evidence of the motives of directors in exercising their powers."Public Passenger Service Ltd. v. M.A. Khadar, AIR 1966 SC 489 ; [1966] 36 Comp Cas 1 (SC) : "Where by reason of its complexity or otherwise the matter can more conveniently be decided in a suit, the court may refuse relief under Section 155 in exercise of the discretionary jurisdiction and relegate the parties to a suit." (3) Dhelakhat Tea Co. Ltd., In re, AIR 1957 Cal 476 ; [1958] 28 Comp Cas 62 : "Serious questions involving disputed questions of facts should not be tried in a summary procedure in an application for rectification under Section 155 because they are more appropriate subjects for trial in a suit in evidence after the full discovery of documents and inspection." 32. Shri Anil Diwan endorsed the arguments of Shri Raghavan in this regard and he additionally relied on the following case law : (1) Kamla Devi Mantri v. Grasim Industries Ltd. [1989] 3 Comp LJ 278 ; [1990] 69 Comp Cas 188 (MP) : "Complicated and controversial issues to be relegated to a civil suit as they cannot be decided on the basis of affidavits in these proceedings." (2) Smt. Puran Devi v. S. Gurnam Singh [1977] 47 Comp Cas 796 (P & H) : "The petitioner raises complicated questions of facts which cannot be dealt with in Section 155 and proper remedy is by suit." 33. Shri Mukherjee, supplementing the arguments of other counsel, relied on the following propositions in this regard.

"Affidavit in evidence is unsuitable for proving fraud or other improper conduct nor affidavit in evidence is permitted to prove mistakes justifying rectification." (2) Dr. Baldeo Sharma v. Amritdhara Pharmacy Pvt. Ltd. [1975] 45 Comp Cas 268 (All) : "If after studying the affidavits filed, the parties feel that in order to elicit the true facts and truthfulness of the deponents of the affidavit it was necessary to cross-examine them, the matter ought to have been considered by court at that stage." "It cannot be laid down as a matter of law or rule that in these matters the parties have absolute right to prove their respective briefs by filing documents or affidavits alone. The court has to direct any of the deponents for the purpose of cross-examination at the interest of either party."State of Kerala v. K.T. Shaduli Grocery Dealer, AIR 1977 SC 1627 : "The assessee should be given reasonable opportunity to prove correctness or completeness of the return. The opportunity to prove would necessarily carry with it the right to examine witnesses and right to cross-examine all such witnesses." 34. Shri Mitra also supported the contention of other counsel and additionally he relied on the following cases in this regard :Varanasaya Sanskrit Vishwavidyalaya v. Dr. Rajhisore Tripathi [1977] 2 SCR 213 ; AIR 1977 SC 615 and L.D. Jaiswal v. Kamal [1962] 1 SCR 270 : "It is not enough to state, in general terms, that there was collusion without particulars."Bishundeo Narain v. Seogeni Rai [1951] SCR 548 ; AIR 1951 SC 280 : "If there is one rule which is established than any other, it is that in cases of fraud and undue influence and coercion the party pleading it must set forth full particulars and the case can be decided on the particulars as laid. There can be no departure from them in evidence." 35. Replying to these objections and the cases cited by counsel for the respondents, Shri Sarkar stated that the allegations of fraud and collusion have been made purely on the basis of the circumstances under which the entire episode has been enacted by the parties in transferring the impugned shares. According to him, when the facts are so crystal clear from the facts as revealed from the pleadings and other documents, it should lead to the logical conclusion that the entire transaction has taken place with an oblique motive of depriving the petitioners, being majority shareholders of SSPL, from having any control over the impugned shares. Therefore, according to him, there is no need to relegate the matter to a civil suit and the Company Law Board should be in a position to deal with this matter. He relied on in Ramashankar Prosad v. Sindri Iron Foundry P. Ltd., AIR 1966 Cal 512, "It was argued before us that the matter had not been thrashed out on evidence and as such no conclusion ought to be drawn as to whether the parties had received notice of the extraordinary general meeting or not. . . If the matter was tried on evidence other than affidavit evidence, no better result would have followed for, the petitioner would have deposed that they have never received the notices and the respondents would have averred that these had been put in the post and the court would have had to make up its mind as to whether the petitioners had received the notices but deliberately refrained from attending the meeting."Kothari Industrial Corporation Lid. v. Lazor Detergents Private Ltd. [1994] 1 CLJ 178 ; [1994] 81 Comp Cas 617, wherein the Company Law Board after considering various case law on this subject concluded that it is purely within the discretion of the Company Law Board to either deal with the matter under Section 111(4) or relegate the same to a suit purely on the basis of the facts and circumstances of each case.

37. The main grounds for this objection as revealed from the replies to the petition and also elaborated during arguments are that complicated questions of law and facts are involved in this case and that the petitioner has made a lot of allegations that there has been collusion between the parties, that the entire transaction was with mala fide and fraudulent intention, etc., and as such the matter has to be tried and oral evidence has to be taken which cannot be done in a summary proceeding under Section 111(4). We had an occasion to examine similar objections, as rightly pointed out by Shri Sarkar in Kothari Industrial Corporation Ltd.'s case [1994] 81 Comp Cas 617 (CLB); [1994] 1 CLJ 178.

After dealing with various case law on the subject, in that case, we came to the conclusion that it would not be correct to put any restriction on the discretion of the Company Law Board in dealing with such matters and the decision either to proceed with the case or to relegate the parties to a suit would purely depend on the facts and circumstances of a case.

38. It was contended by counsel for the respondents that when we decided this case, the Full Bench judgment of the Delhi High Court on the maintainability of a petition under the erstwhile Section 155 (which is now Section 111(4)) in Ammonia Supplies Corporation Pvt. Ltd. v. Modern Plastic Containers Pvt. Ltd. [1994] 79 Comp Cas 163 was not available before us in which the High Court has categorically stated that proceedings under Section 155 are of a summary nature. In view of this, it was urged to relegate the parties to a civil suit. We have gone through the judgment of the Delhi High Court. The main issue in that case was whether a civil court has jurisdiction in matters of rectification of register of members. After a careful examination of various case law, the Full Bench came to the conclusion that (at page 178) : "(a) The jurisdiction exercised by the company court under Section 155 of the Act is discretionary and summary in nature.

(b) The company court can decline to entertain a petition involving disputed and complicated questions requiring examination of extensive oral and documentary evidence.

(c) The remedy of suit for adjudication of disputes relating to title to shares is not barred." 39. The decision at point (b) is relevant for us where the court has said that the company court can decline to entertain. It does not say that the company court must decline. In otherwords, discretion has been given to the company court. This case also supports our decision in Kothari Industrial Corporation Ltd.'s case [1994] 81 Comp Cas 617 (CLB) wherein we have opined that the decision to relegate a petition under Section 111(4) to a civil suit depends on the facts and circumstances of a case and it can never be mandatory that whenever allegations of fraud are made then the parties should be relegated to a civil suit.

40. As a matter of fact, even the Division Bench of the Madras High Court in its order on appeal in C.P. No. 29 of 1992 observed : "It is also contended by the appellants' counsel that it is a case where there is an allegation of fraud and no evidence is taken and no attempt was also made by the petitioners to substantiate the same by adducing evidence. The said argument also cannot hold good for the reason that before the Company Law Board all parties have participated in the proceedings on the basis of affidavits and counter-affidavits and findings have been arrived at on that basis.

It is not always essential that oral evidence should be taken to substantiate the case of fraud. It was so held in Needle Industries (India) Ltd. v. Needle Industries (Newey) India Holding Ltd. [1981] 51 Comp Cas 743 ; AIR 1981 SC 1298. It was held in that case that if there is ample material in the record in the case in the form of affidavits, correspondence and other documents on the basis of which proper and necessary inference can be drawn, oral evidence is not necessary ..." 41. Thus, the legal position is clear that the Company Law Board has discretion to decide, on the facts of a case, whether to entertain the case or to relegate the same to a civil suit.

42. Having thus held that we have the discretion to decide this matter, the question that arises in respect of the instant petition is whether we should exercise the discretion to deal with the matter by ourselves or to relegate the matter to a suit. This petition is for rectification of the register of members on various grounds. We have heard the case in detail and have perused various documents. We are convinced that from the pleadings, documents placed before us and the arguments we can draw our own conclusion and decide the issue before us and there is no need to relegate the matter to a suit. Accordingly, the prayer of the respondents that the matter be relegated to a suit is rejected.

43. Shri Sarkar stated that the impugned transfer of shares should be set aside on the ground that SSPL had violated the undertaking given to the Company Law Board not to dispose of the shares. According to him this undertaking was given by counsel for SSPL in C. P. No. 29 of 1992 and it was recorded in the order of the Company Law Board dated August 20, 1992. He further stated that this undertaking was recorded only on the prayer that SSPL should be restrained from disposing of the shares which were the only assets of SSPL, when the matter as to who was entitled to control SSPL was pending decision. According to him, the effect of an undertaking has the same effect as that of an injunction except that an undertaking without any limit in point of time, has to be released by the court in which the undertaking was given or till such time the same is varied or modified. On this proposition he relied on Cutler v. Wandsworth Stadium Ltd. [1945] 1 All ER 103 (CA) wherein it was held that (at page 105) : "The undertaking in this case was given until the trial of the action or further order and an order of the court was, of course, necessary before the giver of the undertaking could be released." 44. He further stated that unlike an injunction which may end with the proceedings, an undertaking will not end as such but will continue till a release is obtained from the court to which such undertaking was given. He further stated that even though the main petition, C. P. No.29 of 1992, was finally disposed of by the Company Law Board, yet in the absence of getting a release from the undertaking, SSPL was bound to honour the undertaking and in the instant case by transferring these shares, SSPL had violated the undertaking.

45. He further stated that even after the disposal of the main petition, SSPL preferred an appeal in the Madras High Court which was still pending at the time of transfer of shares. In addition, Malleswara also filed a writ in which the operation of the order of the Company Law Board was stayed. Even assuming that the interim order passed by the Company Law Board containing the undertaking merged with the final order, yet when the matter was on appeal, the same will have to be treated as continuation of the original proceeding, and, therefore, the undertaking will have to continue. In this connection, he relied on Union of India v. Cynamide India Ltd. [1987] 2 SCC 720 wherein the Supreme Court observed (head-note) : "Apart from the fact that an appeal is ordinarily considered to be a continuation of the original proceeding, in the present case, further orders of the Supreme Court were also in contemplation and such further orders could only be made if appeals were preferred to the Supreme Court. There was no doubt in anyone's mind that the matter would be taken up in appeal to the Supreme Court whichever way the writ petitions were decided. The undertakings given by the parties in the present cases were intended to, and do continue to subsist."Hiralal Patni v. Loonkaran Sethiya, AIR 1962 SC 21, to state that : "The appointment of a receiver who is an officer of the court does not cease with the disposal of the proceedings but continues until discharged by the court." 47. He stated that, if the undertaking is not treated as a continuing one and in the meanwhile the party which gave the undertaking disposes of the property even after the case is decided against that party, the party in whose favour the case is decided has nothing to fall back upon. He stated that the matter is very similar to a situation where a suit for specific performance is filed and in such a suit an order of injunction is passed against the disposal of the subject-matter of this suit and if at the final disposal a decree for specific performance and possession is directed, it is not open to the party who loses the matter and prefers an appeal to contend that by reason of such disposal the matter has come to an end and the property had been disposed of in the meanwhile. He stated that such a situation would be nothing but a travesty of justice.

48. Pointing out to the observation of the Madras High Court (Division Bench) in its order on appeal preferred by SSPL in C. P. No. 29 of 1992, he stated that the Madras High Court also had taken cognizance of the continuity of the undertaking given and as such he stated that the undertaking given by SSPL definitely continued when the shares were disposed of by SSPL and this is in clear violation of the undertaking given.

49. On the effect of violation of the undertaking, he stated that once an undertaking is violated then the transaction relating to the undertaking should be set aside and the parties should be restored to the position as stood before the violation. On this proposition he relied on Noorali Babul Thanewala v. K.M.M. Shetty, AIR 1990 SC 464, 468 : "On our finding that there was a breach of the undertaking, we think that a mere imposition of imprisonment or fine will not meet the ends of justice and there will have to be an order to purge the contempt by directing the respondent-contemnor to deliver vacant possession immediately." 50. He also relied on Century Flour Mills Ltd. v. S. Suppiah, AIR 1975 Mad 270 [FB] in which it was held that when a meeting held was in violation of the order of the court (headnote) : ". . . the court will have to put back the parties in the same position as they stood prior to the holding of the meeting. That is not to say that, in doing so, the court interferes with third parties' rights. All that the High Court would do in such circumstances is that since the meeting was prohibited, but all the same it was held in violation of the order of the High Court, it would refuse to recognise the holding of the meeting as a legal one.

The parties are put back in the same position as they stood immediately prior to the service of the stay order of the High Court, which means that the meeting and resolutions passed at that meeting would have no effect whatsoever." 51. He further relied on Smt. Ashrafi Devi v. Satyapal Gupta, AIR 1978 NOC 210 (Cal) wherein when the official liquidator had been injuncted from creating a new tenancy, grant of any tenancy by him would be without authority and as such illegal and, therefore, the court could cancel the lease restoring the parties to possession as if the lease had not been granted. He also cited Clarke v. Chadburn [1985] 1 All ER 211 (Ch D) wherein it was held that (headnote) : "an act done in wilful disobedience of an injunction or court order was not only a contempt of court but also an illegal and invalid act which could not, therefore, effect any change in the rights and liabilities of others." 52. He also relied on a decision of August 12, 1993, in A. S. No. 1404 of 1990 of the Madras High Court ; "Doctrine does not exclude from its purview even bona fide transfers of movable property without knowledge of pending proceedings." 53. Summing up his arguments on this issue, Shri Sarkar stated that the continuation of the undertaking is clear and apparent which has also been observed as such by the Division Bench of the Madras High Court and, therefore, the action of SSPL to transfer the shares was against the undertaking and as such it is illegal and void. Even as per Order 39, Rule 2 of the Civil Procedure Code, 1908, penalty has been provided for violation of an order of injunction and it has been held by the Supreme Court in Mannalal Khetan v. Kedar Nath Khetan [1977] 47 Comp Cas 185 ; AIR 1977 SC 536, that if a penalty is provided in the statute for doing an act such act is void. Therefore, he contended that if an act is void the parties have to be restored to their original position even assuming that the transferees were bona fide purchasers.

54. Replying to the arguments of Shri Sarkar on the violation of the undertaking, counsel for various respondents put forth their arguments as follows : 55. Shri Raghavan's submissions were that the undertaking given in C.P.No. 29 of 1992 was at an interim stage and as such this undertaking would survive only till the disposal of the main petition. Once the final order is passed, the interim order has worked itself into the final order and as there was no recording of this undertaking in the final order, no such undertaking would continue thereafter. On this proposition he relied on C. Kamatchi Ammal v. Kattabomman Transport Corporation Ltd., AIR "All interlocutory or interim orders lapse with the disposal of the suit. Interim injunction being made permanent in the suit for injunction was the only exception." 56. Since the main petition was disposed of in May, 1993, itself and the impugned transfer took place only in 1994, there is no infringement of the undertaking given. The observation of the Madras High Court in its order regarding the undertaking cannot be given any weightage inasmuch as there was no argument on this aspect and as a matter of fact it is not even very clear from that order as to who mentioned this aspect before the court--either respondent No. 15 or respondent No. 5 in those proceedings. He also stated that perhaps this observation of the Madras High Court was made when the learned judges had an occasion to peruse the register of SSPL and noticed that 2,000 shares owned by Bankerpur in SSPL had been sold to two or three other persons and the High Court had never an occasion to consider the sale of GWL shares owned by SSPL.

57. Shri Anil Diwan submitted that GWL was not a party in C.P. No. 29 of 1992 and as such it had no knowledge of the undertaking. Even otherwise the undertaking ceased on May 28, 1993, when C.P. No. 29 of 1992 was finally decided. Therefore, none of the parties in the proceeding had violated any undertaking.

58. Shri Mitra argued that the undertaking which the petitioner has relied on was given by him (Shri Mitra) on behalf of SSPL in C. P. No.29 of 1992 at an interim stage when a prayer was made for restraining SSPL from disposing of the shares of GWL. This undertaking was to be in force only till the final disposal of that petition which was disposed of in May, 1993, and as such this undertaking did not survive afterwards. Even Section 403 of the Act which vests the Company Law Board with the power of passing interim orders specifically states that such order is to be in force only during the pendency of the proceedings. Any interim order containing an injunction or undertaking, unless continued in the final order does not survive after passing of the final order, as decided in various cases as indicated below : "A temporary injunction comes to an end with the passing of a decree. Until further order means till the decree is passed or to a time short of the final order. Existence of an injunction does not render void an alienation made in contravention of the injunction." (b) Tagore Law Lectures on Law relating to Injunction, 1988 edition : "For an injunction which has been granted upon an interlocutory application is superseded by judgment in action. If it is intended that it should remain in force it must be expressly continued." 59. Even assuming that the undertaking was in existence at the time of transfer of shares, it will not affect his clients, viz., respondents Nos. 17 to 19, inasmuch as they were bona fide purchasers without notice of the injunction. The transfer can never be declared void or invalid. No doubt if an order had been passed under Section 250 of the Act, the transfer would have been void but not in the instant case especially when his clients being in the business as brokers purchased these shares for valuable consideration remitted through bank drafts.

Just because there is a feud among other parties, bona fide purchasers should not be made to suffer. The following cases relate to the effect of alienation in infringement of an injunction/undertaking given to the court : "The ordinary rule is that alienation made in contravention of an order of injunction is not void and the existence of a prohibitory injunction does not invalidate an alienation in breach of such order." "A temporary injunction granted under this rule has not the effect of making subsequent alienation of the property void." "Once an interim order is vacated there is no scope for invoking Rule 2A of Order 39 of the Civil Procedure Code for contempt." "A temporary injunction granted under this rule (Order 39, Rule 1) has not the effect of making all subsequent alienation of the property void. He only incurs the penalty provided under Rule 2(3)." (e) Darbari Ram v. Ghulam Farid-Fazal Karim, AIR 1930 Lahore 858 and Kusuma Dei v. Malati Bewa, AIR 1969 Orissa 195 : "A temporary injunction restraining alienation of a house pending decision of a suit for recovery of money does not render a sale void as against the bona fide purchaser for valuable consideration without notice." (f) Sheo Kumar Saxena v. Zila Sahkari Vikas Sangh, AIR 1983 All 180, 182 : "After the temporary injunction has been vacated it cannot be enforced or executed and, therefore, punitive action also cannot be taken after the vacation of the injunction." 60. We have considered the pleadings and arguments of counsel. In an earlier petition filed under Section 397/398 of the Act--C. P. No. 29 of 1992--an interim order was sought from us and in the order dated August 20, 1992, we had incorporated the following paragraph : "As directed in our last order, copies of the minutes of the extraordinary general meeting held at the registered office of the company on July 28, 1992, have been filed by the chairman of the meeting. Shri S.S. Ray, senior advocate, appearing on behalf of the petitioners, pointed out certain developments that have taken place after the filing of the petition and submitted that the company should be restrained, till the petition is disposed of, from issuing any further share capital, from registering any further transfer of shares of the company and also from disposing of the shares held by the company in GWL without the permission of the Company Law Board.

Shri Mitra, senior advocate, appearing on behalf of Shoe Specialities Ltd., stated that the company has already registered transfer of 20,000 shares in the name of Malleswara Finance and Investment Co. Pvt. Ltd. and undertook not to register any further transfer of shares except under the orders of the court or the Company Law Board till the disposal of the petition. He further stated that the company has neither any intention nor proposes to transfer its shareholding in GWL to anyone, In view of this undertaking given by counsel appearing on behalf of the company, we are not giving any directions in respect of the request made by the petitioners." 61. This petition was finally disposed of by us in May, 1993, and this matter went on appeal to the Madras High Court. The Division Bench of the Madras High Court in its order dated September 27, 1994, made an observation as follows : "The petitioners have demonstrated before the Company Law Board as to how they have been oppressed as regards the management and even after the order how they are not allowed to manage the company. We find that in spite of the order of the Company Law Board, the fifteenth respondent has transferred the shares to two or three persons though it has undertaken that it will not transfer the shares to any one." 62. It is the contention of the petitioner that the undertaking recorded by the Company Law Board as given by counsel for SSPL on August 20, 1992, that : "... the company has neither any intention nor proposes to transfer the shareholding in GWL to anyone . . ." is a continuing one and is not restricted by any time limit unlike the other undertaking recorded in the same order relating to registration of any further transfer of shares held in the name of Malleswara which was to be in force only till the disposal of the petition. Therefore, it is claimed that SSPL has acted in violation of the undertaking and as such the impugned transfer should be set aside. It was argued on behalf of the respondents that any interim injunction or undertaking at the interlocutory stage comes to an end with the disposal of the petition. They have also relied on the provisions of Section 403 of the Act which vests the Company Law Board with powers to pass interim orders during the course of proceedings.

63. We are generally in agreement with the arguments of counsel for the respondents. Even the prayer of counsel for the petitioners at the time of recording the undertaking in question in C.P. No. 29 of 1992 was that till the petition was disposed of shares in GWL should be restrained from being disposed of without permission from the Company Law Board. Thus, the prayer has two components, first, to restrain SSPL from disposing of the shares and the second without permission from the Company Law Board, till disposal of the petition. Normally, the seisin of the Company Law Board over any matter comes to an end with the passing of the final order. If we agree with the contention of the petitioners that the undertaking should be deemed to have continued even after disposal of the petition and to be discharged from the undertaking, the Company Law Board should be moved, it means that even after disposal of the petition the Company Law Board would continue to have seisin in the matter till an application for discharge is filed.

This proposition, we are unable to support. Even the intention of counsel for the petitioners in C.P. No. 29 of 1992, when the undertaking was recorded is clear that his prayer itself was restricted only till the disposal of the petition. It is also seen from the main petition of C. P. No. 29 of 1992, that there is no prayer in that petition relating to the impugned shares. Even otherwise, since both of us were also parties to the order of August 29, 1992, we ourselves intended that the undertaking was to remain only till the disposal of that petition. Therefore, considering all these facts, we are of the view that the contention of Shri Sarkar that this undertaking continued to exist till release by the Company Law Board does not hold good.

64. However, we have a different situation in this case. After we passed the final order in C.P. No. 29 of 1992, Malleswara filed a writ petition in the High Court of Madras and some of the respondents in C.P. No. 29 of 1992 also filed appeals in the same court. In the writ petition, a single judge of the Madras High Court stayed our order in C. P. No. 29 of 1992 and no such stay order was passed in respect of the appeals. The writ petition was dismissed on May 10, 1994, while the appeals were pending. These appeals and the appeal on the order of the single judge in the writ petition were heard by the Division Bench of the Madras High Court and all these appeals were dismissed on September 27, 1994. The final result is that the order of the Company Law Board in C. P. No. 29 of 1992 was upheld. Later on, it transpired that a special leave petition taken to the Supreme Court on this matter was not admitted by the apex court. Therefore, under these circumstances, the only question that we have to examine is when the undertaking recorded in our interim order lapsed with the final order, whether it gets revived when the writ petition was dismissed by the Madras High Court. None of the counsel could guide us on this point through any decided case law except Shri Sarkar who relied on Union of India v.Cynamide India Ltd. [1987] 2 SCC 720. This case does not help us in deciding this issue as the facts in that case are different. Therefore, we have to take into consideration the facts and circumstances of the case to come to a decision on this. The main thrust of C. P. No. 29 of 1992 was the issue of shares to the exclusion of two majority shareholders of SSPL which resulted in reducing them from 60 per cent.

holding to 20 per cent. holding in SSPL. It was also a contention in that case that the board of SSPL did not enjoy the support of the majority shareholders. Since the only substantial asset of the company was the impugned shares, protection was sought from us for restraining SSPL from disposing of these shares and on giving an undertaking by counsel for SSPL we recorded the undertaking. Ultimately, when we set aside the allotment of shares in the name of Malleswara, the petitioners' majority status was restored. Normally, interim injunction is given to maintain status quo till the dispute is adjudicated. It is common knowledge of everyone that all the disputes relating to SSPL was only with a view to gain control of the shares held by it in GWL. When we had given certain protection by way of an undertaking with reference to certain properties and when the party in whose favour the injunction is given succeeds, as rightly pointed out by Shri Sarkar, the fruits of success should be available to that party. If the other side, having preferred an appeal, and when the appeal was pending, were to dispose of the property during the pendency of the appeal it nullifies the very benefit which was finally granted by us. In almost all cases cited by counsel for the respondents, it is the party against whom injunction was granted, who succeeded finally. Therefore, we do concede that in equity the interim undertaking given to us should be deemed to have revived with the dismissal of the writ petition. However, we find that, both in writ proceedings as well as in the appeals, the petitioners had actively participated and if they had really desired that the shares in GWL held by SSPL should not be disposed of by SSPL during the pendency of the appeals, as a matter of course, they should have obtained an injunction order from the High Court, which they had failed to do. The petitioners' reliance on the observation of the Division Bench of the Madras High Court regarding the undertaking does not help them inasmuch as none could throw light on the circumstances which led the Madras High Court to make that observation and in what connection. Even otherwise, as has been held in Joyram Dutta v. Padmeswar Dutta, AIR 1994 NOC 258 (Gauhati) and Saaarmal Sharma v. Gajanan, AIR 1994 NOC 382 (Orissa), if an order could be interpreted in two ways and on the basis of one interpretation an action is taken by a party then the party cannot be held to have violated the injunction. In this case, undisputedly the issue whether the undertaking continued or not is a contested one. According to the respondents, with the passing of the final order in C. P. No. 29 of 1992 the interim order gets vacated and on that premise SSPL had taken the decision to transfer these shares.

Therefore, we do not consider that there has been any intentional violation of the undertaking, if at all it had continued after the final order revived with dismissal of the writ petition, by SSPL in transferring the shares. As such this ground taken by the petitioners in challenging the transfer of shares has to fail.

65. On the fourth issue that the sale of the shares would amount to sale of the undertaking, Shri Sarkar stated that the impugned shares were the only assets of the company. Therefore, the provisions of Section 293(1)(a) of the Act are specifically applicable in this case and non-compliance with these provisions would make the sale of the shares illegal and void. He also stated that SSPL sought for splitting up of the share certificate only to avoid coming within the mischief of the provisions of the listing agreement and as such even the request for splitting up the shares was mala fide. In a case where the shares are the only assets of the company and when the validity of the composition of the board of directors has already been questioned in other proceedings in which the judgment have been reserved, it was wrong on the part of the board of directors to take a decision to dispose of the shares. He further stated that the Company Law Board has already held that petitioners Nos. 2 and 3 are the majority shareholders of SSPL and the board of directors does not enjoy the support of the majority shareholders. According to him, the impugned shares definitely constitute an undertaking within the meaning of Section 293(1)(a).

66. Shri Raghavan, dealing with the provisions of Section 293 of the Act stated that these provisions are not applicable in the instant case as shares held by a company in another company cannot be treated as an under-taking and the sale of the shares does not come under the purview of Section 293. No doubt SSPL, even though a private limited company, is a Section 43A-company, the provisions of Section 293 are not applicable in respect of the sale of shares even if the shares formed part of the substantial assets of the company. To differentiate between undertaking and assets, Shri Raghavan relied on the following cases : The sale of shares whatever be their number even if it amounts to transfer of the controlling interest of a company cannot be equated to the sale of any part of the undertaking so as to come within the mischief of Section 293(1)(a).Carew and Co. Ltd. v. Union of India, AIR 1975 SC 2260 ; [1976] 46 Comp Cas 121 : An undertaking is an "enterprise only engaged in the production of goods or supply of services.

(c) Mrs. Bacha F. Guzdar v. CIT [1955] 25 Comp Cas 1 (SC); AIR 1955 SC 74 : Shri Anil Diwan concurred with the submissions of Shri Raghavan and additionally he cited the following cases in support of his proposition that the sale of the shares does not constitute sale of an undertaking to come under the purview of Section 293(l)(a).

(a) Yallamma Cotton, Woollen and Silk Mills Co. Ltd., In re [1970] 40 Comp Cas 466 (Mys) (headnote) : An undertaking is not in its real meaning anything which may be described as a tangible piece of property like land, machinery or equipment; it is in actual effect an activity of man which in commercial or business parlance means an activity engaged in with a view to earn profit.International Cotton Corporation (P.) Ltd. v. Bank of Maharashtra The word "undertaking" means any business or any work or project which one engages in or an attempt as an enterprise analogous to business or trade. The business or undertaking of the company must be distinguished from properties belonging to the company.Rustom Cavasjee Cooper v. Union of India [1970] 40 Comp Cas 325 (SC) ; AIR 1970 SC 564 : The expression "undertaking" clearly means a going concern with all its rights, liabilities and assets as distinct from the various rights and assets which compose it.

67. Shri Mukherjee also concurred with the arguments of the other two counsel and additionally he cited the following cases to argue that the sale of shares does not amount to sale of an undertaking : Baytrust Holdings Ltd. v. IRC [1971] 3 All ER 76 (Ch D) and Brooke Bond India Ltd. v. U.B. Ltd. [1994] 79 Comp Cas 346 (Bom) : 68. We have considered the arguments of counsel. The grievance of the petitioners is that the provisions of Section 293(1)(a) have been violated. It is relevant to extract that provision : "293(1). The board of directors of a public company, or of a private company which is a subsidiary of a public company, shall not, except with the consent of such public company or subsidiary in general meeting,-- (a) sell, lease or otherwise dispose of the whole, or substantially the whole of the undertaking of the company, or where the company owns more than one undertaking, of the whole, or substantially the whole, of any such undertaking ;" 69. According to Shri Sarkar, the violation is that no general body approval was obtained before the sale of the shares which were practically the only assets of the company.

70. SSPL is a private limited company but a deemed public company under Section 43A and, therefore, the provisions of Section 293 are applicable. According to Section 293(1)(a), the sale or disposal of the whole or substantially the whole of the undertaking of the company cannot be done without the approval of a general meeting in the case of a public company. It has also been accepted that this power is exercisable with the prior consent of the general meeting and cannot be taken for granted with the hope that the general body will ratify the action. To this extent, the argument advanced by Shri Sarkar is acceptable. However, the relevance is with regard to-- "either the whole of the undertaking or substantially the whole of the undertaking." 71. Shri Sarkar has not relied on any case law, nor has he refuted any of the precedents cited by counsel for the respondents. The various precedents cited by the respondents' counsel go to show that an undertaking is a comprehensive expression and does not refer to one piece of asset. As observed by Mr. Justice A.N. Ray in Rustom Cavasjee Cooper v. Union of India [1970] 40 Comp Cas 325 (SC) ; [1970] 1 Comp LJ 244 ; AIR 1970 SC 564, as referred to above, "the undertaking meant the entire organisation". It is further referred to as "an amalgam of all ingredients of property and are not capable of being dismembered". It is further stated by the Hon'ble Mr. Justice Ray that "in reality, the undertaking is a complete and complex weft and various types of business and assets are threads which cannot be taken apart from the weft". In other words, an undertaking is the totality of the business and not one of the assets of the company. Mr. Justice D.R. Dhanuka in P.S. Off-shore Inter Land Services (P.) Ltd. v. Bombay Off-shore Suppliers and Services Ltd. [1992] 75 Comp Cas 583 (Bom); [1994] 2 Comp LJ 407, has prescribed a test and has stated as follows (at page 596) : "If the question arises as to whether a major capital asset of the company constitutes the undertaking of the company while examining the authority of the board to dispose of the same without the authority of the general body, the test to be applied would be to see whether the business of the company could be carried on effectively even after disposal of the assets in question or whether the mere husk of the undertaking would remain after the disposal of the assets." 72. If we apply this test in the present case it would transpire that the main business of the company is not to invest in the shares of GWL.

The main object of the company is not even to engage in the business of investing in shares. Consequently, the disposal of these shares would not bring the business of the company to a standstill. Thus, the sale of the shares does not certainly pass through the test prescribed. On going through the memorandum of association we are convinced that the business of the company does not relate to investing money in shares of GWL. We are also convinced that though the main business activity is suspended the pursuit of such business is not ruled out. The sale of the shares also would not mean that the company cannot carry on its business. We note that the board of directors is functioning and the company is alive. We are, therefore, unable to accept the contention of the petitioners that by sale of the shares, the company has parted with any undertaking or even a substantial part of the undertaking of the company and as such we reject the contention of the petitioners in this regard.

Fifth Issue : Violation of the provisions of Section 84(2)(a) and the Companies (Issue of Share Certificates) Rules, 1960 : 73. It is the contention of the petitioners that GWL has violated the provisions of Section 84(2)(a) of the Act on the ground that before issue of duplicate certificates GWL should have satisfied itself that the certificates were proved to have been lost or destroyed. Duplicate certificates can be issued only after such satisfaction. In the present case, it is alleged that GWL was fully aware that the share certificate was with Tracstar. GWL was a party to the proceedings before the Company Law Board in C.P. No. 19 of 1992, wherein the fact of the certificates being with Tracstar was known to it. Even otherwise the letter of SSPL seeking duplicate certificates clearly indicates that the certificate had been taken away by Tracstar. Under these circumstances, GWL should not have come to the conclusion that the certificates had been lost or destroyed and decided to issue duplicate certificates. Even the claim of Tracstar as a pledgee whether rightly or wrongly was known to GWL. Normally, in a case of issue of duplicate certificates, Shri Sarkar stated that, companies do issue advertisements in the form of a notice to call for objections before issue of duplicate certificates and as a matter of fact even in the case of GWL, such notices have been given earlier. Therefore, in the instant case, the company did not resort to this practice only with a view to ensure that the duplicate certificates were issued behind the back of Tracstar with a view to enable SSPL to transfer the shares.

Therefore, issue of duplicate certificates in violation of the provisions of Section 84(2)(a) and consequent transfer of these duplicate certificates should be declared as null and void. He also relied on the definition of the term "lost" as given by Black's Law Dictionary, 6th edition, page 946 ; " 'Lost' : An article is lost when the owner has lost the possession or custody of it, involuntarily and by any means, but more particularly by accident or his own negligence or forgetfulness, and when he is ignorant of its whereabouts or cannot recover it by an ordinary diligent search." 74. Therefore, according to Shri Sarkar, in view of the fact that SSPL as well as GWL were aware of the whereabouts of the certificates, the issue of duplicate certificates on the ground that the original certificate had been lost cannot be allowed.

75. Shri Anil Diwan, counsel for GWL contended that GWL was justified in issuing the duplicate certificates inasmuch as the same has been sought for by the shareholders. According to him, the term "lost" would also imply "a deprivation". He cited Chunni Lal Dwarka Nath v. Hartford Fire Insurance Co. Ltd., AIR 1958 Punj 440 where in the court observed (at page 444) : "The word lost has not a precise, hard and fast meaning. It is a generic and a comprehensive term covering different situations. Loss results when a thing is destroyed but it also is caused when the owner has been made to part with it although the thing remains intact. In this sense lost means and implies 'a deprivation' . . .

When a party is dispossessed of a thing, either when it can never be recovered or when it is withheld from him, he is deemed to suffer loss".East and West Steamship Co. v. S.K. Ramalingam Chettiar, AIR "The word 'loss' as used in paragraph 6 is in our opinion intended to mean and include every kind of loss to the owner of the goods. .

. . Even though there may not have been 'loss of the goods' the goods are lost to the owner".

77. Therefore, Shri Diwan contended that since the owner has lost the possession of the share certificate, he is entitled to seek duplicate shares. He also cited Martab Ali v. Union of India, AIR 1954 Bom 297, wherein the court observed (headnote) : "... that the term 'loss' includes a claim on the footing of non delivery or negligence or wrongful detention or conversion on the part of the railway administration".

78. Therefore, according to Shri Diwan since the original certificates have been wrongfully detained by Tracstar, the certificates should be deemed to have been lost to SSPL. On the same proposition, he also relied on Sialkot Industrial Corporation v. Union of India [1978] Tax LR 1700 (Delhi), wherein the court observed (at page 1704) : ". . . the expression 'lost or destroyed' is used in the generic and comprehensive sense and includes within it the case of loss to the party by pilferage".

79. He also relied on Black's Law Dictionary, 6th edition, at page 945, wherein the term "loss" has been defined as-- "Loss is a generic and relative term. It signifies the act of losing or the thing lost. It is not a word of limited, hard and fast meaning and has been held synonymous with, or equivalent to 'damage', 'damages', 'deprivation', 'detriment', 'injury' and 'privation'.

80. He also drew our attention to the definition of loss as given by Mozley and Whiteley's Law Dictionary, 10th edition, page 278, wherein the term "loss" has been defined : "Loss includes a loss by not getting what one might get, as well as a loss by parting with what one has." 81. Shri Diwan's proposition based on the above citations is that SSPL had been deprived of the possession of the certificates and as such the certificates should be deemed to have been lost and, therefore, its request for duplicate certificates and issuance of the same by GWL are correct within the provisions of Section 84(2). He also stated that there is nothing in the statute, that, before issuing duplicate certificates, any notice or advertisement should be issued. May be that the company has done so in a few cases, yet there is no mandatory provision in this regard. As long as the company is satisfied that the certificates have been lost, it has the power to issue duplicate certificates.

82. We have considered the arguments of counsel. As far as this issue is concerned, one has to look into the real purport and the objective of Section 84(2)(a). Section 84(2)(a) is as follows : "A certificate may be renewed or a duplicate of a certificate may be issued if such certificate 83. This provision was inserted in the Companies Act, 1956, on the recommendations of the Companies Act Amendment Committee. The amendment was to prevent fraudulent dealing in duplicate shares. Sub-section (3) also provides for penal action in the case of a company issuing duplicate certificates with fraudulent intention. The meaning of the word "lost" as used in this sub-section has to be interpreted in the sense it has been used. Once a duplicate certificate is issued, the original certificate would become extinct. To ensure that the rights of the holders of original certificates are not defeated by issue of duplicate certificates, the Legislature has provided that the originals should be proved to have been lost or destroyed. As long as the whereabouts of the certificates are known, then the same cannot be deemed to have been lost within the meaning of this sub-section. The various case law cited by Shri Diwan related to claim of compensation and the terms "loss" or "lost" were interpreted by the courts with reference to their use in particular statutes. In the present case, GWL is fully aware of the whereabouts of the certificates if not on its own, but the letter requesting for the duplicate certificates itself indicates that the share certificate was with Tracstar. It is also seen that the company itself has been in the practice of issuing public notices whenever duplicate certificates are sought. This is rightly so in public interest as shares of listed companies are freely transferable. Once a genuine investor comes to hold the shares, complications would arise if original and duplicate certificates co-exist in the market. So as a measure of adequate precaution public notice and information to stock exchanges are given. This is all the more important when a substantial chunk of shares is involved. No company can afford to take these precautions lightly as happened in the present. The very fact that GWL is aware of the whereabouts of the certificates, at best, it could have issued a notice to Tracstar before issuing the duplicate certificates inasmuch as Tracstar having possession of the certificates may have to say something about its right be those shares. Therefore, we are in agreement with the submission of Shri Sarkar that duplicate certificates have been issued in this case without proper ascertainment of the loss of original certificates and we also feel that in the facts of the case, the issue of duplicate certificates is irregular being not in conformity with the provisions of Section 84(2) of the Act.

84. In regard to violation of the provisions of the Companies (Issue of Share Certificates) Rules, 1960, Shri Sarkar stated that the issue of duplicate certificates is governed by Rule 4(3) of the Rules, according to which no duplicate certificates should be issued in lieu of those lost or destroyed without the prior approval of the board. According to the definition of board as provided in Rule 3(b), "board" means the board of directors of the company or a committee thereof consisting of not less than three directors where the total number of directors exceeds six and not less than two directors when the total number does not exceed six. In the present case, the issue of duplicate certificates was authorised by a committee consisting of only two directors and, therefore, the provisions of Rule 4(3) have been violated inasmuch as the board of directors of the company has more than six directors. He also stated that even for holding a board meeting in this company, the quorum has to be three. What a board of less than three cannot do in a board meeting, a committee of less than three cannot do the same, he stated. In other words, according to him, Rule 3(b) of the Rules prescribes the quorum itself as three for the issue of certificates.

85. This argument of Shri Sarkar was rebutted by Shri Anil Diwan on the ground that these Rules do not fix a quorum. The board which constituted the committee is competent to fix the quorum and it had fixed the quorum of two members for a meeting of the committee. Since the two members of the board who approved the issue of duplicate certificates were members of the committee constituted for this purpose by the board of directors, they were competent to approve the issue of duplicate certificates. On this proposition, he relied on Punjab University v. Vijay Singh Lamba, AIR 1976 SC 1441, wherein the Supreme Court held (para 7) : "Quorum denotes the minimum number of members of any body of persons whose presence is necessary in order to enable the body to transact its business validly so that its acts may be lawful. It is generally left to the committee themselves to fix the quorum for their meeting and if it is not fixed by the authority which constitutes it, then it is competent for the committee to fix the quorum to devise its day to day procedure." 86. According to Shri Anil Diwan, when this committee was constituted by the board, the board itself fixed the quorum as two and, therefore, the decision taken by this committee is valid. He also relied on Upendra Kumar Joshi v. Kesoram Industries and Cotton Mills Ltd. [1983] 54 Comp Cas 1 (Patna) [FB] and Upendra Kumar Joshi v. New Victoria Mills Co. Ltd. [1986] 59 Comp Cas 798 (Patna) [FB] to state that : "A Bench of the court does not mean the full court. A Bench of the High Court with regard to an appeal from a judgment or order of a single judge means a Division Bench and such an appeal shall lie before a Division Bench and not a full court." 87. He further stated that the Rules should be read as they are and the court or Tribunal cannot supply any omission in the Rules. According to him, the Rules only say that the committee should have three directors and it does not say anything on quorum unlike some of the sections in the Act itself where specific mention of quorum has been made. In such a situation, a plain reading of the Rules would indicate that when the board constituted the committee, the number of members in the committee should be three which has been satisfied as far as GWL is concerned.

With regard to the quorum, the board of directors has already fixed it as two. Therefore, there is absolute compliance with the provisions of these two rules, he stated. To the proposition that the court or Tribunal cannot supply any omission, he relied on Union of India v.Deoki Nandan Agarwal [1992] Suppl. 1 SCC 322, at para 14, wherein the Supreme Court observed (at page 332) : "It is not the duty of the court either to enlarge the scope of the legislation or the intention of the Legislature when the language of the provision is plain and unambiguous. The court cannot re-write, recast, or reframe the legislation for the very good reason that it has no power to legislate. . . The court cannot add words to a statute or read words into it which are not there. . . The court shall decide what the law is and not what it should be."P.K. Unni v. Nirmala Industries, AIR 1990 SC 933, and also on Smt. Hira Devi v. District Board, AIR 1952 SC 362, wherein the court observed : "No doubt it is the duty of the court to try and harmonise the various provisions of an Act passed by the Legislature. But it is certainly not the duty of the court to stretch the word used by the Legislature to fill in gaps or omissions in the provisions of an Act." 89. The Certificates Rules were issued in the year 1960 as recommended by the Joint Committee. Prior to the issue of these rules, certificates could be issued only under the authority of the board. The rules now provide that a committee of the board of directors can also approve issue of certificates. Now, the question that has been raised is whether the terms "committee thereof consisting of not less than three directors" denotes the quorum of three or the board while constituting a committee consisting of three or more can fix the quorum with less than three directors. While the contention of Shri Sarkar is that the rule itself has fixed the quorum, according to Shri Diwan it has not.

90. We feel that the case law relied on by Shri Diwan are not applicable in the present case. Section 287 of the Act prescribes the quorum for meetings of the board of directors according to which the quorum for a board meeting, if there are more than six directors in the board, will be three. The Companies (Issue of Share Certificates) Rules, 1960, defines a board as board of directors of a company or a committee thereof consisting of not less than three directors where the total number of directors exceeds six and not less than two directors, where the total number does not exceed six. If the contention of Shri Diwan is to be accepted that once a committee is constituted with three or more than three directors, then the board itself can fix its quorum to transact business under these rules, then there is no need for the rules to define a board as in every company there are committees to transact various businesses as approved by the board as provided in Schedule I, Table "A" of the Act. A view is also taken in Fireproof Doors Ltd., In re [1916] 2 Ch. 142, that in view of the words used-- "such member or members" in Article 77 of Table "A", it is possible for the board to delegate its powers to a committee consisting of even a single member. Even in the case cited by Shri Diwan, Punjab University v. Vijay Singh Lamba, AIR 1976 SC 1441, 1444, the Supreme Court held that : "... if by law such a tribunal must consist of three members there is no jurisdiction in the tribunal to fix a smaller quorum for its sittings." 91. In this case, the syndicate of the University had, as per Regulation 31, the powers to appoint a standing committee to deal with the case of the alleged misconduct and use of unfair means in the conduct of the examinations. The Regulations did not contain any provision relating to the number of members of the standing committee nor its quorum. When the syndicate appointed the standing committee, it also fixed the quorum. The Supreme Court held : "We are unable to see any valid reason for which the fixation of quorum for the meetings of a committee appointed by the syndicate can be said to be beyond the powers of the syndicate. It is wholly inappropriate in this connection to draw on the constitution of judicial Tribunal as a parallel." 92. From the above, it is clear that when the rule itself has stated that a board for the purpose of issue of certificates would also include a committee with three members, it has to be taken as a quorum and there cannot be any valid authority of the board of directors to fix a quorum of less than three. Upendra Kumar Joshi v. New Victoria Mills Co. Ltd. [1986] 59 Comp Cas 798 (Patna) [FB] relied on by Shri Diwan has no relevance to the present issue. Here we would also like to follow the same proposition of law relied on by Shri Diwan that it is not the duty of the court either to enlarge the scope of the legislation when the language of the provisions is plain and unambiguous. For us, it is crystal clear that the rule, as it is, definitely stipulates that the quorum of the committee should be three directors and there is no scope to interpret it in any other manner.

Accordingly, we hold that the issue of duplicate certificates in this case by a committee consisting of less than three members is not in accordance with the Companies (Issue of Share Certificates) Rules, 1960. Having held that such duplicate certificates have been improperly issued, we should ensure that once again both the original and duplicate certificates do not co-exist. This will be taken care of appropriately at the time of considering the reliefs.

93. Shri Sarkar stated that from the facts and circumstances of the case, it is apparently clear that the name of SSPL was removed from the existing register of members "without sufficient cause" and on this account alone the Company Law Board should order rectification of the register of members. In addition, he stated from the circumstances of the case, it would also be clear that even the consequent entry of the names of respondents Nos. 17 to 19 should also be treated as "without sufficient cause". As far as SSPL is concerned the removal of its name is invalid not only on its violation of the undertaking and also the violation of the provisions of Section 84(2) but also on the ground that the transfer is mala fide done by a board which did not enjoy the support of the majority shareholders. He stated that in a petition before the Company Law Board in C.P. No. 44 of 1993 a prayer has been made to supersede the then existing board of directors of SSPL and when the judgment had been reserved, all those directors were made to resign from the board and new directors and employees of SWC were inducted on the board on June 1, 1994. Immediately thereafter, within a period of one week, all the shares were transferred with the active collusion of GWL and even the consideration received in respect of the shares was utilised to clear certain debts of SSPL to GWL. He also stated that various facts which are apparent from the records produced during the hearing like the share transfer forms, the minutes of the board meetings of SSPL and GWL and also the affidavits filed by respondents Nos. 17 to 19, all would indicate that but for the collusion which has to be inferred directly from the circumstances, among SSPL, GWL and the transferees, the impugned shares could have never been transferred within such a short period. He also stated that when the judgment of the Company Law Board in C.P. No. 44 of 1993 had been reserved, at least the board should have waited till the receipt of the order and as a matter of fact in that order itself, even though received after the transfer of the impugned shares, a specific direction has been given that the board shall not take any decision except relating to the proposed extraordinary general meeting. According to him, this order itself shows the protective intent of the Company Law Board with regard to the majority shareholders. Under these circumstances, Shri Sarkar prayed that the transfer be declared null and void and SSPL's name be entered in the register of members.

94. Shri Raghavan stated that the transfer by SSPL was bona fide. The prayer for rectification has been made by the petitioners only with an oblique motive and the petitioners have not been able to establish except making allegations, that there has been collusion between the various parties and the transfers were mala fide. The entire consideration received in respect of these shares was utilised for clearing the liabilities of SSPL and, therefore, it was beneficial to the members of not only SSPL but also GWL. Tracstar being a member of GWL can on no account have any grievance when a substantial amount of money has been received by GWL from SSPL. Therefore, Tracstar's claim to have been prejudicially affected by the transfer as a member of GWL has to be ignored. As far as the other petitioners are concerned, the sale of shares was a genuine transfer for adequate price which has been realised and applied to meet the liabilities of SSPL. Therefore, for collateral purposes, the majority shareholders of SSPL cannot invoke provisions of Section 111(4) for seeking rectification on the ground that the transfer was without sufficient cause.

95. Shri Anil Diwan stated that as far as GWL was concerned, the transfer committee had before it, duly completed transfer instruments along with the share scrips and, therefore, as a listed company it was bound to register the shares which it did. Therefore, to allege that the registration of transfer was done without sufficient cause does not hold good. Shri Mukherjee also concurred with the arguments of other two counsel.

96. Shri Mitra stated, that his clients, respondents Nos. 17 to 19 were bona fide purchasers of the impugned shares. The transfer deeds in respect of the impugned shares were executed on June 6, 1994, by his clients and the payments towards consideration were made by demand drafts on June 7, 1994, and the shares were registered by GWL on June 8, 1994. These purchases were made by his clients in the normal course of their business and in good faith. These respondents-transferees who are normally dealing in shares have substantial business of their own.

They have purchased these shares with their own money. It is not uncommon in business that substantial amounts are invested in litigated properties with a view to obtain long term gains. Even assuming that there have been disputes between the petitioners and the respondents, his clients, being bona fide purchasers cannot be affected by any order of the Company Law Board. Therefore, he stated, that, as far as his clients are concerned, the transfers have been effected validly in favour of them bona fide for valuable consideration and, therefore, the allegation that their names have been entered "without sufficient cause" does not stand.

97. Before we deal with this issue, it is essential to narrate certain other facts. There has been an ongoing fued in the family of the Chhabrias. The control of GWL has been-one of the very contested issues between the KRC group and the MRC group. While MRC is trying to retain control of GWL, KRC is also trying to gain control. The undisputed shareholding of the KRC controlled companies (even though it is reported to be a contested issue) and the MRC controlled companies in GWL is about 25 per cent. each. The KRC group acquired about 7 per cent. shares of GWL which were refused for registration by GWL. The impugned shares consisting of about 13 per cent. are extremely important for both the groups. The control of this 13 per cent. could be gained by controlling SSPL in which name these shares were held prior to the transfer. There was an attempt by the MRC group to convert the majority holding of KRC's companies in SSPL to a minority by issue of 20,000 additional shares to one of the companies under the control of MRC. This issue was challenged before us in C. P. No. 29 of 1992 and we set aside the issue and as such the majority control of SSPL continued to be with the KRC group. The board of directors of SSPL has all along been controlled by employees of SWC who owe allegiance to MRC. Our order in C. P. No. 29 of 1992 was challenged in the High Court, Madras, as well as in the Supreme Court which upheld our decision. The order of the Single Bench of the Madras High Court was delivered on May 10, 1994 (see [1994] 81 Comp Cas 66 (Mad)). The KRC group also filed another petition before us in C.P. No. 44 of 1993 regarding reconstitution of the board of directors in SSPL. We had reserved the judgment in this petition with the stipulation that our order would be released after the order in the appeal before the Madras High Court in C. P. No. 29 of 1992 was delivered. The entire episode relating to the transfer of the impugned shares took place on dates between receipt of the order of the Madras High Court (Single Bench) and our order in C. P. No. 44 of 1993.

98. Now, we revert back to the issue relating to rectification. This petition has been filed under Section 111(4) of the Act seeking rectification of the register of members. According to this section,-- (i) is, without sufficient cause, entered in the register of members of a company, or (ii) after having been entered in the register, is without sufficient cause, omitted therefrom ; or (b) default is made, or unnecessary delay takes place, in entering in the register the fact of any person having become, or ceased to be, a member (including refusal under Sub-section (1)), the person aggrieved, or any member of the company, or the company may apply to the Company Law Board for rectification of the register." 99. The question therefore is whether the grounds on which the petition has been filed can lead us to hold that GWL omitted the name of SSPL from the register of members without sufficient cause and entered the names of respondents Nos. 17 to 19 in the register of members. The allegations of the petitioner in this case are three-fold, i.e., against SSPL ; GWL and the transferees. They have alleged collusion between GWL and SSPL and they have also alleged that the transfer is not bona fide and has been done only with the view to ensure that the majority shareholders of SSPL do not have any control over the impugned shares. It has also been alleged that the transfers are not only mala fide but also against the provisions of law and against the undertaking given before the Company Law Board. On these grounds the alteration in the register of members has been alleged to be "without sufficient cause." 100. On a consideration of the provisions of the Act it is within the competency of the Company Law Board to decide whether the impugned transfers are invalid in view of the provision of law or fraudulent and mala fide and whether on account of these facts the transfers are a nullity. If these allegations are to be proved then there is absolutely no doubt that the transfers are invalid and the purchaser will not get any title and we can direct the rectification of the register of members.

101. Rectification has been sought on the basis of the various allegations against SSPL, GWL and the transferees. As far as SSPL is concerned, we have already held in the earlier paragraphs that it has not violated the provisions of Section 293 and also the undertaking given before us in C.P. No. 29 of 1992. Therefore, the remaining grounds against SSPL that the board has been illegally constituted and that the decision to transfer the shares was mala fide alone remain to be considered. As far as the allegation against GWL is concerned, we have already held that not only have the provisions of Section 84(2) not been complied with but it has also not complied with the provisions of the Issue of Certificate Rules.

102. The board of SSPL was reconstituted with effect from June 1, 1994, i.e., after the receipt of the judgment of the single judge of the Madras High Court dismissing the writ petition filed by Malleswara (see [1994] 81 Comp Cas 66 (Mad)). With this dismissal, Malleswara's name had to be removed from the register of members of SSPL resulting in petitioners Nos. 2 and 3 becoming the majority shareholders of SSPL.

This order was apparently received some time during the third week of May, 1994. As could be seen from the minutes of the meeting of the board of directors of SSPL, in its 41st board meeting held on June 1, 1994, six new persons were appointed as additional directors and the resignations of three directors of the earlier board were accepted. In that meeting, only two directors of the earlier board, viz., Mr. M.S.K.Eswaran and Shri Ramani were present. No other business was transacted in this meeting. The next meeting of the board was held on June 2, 1994, in which resignation of Mr. Eswaran as director was accepted and Mr. Sriram was appointed as additional director. In this meeting, only those who were appointed as additional directors on June 1, 1994, and Mr. Sriram were present. In this meeting the decision to obtain duplicate certificates in respect of the impugned shares from GWL was taken and also it was decided to apply for sub-division of the share certificates into three different lots of 1.75 lakhs ; 1.75 lakhs and 1.50 lakhs was taken. In the 43rd meeting held on June 3, 1994, it was decided to dispose of these three lots at the best available market price but at a price not below Rs. 12.75 per share.

103. Later, on June 8, 1994, in another board meeting of SSPL, it was decided, out of the sale consideration received, to pay off the dues of Gordon Woodroffe Agencies Private Limited amounting to Rs. 22.19 lakhs as per the letter dated June 1, 1994, received from this agency. This was to be settled by payment to GWL towards part settlement of dues of the agencies to GWL. It was also resolved that another sum of Rs. 33.18 lakhs was to be paid to GWL towards the admitted liabilities. The balance amount of Rs. 10.65 lakhs was also resolved to be invested in GWL as inter-corporate deposits at 18 per cent. interest per annum.

104. Admittedly, the only valuable assets held by SSPL at this time were the impugned shares. In the resolution dated June 2, 1994, there was nothing to indicate the urgency for disposal of these shares. The minutes do not contain any details as to the need for funds of the company and as a matter of fact the company was not carrying on any business at that time. Even the members of the board who took office only on June 1 and 2, 1994, could not have appraised the working of the company to decide to dispose of the only valuable assets of the company. Even though in the resolution dated June 8, 1994, a letter from Gordon Woodroffe Agencies Private Limited dated June 1, 1994, was reported to have been placed, this was not reflected in June 2, 1994, resolution to indicate the need for funds. The decision to dispose of the shares was taken on June 3, 1994, even before GWL agreed to split and issue duplicate certificates. It is also worth noting that the stamp paper on which the indemnity to obtain duplicate certificate was executed, was bought on June 1, 1994, itself as per endorsement thereof, when the decision to obtain duplicate certificate was taken only on June 2, 1994.

105. The other features as far as SSPL is concerned are that it has not furnished in its reply as to how it happened to negotiate with the particular transferees, whether there was any exploration regarding other willing purchasers etc. Even in the board meeting held on 8th there is no mention as to at what price and to whom the shares were sold except mentioning the figure of the total consideration received.

It is also strange to find that a decision to split the certificate into 3 lots was taken on June 2, 1994. The reasoning for 3 lots is not explained and ultimately it has transpired that sale was made to three different parties. Therefore, it gives rise to a strong presumption that the entire deal has been negotiated much earlier to the date of decision to dispose of these shares without which the whole transaction could not have been completed precisely within such a short period. If we peruse the copies of the minutes books of SSPL filed at the hearing, it is seen that the 33rd meeting of the board took place on December 9, 1992 ; 34th on December 29, 1992 ; 35th on February 22, 1993 ; 36th on May 24, 1993 ; 37th on July 15, 1993 ; 38th in September, 1993 ; 39th on December 1, 1993 ; 40th on March 29, 1994. However, between June 1, 1994, and June 8, 1994, there were four board meetings. The business transacted in these meetings has already been indicated earlier. A board of a company which was meeting on an average once in two months suddenly decided to hold four meetings in a period of eight days. The subject in all the last three meetings was the "impugned shares". We should also look into another fact that one of the transferees has also been taken on the board of directors of GWL recently. Under these circumstances, we have no hesitation to come to the conclusion that the act of SSPL in disposing of the impugned shares has not been bona fide and had been done with some ulterior motive which is apparent. With the dismissal of the writ petition, the MRC group's attempt to control SSPL had failed and it is not unlikely that the decision in C.P. No. 44 of 1993, would remove SWC employees from the board of SSPL. The only way to prevent the KRC group gaining control of the SSPL board from controlling the impugned shares is by transferring them. Therefore, the new board of SSPL consisting of employees of SWC controlled by MRC not only transferred the shares but also benefitted GWL by payment of its dues. This we are noting only because, it is on the record of SSPL in their annual report, that the funding for purchase of the impugned shares, was provided by Tracstar and if the sale had been bona fide the amount of consideration received should have been applied to dispose of the dues of Tracstar and not GWL.

106. The role of GWL in this episode also shows lack of probity and fairness. We have already held that the issue of duplicate certificates by a committee consisting of 2 directors did not satisfy the requirements of provisions of the Companies (Issue of Share Certificates) Rules, 1960, on the ground that there should have been at least three directors in the committee to constitute the quorum. It is an established principle of law that any decision taken by any forum without proper quorum is invalid and non-est. Therefore, in law, the duplicate certificates issued on the basis of the decision taken in a meeting without quorum has to be treated as non est. If it is so, one of the primary contentions of the petitioners that the transfer was in violation of Section 108 of the Act in the sense that share certificates did not accompany the transfer would also become relevant.

However, if we consider that the company has been in the practice of issuing duplicate certificates on the basis of the decision taken by a committee of consisting of only two directors all along and it has not been done in isolation only in this case, we might have been persuaded not to treat it as an invalid act but considering the fact that the issue of duplicate certificates itself has otherwise been vitiated by not following the provisions of Section 84(2)(a) of the Act in the sense that GWL had grossly erred in not establishing the fact regarding loss of certificates as the letter seeking the duplicate certificates had itself clearly mentioned that the certificates are with Tracstar, we are unable to do so. If the committee bona fide considered that it was necessary to issue duplicate certificates, it should have, in our opinion, at least issued a notice to Tracstar. GWL has obviously not done so only with the view to defeat the alleged rights of Tracstar, whatever it might be, justified or not and also to facilitate SSPL to dispose of these shares. Without duplicate certificates, SSPL could have never dealt with the shares as it did. The speed with which GWL acted in this matter also has some relevance.

107. Even assuming that SSPL sent its request for duplicate certificates on the same date of taking the decision, i.e., on June 2, 1994, the transfer committee of GWL considered the matter within the next two days, i.e., on the fourth itself. In this connection, it is worth noting that during the arguments, Shri Sarkar pointed out to us that in a similar case seeking duplicate certificates by Sanman Distributors Pvt. Ltd., GWL decided to issue a public advertisement.

The hurried manner in which GWL not only took the decision to issue duplicate certificates and also arranged to issue the duplicate certificates within such a short time to enable SSPL to deal with the same could not be considered as a normal practice but an exceptional one the reasons for which were not explained. The conduct of GWL in registering the transfer on June 8, 1994, especially when the transferees have through affidavits confirmed, that they had executed the transfer deeds only on June 7, 1994, at Calcutta and Hyderabad looks like a fairy tale.

108. The resolution dated June 8, 1994, by GWL looks as if it was a routine matter even though it involved a substantial percentage of shares. In the rejoinder filed by petitioner No. 1 it has been brought out that in the case of Trident which lodged the transfer instruments in respect of 6.72 per cent. shares, the board of GWL took seven weeks to consider the same. But in the instant case as per the averments by the transferees, transfer documents were executed by them only on June 6, 1994, at Hyderabad and Calcutta. They could have reached Madras only either on June V or 8, 1994, and the share transfer committee of GWL registered the transfer on June 8, 1994, itself. It is a fact that Tata Consultancy Ltd. are the transfer agents of the company. Normally, in such cases it is the transfer agents who received the transfer instruments and after ensuring that the instruments are proper and with proper signatures of the transferors, forward the same to the company for consideration. In this case, obviously, this has not been done as no details as to how and when and by whom the completed documents were received for registration of transfer by GWL even though SSPL has stated that it had lodged the transfer instruments with GWL.

109. It has also to be borne in mind that GWL is a listed company and when substantial percentage of shares came up for transfer, the board normally applies it mind. The GWL board itself did so in respect of 6.73 per cent. shares lodged by Trident for transfer. The board refused to register the shares under Section 22A of the Securities Contracts (Regulation) Act, 1956. While we are not expressing any opinion as to the claim of Shri Sarkar that in a listed company the transfer of shares can be considered only by the board of directors and not by a committee, in this particular case when a substantial percentage of shares was involved, if the committee itself had decided to approve registration of transfer without reference to the board, then obviously the committee should have either taken the tacit prior approval of the board or it should have been satisfied that the persons acquiring the shares are friendly to the board of directors. This decision of the committee to transfer the shares within alleged two days of lodgment supports the stand of Shri Sarkar that there has been an understanding/collusion between SSPL ; GWL and the transferees. This inevitable inference has to be drawn from the sequence of events and there is no escape. This inference gets strengthened by other facts and circumstances and documents produced before us during the hearing. SSPL had executed the transfer deeds on June 3, 1994, as is evident from the deeds where one Shri Ramachandran had attested the signature of a director of SSPL as transferor wherein Shri Ramachandran has dated his signature as June 3, 1994. These transfer deeds also contain the corresponding certificates numbers. But the decision to issue duplicate certificates with those corresponding numbers was taken by GWL only on June 4, 1994. As already stated, it is also not clear as to why SSPL should seek to split certificates in the denominations it had sought unless otherwise there has been some reasons for the same as rightly pointed out by Shri Sarkar, perhaps to avoid coming within the mischief of the provisions of Section 40A and 42 of the listing agreements and it had already contacted purchasers for the said number of shares. It is also worth noting that respondents Nos. 17 to 19 filed two affidavits. While in the first affidavit there were no details about the dates of transaction, in the supplementary affidavit, the dates of transactions have been noted. We find contradictions in the affidavits of SSPL and affidavits of these respondents relating to the dates of transfers. According to SSPL it lodged the transfer forms with GWL on June 6 and 7, 1994, while according to respondents Nos. 17 to 19, the transfer forms were executed on June 6, 1994, at Calcutta by respondents Nos. 17 and 18 and at Hyderabad by respondent No. 19 on June 6, 1994. All have stated that the consideration was remitted through demand drafts dated June 7, 1994.

110. In this connection it is worth referring to the decision of the Calcutta High Court in Turner Morrison and Co. Ltd. v. Shalimar Tar Products (1935) Ltd. [1980] 50 Comp Cas 296 (Cal). The facts of that case are more or less similar to the instant case before us. In that case, Turner Morrison held certain shares in 3 companies. Haridas Mundhra got control over this company and appointed his own nominees on the board of directors. However, later he lost control over the company and in a general meeting new directors were elected on the board. He lost control over the company as a result of certain proceedings in the Supreme Court. During the arguments of the proceedings before the Supreme Court, apprehending that proceedings may go against him, he, through his nominees on the board manipulated sales and transfers of the shares in these three companies held by Turner Morrison. Later Turner Morrison, with a new board of directors, challenged these transfers on various grounds, one of the grounds being that board of directors holding fiduciary position in the nature of trustees for the benefit of the company had acted in breach of trust. The other grounds were that the shares had been sold at grossly deflated price, that there was no urgent necessity for selling these shares, that the sales were approved hastily without issuing proper and reasonable notices, that there was no advertisement or any sort of publicity for sales of the shares so that the company might get the highest bid from the purchaser, that there was no evidence as to why only the purchasers were approached for sale and whether any other parties were also approached, that the sale was made only to cripple the company thus causing great damage to the company and that the sale was against the provisions of Section 13 of the Securities Contracts (Regulation) Act, 1956. The court upheld all these arguments and finally declared the transfer fraudulent, illegal, void and a nullity and directed the rectification of the register of members. While doing so, it made the following observation (at page 331) : "The evidence of fraud cannot be tangible and perceived. The fraud can be proved by facts and circumstances and as such conceived. It is a matter of reasonable inference. The actions of Haridas Mundra with regard to the majority shares of the petitioner company through litigations and ultimately his failure, have an important bearing in this case. His son, B.K. Mundra, was very much active to take away a valuable portion of the assets of the petitioner company in the shares which were sold causing great loss to the petitioner company when the attempts of Haridas Mundra to get the shares through litigations failed, I, therefore, find without the least hesitation that the sales or transfers of shares.. . fraudulent, illegal, void and a nullity." 111. It is apparent from various proceedings before us, that both MRC and KRC are trying to outwit each other, MRC to keep control of GWL and KRC to gain control of GWL. In the process all canons of equity, fair play and provision of law are thrown to the winds. Admittedly, both the old as well as new sets of board of directors of SSPL were/are employees of SWC and under the control of MRC. GWL is also under the control of MRC. As has been observed in Turner Morrison and Co. Ltd. v.Shalimar Tar Products (1935) Ltd. [1980] 50 Comp Cas 296 (Cal), the board of directors of SSPL, deviating from their fiduciary position, decided to act against the interests of the majority shareholders of SSPL, with the active co-operation of GWL. Without such active co-operation and pre-arrangement between the two, these transactions could neither have been conceived, planned nor implemented with such fine tuning. Here the observation of the Calcutta High Court in Turner Morrison and Co. Ltd. v. Shalimar Tar Products (1935) Ltd. [1980] 50 Comp Cas 296 becomes relevant that (at page 331) : "The evidence of fraud cannot be tangible and perceived. The fraud can be proved by facts and circumstances and as such conceived. It is a matter of reasonable inference." 112. We may not use such strong terms but the facts and circumstances in this case clearly establish that the action of SSPL in transferring the shares was not at all for bona fide reasons and GWL facilitated the same by issue of duplicate certificates and by registering the transfers in violation of the provisions of law. The action of SSPL has also to be viewed from another angle. There was a pending proceeding before the Company Law Board in C.P. No. 44 of 1993, in which judgment had been reserved pending finalisation of the proceedings in the writ petition before the Madras High Court. The judgment in the writ petition was delivered on May 10, 1994, dismissing the writ petition (see [1994] 81 Comp Cas 66 (Mad)). Our order, therefore, would be available at any time thereafter. Therefore, the action of SSPL without waiting for our order in C.P. No. 44 of 1993, in transferring the shares makes us believe that it was done only with a view to pre-empt the effect of any adverse decision in C.P. No. 44 of 1993. Thus, the circumstances in this case are similar to the one in Turner Morrison and Co. Ltd. v. Shalimar Tar Products (1935) Ltd. [1980] 50 Comp Cas 296 (Cal).

113. Thus, considering all the facts and circumstances of the issue, we have to perforce come to the conclusion that the name of SSPL was omitted from the register of members of GWL ..without sufficient cause, the transfer being not in the interest of SSPL, not for a bona fide purpose but for a collateral purpose by a board not elected by the support of majority shareholders and facilitated by GWL by issue of duplicate certificates against the provisions of law.

114. Now that we have come to the conclusion that SSPL's name has been omitted without sufficient cause, even in the case of bona fide purchasers for valuable consideration, we can order their removal by suitably protecting their interests. We had directed the impleading of these transferees and in fact they filed two affidavits-one as reply to the petition and another one as reply to the rejoinder filed by the petitioners on their reply. According to them, they are bona fide purchasers for valuable consideration and as such they should not be affected by any rectification of the register of members. As rightly pointed out by Shri Sarkar the fact that GWL is a sick company and is under the purview of the BIFR and is widely published and the transferees being members of stock exchanges must have been aware of the same, even assuming that they were not aware of the disputes relating to SSPL and various orders passed by us. The amount involved in the purchase of these impugned shares by each of them is fairly substantial and as a matter of fact respondents Nos. 17 and 18 are the partners of the same firm. Even though it was stated that for long-terms gains, these transferees had purchased the shares, we are doubtful that any prudent person, that too a member of the stock exchange would invest a large sum of money in the shares of a sick company like GWL in his own name. The sequence of events which we have indicated repeatedly and also the fact that the share transfer committee of GWL even without going to the board of directors would approve the registration of transfer of such a large percentage of shares which would tilt the management, leads us to the view that investment as such had not been made for bona fide purposes but for some collateral purpose to aid MRC to keep control over the shares, with the active co-operation among GWL and SSPL and transferees. It is also on record that later one of the transferees has been taken on the board of GWL.

115. Under these circumstances, we are of the view that the transferees have not been able to establish their bona fides in purchasing these shares in the normal course of their business. As we have already held that the name of SSPL has been omitted without sufficient cause, the natural corollary would be that its name should be entered in the register resulting in the removal of names of the transferees from the register of members. In this case, it has been fully established that the bona fides of the transferees in purchasing the impugned shares is questionable and as such their prayer that their names should not be removed from the register of members cannot be considered.

116. Taking into consideration all facts and circumstances, we hereby direct that the names of respondents Nos. 17 to 19 be removed from and the name of SSPL be entered in the register of members of GWL within 10 days from the date of receipt of this order. However, since the transferees have paid consideration for purchase of these shares, we feel that it is just and equitable that their interest should be protected. Therefore, we also order that SSPL will pay to respondents Nos. 17 to 19 either the consideration that they had paid for these shares or the prevailing market price on the date of payment towards these shares whichever is higher. This fully protects the interest of respondents Nos. 17 to 19 who are in the business of dealing in shares.

Till such time the amount is paid, even though the name of SSPL will be entered in the register of members in pursuance of this order, it will not exercise any voting rights in respect of these shares nor it will transfer these shares to anyone else and GWL will also not register any transfer during this period. Since we have held that the issue of duplicate certificates was not in order we also direct that with the removal of the names of respondents Nos. 17 to 19 herein, the duplicate certificates will be surrendered by them to GWL which shall cancel the same.