# SMT. CLAUDE-LILA PARULEKAR v. MIS. SAKAL PAPERS PVT. LTD. AND ORS

- **Citation:** [2005] 2 S.C.R. 1063
- **Court:** Supreme Court of India
- **Decided:** 2005
- **Bench:** Ruma Pal, P. Venkatarama Reddi
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/smt-claude-lila-parulekar-v-mis-sakal-papers-pvt-ltd-and-ors-20494
- **Pages:** 49

## Headnote

B
Companies Act, 1956-Sections 36, 108, 155 and 188:
Company Shares-Transfer, issue and allotment of-Joint shares and
shares of two of the shareholders-Transfer of-By 3 of the 4 shareholders- C
To third party skipping the hierarchy of purchasers of shares provided under
Artir:les of Association of Company-Despite acceptance of offer made to first
category of purchasers-Validity of transfer-By virtue of the transfer of shares,
third party got majority of shares-Issue of increased share capital by the
third party-Without compliance of Articles of Association and Section 188 of D
the Act-Allotment of the same in favour of the third party-Validity of issue
and allotment of increased share capital-Held : The transfer of the shares to
third party was invalid being violative of Articles of Association of Company
and Section 108 of the Act-The transfer was in breach of concluded contract
between the transferors and the first category of purchasers~The issue and
allotment of the shares in favour of third party was invalid being without E
compliance of the Articles of Association and Section 188-In view of the
facts of the case the relief of rectification cannot be granted-Hence
compensation awarded-Sale of Goods Act, 1930-Section 9(1)-Transfer of
Property Act, 1882.
Section 108-Provision under-Nature of-Held : It is mandatoryF
Non-compliance of the same is not a technicality.
Section 155-Petition under-Challenging transfer of shares, issue of
increased share capital and allotments of the same to third party-Seeking
rectification of Register of Members-Maintainability of-Held : Maintainable. G
Appellant's father and her mother 'S' promoted respondent No. 1
company. Appellant's father died after executing a will and appointing
'S' and respondent Nos. 2 to 4 as Executors thereof. The will empowered
the Executors, inter alia, to sell the properties vested in them by the Will
10~
H
1064
SUPREME COURT REPORTS
[2005] 2 S.C.R.
A and invest the same as the Executors and the Trustees thought fit. All the
four executors were entered in the register of members of the Company
as joint shareholders of 3417 shares of the Company held by the Appellants
father. Respondent Nos. 2 and 3 also had 93 shares of the compa~y.
The Articles of Association of the Respondent-Company gave the
B hierarchy of the persons entitled to purchase the shares upon transfer.
First right is a preemptive right under Article 57 A claimed by the
appellants, second is 'any member who is willing to purchase' the shares
at a fair value as given under Article 58 r/w Article 64, third is a 'person/
persons selected by Directors as being desirable in the interest of the
C Company to admit to membership, and the last category is 'person to
whom the transferor may choose to sell the shares'.
Respondent Nos. 3 and 4 offered to sell 93 shares to 'S' or her
nominee under Article 57 A at a price of Rs. 2250 per share. In ttie letter
written by them to 'S' it was stated that if she was not agreeable to pay
D the price the letter would be treated as notice to the Directors calling upon
them to fix the price under Article 61; that if she was not agreeable to
pay the price the letter would be treated as notice to the Directors calling
upon them to fix the price under Article 61; and that if she would not
exercise her right und~r Article 57-A, or not willing to pay the price or
not willing to complete the transaction in accordance with .\rticle 61,
E respondent Nos. 3 and 4 would be free to sell the shares to any other person
in accordance with the Articles of the Company. In a Board meeting
attended by two of the four executors, one of the executors was authorized
to sell the sliares. The request of 'S' to adjourn the meeting due to her
illness was not accepted by the respondent-executors on the ground that
F she would be given notice under Article 57-A. In the meeting, in respect
of 93 shares it was resolved to offer the same to the other members of the
Company subject to the preemptive righ

## Text

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-
SMT. CLAUDE-LILA PARULEKAR
A
v.
MIS. SAKAL PAPERS PVT. LTD. AND ORS.
MARCH l 8, 2005
[RUMA PAL AND P. VENKATARAMA REDDI, JJ.]
B
Companies Act, 1956-Sections 36, 108, 155 and 188:
Company Shares-Transfer, issue and allotment of-Joint shares and
shares of two of the shareholders-Transfer of-By 3 of the 4 shareholders- C
To third party skipping the hierarchy of purchasers of shares provided under
Artir:les of Association of Company-Despite acceptance of offer made to first
category of purchasers-Validity of transfer-By virtue of the transfer of shares,
third party got majority of shares-Issue of increased share capital by the
third party-Without compliance of Articles of Association and Section 188 of D
the Act-Allotment of the same in favour of the third party-Validity of issue
and allotment of increased share capital-Held : The transfer of the shares to
third party was invalid being violative of Articles of Association of Company
and Section 108 of the Act-The transfer was in breach of concluded contract
between the transferors and the first category of purchasers~The issue and
allotment of the shares in favour of third party was invalid being without E
compliance of the Articles of Association and Section 188-In view of the
facts of the case the relief of rectification cannot be granted-Hence
compensation awarded-Sale of Goods Act, 1930-Section 9(1)-Transfer of
Property Act, 1882.
Section 108-Provision under-Nature of-Held : It is mandatoryF
Non-compliance of the same is not a technicality.
Section 155-Petition under-Challenging transfer of shares, issue of
increased share capital and allotments of the same to third party-Seeking
rectification of Register of Members-Maintainability of-Held : Maintainable. G
Appellant's father and her mother 'S' promoted respondent No. 1
company. Appellant's father died after executing a will and appointing
'S' and respondent Nos. 2 to 4 as Executors thereof. The will empowered
the Executors, inter alia, to sell the properties vested in them by the Will
10~
H
1064
SUPREME COURT REPORTS
[2005] 2 S.C.R.
A and invest the same as the Executors and the Trustees thought fit. All the
four executors were entered in the register of members of the Company
as joint shareholders of 3417 shares of the Company held by the Appellants
father. Respondent Nos. 2 and 3 also had 93 shares of the compa~y.
The Articles of Association of the Respondent-Company gave the
B hierarchy of the persons entitled to purchase the shares upon transfer.
First right is a preemptive right under Article 57 A claimed by the
appellants, second is 'any member who is willing to purchase' the shares
at a fair value as given under Article 58 r/w Article 64, third is a 'person/
persons selected by Directors as being desirable in the interest of the
C Company to admit to membership, and the last category is 'person to
whom the transferor may choose to sell the shares'.
Respondent Nos. 3 and 4 offered to sell 93 shares to 'S' or her
nominee under Article 57 A at a price of Rs. 2250 per share. In ttie letter
written by them to 'S' it was stated that if she was not agreeable to pay
D the price the letter would be treated as notice to the Directors calling upon
them to fix the price under Article 61; that if she was not agreeable to
pay the price the letter would be treated as notice to the Directors calling
upon them to fix the price under Article 61; and that if she would not
exercise her right und~r Article 57-A, or not willing to pay the price or
not willing to complete the transaction in accordance with .\rticle 61,
E respondent Nos. 3 and 4 would be free to sell the shares to any other person
in accordance with the Articles of the Company. In a Board meeting
attended by two of the four executors, one of the executors was authorized
to sell the sliares. The request of 'S' to adjourn the meeting due to her
illness was not accepted by the respondent-executors on the ground that
F she would be given notice under Article 57-A. In the meeting, in respect
of 93 shares it was resolved to offer the same to the other members of the
Company subject to the preemptive right of 'S'. In respect of 3417 shares
it was resolved that if 'S' did not exercise her rights or did not pay the
price fixed under Article 61, then the Executors could sell them to any
other person/persons for the price of Rs. 2250 per share. Executors gave
G the notice to 'S' in respect of the shares. Company also gave notice to all
the shareholders to indicate whether they w_ere willing to purchase the
shares subject to right of 'S' under Article 57-A.
H
'S' and Appellant wrote a letter that 'S' was agreeable to buy 3417
shares by herself/or her nominee (her daughter-appellant) and agreeable
•
CLAUDE-LILA PARULEKAR v. SAKAL PAPERS PVT.LTD.
} 065
to pay the price as certified by the Auditors of the Company as stipulated A
in Article 57-A. After draft certificate by the Auditor, 'S' demanded the
copies of the documents submitted by the Company to the Auditors. But
without heeding to the request, Auditors straightway issued certificate
certifying the price of the 93 shares as Rs. 2,10,273 and of the 3417 shares
as Rs. 77,25,837. Respondents 3 and 4 called upon 'S' to pay the certified
'
amount in respect of 93 shares within a stipulated time, failing which they B
would dispose of the shares as they thought fit.
'S' and the appellant protested the certification. Without prejudice
to their protest they were willing to deposit an amount of Rs. 20 lacs as
an earnest of their bonafides to purchase the shares.
C'
Two suits were filed by the appellant and 'S' in 1985 praying for
permanent injunction to restrain the respondents from selling the shares
contrary to the concluded contract with them. The suits were rejected.
The shares were then sold to respondent No. 5 and his group. A D
notice was issued by the Board of Directors to hold a meeting. Request of
'S' and the appellant to adjourn the meeting was not heeded to. At the
meeting despite there being no item in agenda, a resolution was passed to
register the transfer of the shares to respondent No. 5 and his group, and
respondent No. 5 was appointed as an Additional Director of the Company
together with another member of his group.
E
Thereafter the appellant and 'S' wrote to respondent Nos. 2 to 4
saying that they were willing to purchase the shares at the price fixed by
the Auditors, in answer to which the respondents told that the shares h.<.1d
already been sold.
In an Annual General Meeting, it was resolved to immediately issue
increased share capital of Rs. 17,66,600of17,666 shares of Rs. 100 each.
The same were allotted to respondent No. 5 and his group.
F
'S' and appellant filed application under Section 155 of Companies
Act, 1956, challenging transfer of 3417 and 93 shares and issue and G
allotment of 17 ,666 shares in the name of respondent No. 5 and his group.
Single Judge of High Court held that the transfer of 3417 shares was made
contrary to the appellants right of preemption under Article 57-A and in
violation of Section 108 of Companies and of Articles of Association of
the Company. It was also held that the issue and allotment of 17,666 shares H
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SUPREME COURT REPORTS
[2005) 2 S.C.R.
A was invalid. However, it set aside the transfer of shares conditional upon
the appellants depositing a particular sum in the Court As regards 17,666
shares, it was directed that they should be allotted to such persons at such
price as the Board of Directors may decide. The Company was directed
to pay back Respondent No. 5 and his group Rs. 17 ,66, 600 in respect of
B the 17,666 shares.
The appellants as well as the respondents filed appeals. In the
meanwhile in 1988 appellants filed two suits against respondents seeking
specific performance of the contracts of sale of3417 and 93 shares to them.
Alternatively they sought for damages by way of compensation of Rs. 4
C crores. The suits are pending.
Division Bench of High Court dismissing the appeal of the appellants
and allowing that of the respondents, held that violation of Section 108
was mere irregularity which was curable; that transfer of3417 shares had
been validly made and that although there was irregularity in issuing the
D 17,666 shares, the same had been cured by the subsequent ratification of
the decision. Hence the present appeals.
Disposing of the appeals the Court
HELD: 1.1. The Court exercising juris<liction under Section 155 of
the Companies Act was competent to entertain the applications filed by
E the appellants. Even assuming that the decision is wrong and that
jurisdiction of~he Company Court under S. 155 and the Civil Court under
Section 9 CPC is concurrent, there is no reason to refuse to entertain the
application under Section 155. The fact that the matter has been awaiting
disposal by the Courts at the different levels for almost 18 years would
F render it grossly inequitable and be an improper exercise of judicial
discretion if the appellants are turned away at this stage to pursue an
alternative remedy (if any) available under the general law. (1080-A-E]
Ammonia Supplies Corporation (P) Ltd. v. Modern Plastic Containers
Pvt. Ltd and Ors., (19981 7 SCC 105 and Canara Bank v. Nuclear Power
G Corporation of India Ltd. pnd Ors., JT (1995) 3 SC 42, referred to.
1.2. The power of the Court under Section 155 is limited to the
rectification of the register of members of a Company in three situations
(a) when the name of a person is wrongly entered in such register (b) when
the name of a person, whose name having been entered in the register is
H omitted therefrom and (c) when default is made in entering the name of
' ,. --
CLAUDE-LILA PARULEKAR v. SAKAL PAPERS PVT. LTD.
} 067
any person who has already become or who has ceased to be a member. A
None of the three situations envisaged under sub-section (I) of Section 155
would allow the person whose right as a member qua the disputed shares
is yet to be established to apply for rectification by inclusion of such
person's name. The appellants could not have applied for transfer of the
disputed shares in their favour under Section 155 of the Companies Act. :a
They would have to establish that right by way of a separate suit or
otherwise. In the present case, there was no prayer for transfer of the
disputed shares to the appellants. The only prayers related to the
cancellation of the impugned transfers and rectification of the Register
of Members of the Company. (1077-F-H; 1078-A)
1.3. If there is any issue in the suit which was required to be and
has been determined in the Company Petition, the effect of that
determination would no doubt be the subject matter of consideration in
the suits that are pending. But the possibility of overlapping of such issues
does not preclude the filing of the suits by the appellants. (1079-G)
2.1. There was a concluded contract which was breached by the
respondent Nos. 2, 3 and 4 when they purported to sell their shares to
respondent No. 5 and his Group. (1095-E)
c
D
2.2. Section 36 of the Act, makes the Memorandum and Articles of
Company, when registered, binding not only on the Company but also the E
members inter-se to the same extent as if they had been signed by the
Company and by each member and covenanted to by the Company and
each shareholder to observe all the provisions of the Memorandum and
of the Articles. The Articles of Association constitute a contract not merely
between the shareholders and the Company but between the individual
shareholders also. The Articles are a source of powers of the Directors F
who can as a result exercise only those powers conferred by the Articles
in accordance therewith. Any action referable to the Articles and contrary
thereto would be ultra vires. (1084-D-E)
Naresh Chandra Sanyal v. Calcutta Stock Exchange Association Ltd.,
(1971) 1 sec 50, 107 and H.P. Gupta v. Heera Lal, (1970) 1 sec 437, G
referred to.
2.3. In the present case, the entire transaction of sale is riddled with
illegalities. The notices issued in respect of the 93 and 3417 shares were
not in keeping with the Articles as far as Articles 58 to 63 were concerned.
Notices to willing members or to selected persons under Article 58 must H
1068
SUPREME COURT REPORTS
(2005] 2 S.C.R.
A succeed and not precede the actual operation of Article 57-A. The notices
issued by the respondent Nos. 2, 3 and 4 also did not constitute the
Directors as the transferor's agents for the purposes of selling the shares
in terms of Article 59. There was, in the circumstances, no question of the
transferors selling their shares to any 3rd party under Article 63 unless
B proper notice had been issued to the 2nd and 3rd category of persons if
any. There was also no question of the transferor invoking Article 61
bypassing the right of a willing member or selectee, if any, to negotiate a
fair price. (1092-G-H; 1093-A)
2.4. If the notices could be combined notices under Article 57-A and
C Article 58, then the appellants' acceptance of the offer as made in the
notices should also be construed as a combined assent under both the
Articles. Whatever offer was made whether under Article 57-A or under
Article 58 by the two notices, that offer was accepted by the appellant
And upon such acceptance, there was a concluded. contract between the
respondent Nos. 2, 3 and 4 on the one hand and the second appellant on
D the other. [1093-C-D-E-F]
2.5. It cannot be said that a contract could not be said to be concluded
until the price was in fact paid. The legal consequence of a concluded
contract will remain irrespective of how a particular party in a given
situation might abuse the rights flowing from it. It is platitudinous that
E the possibility of abuse of a right cannot determine whether the right exists
as a matter of law. (1094-G~H]
Sudbrook Trading Estate ltd. v. Eggleton and Ors., (1982] 3 All ER 1,
64, referred to.
p
2.6. Article 57-A does not by itself indicate when the contract is
concluded between the offeror and offeree. Having regard to Section 9(1)
of Sale of Goods Act, 1930, it can be concluded that with the a~ceptance
of the offers of the respondent Nos. 2, 3 and 4 by the appellants, the
contract to purchase the shares under STA was concluded. 11094-A-B)
G
2. 7. If the notices issued by the respondent Nos. 2, 3, and 4 were not
under Article 58, then it was not open to the respondent Nos. 2, 3 and 4
to have sold the shares to the Group of respondent No. 5 without issuing
such notices. Hence irrespective of whether there was a concluded contract
between the appellants and the respondent Nos. 2, 3 and 4 in respect of
the 3417 and 93 shares, the shares could not have been sold to the Group.
fl
11095-E-Fl
--4,
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CLAUDE-LILA PARULEKAR v. SAKAL PAPERS PVT. LTD.
l 069
2.8. There was also no repudiation of the contract by the appellants. A
Facts of the case do not show that the appellants were renouncing the
contract nor that they were absolutely refusing to perform th~ contract.
It may be that they were mistaken in their challenge to the Auditors' ,
Certificate, but that is a long way from saying that they were unwilling
to pay. The challenge to the certification may be taken as a method of , B
negotiating a fair value under Article 58. Be that as it may, the appellants
in fact accepted the price as certified by the auditors on 1st October, 1985.
(1096-B; 1997-D; 1098-DI
Freeth v. Burr (Lord Coleridge, CJ. (1874-80), All ER 753 and Sweet
and Maxwell Ltd. v. Universal News Services Ltd., (1964) QBD 699 (CA) 179, C
referred to.
2.9. The stand of the respondent Nos. 2, 3 and 4 with regard to the
disqualification of 'S' as a purchaser of the shares under Article 57-A is
wholly inconsistent with their conduct ante /item. The matter was referred
to the company's auditors in purported compliance with Article 57-A D
Certification of the price was made by the auditors also under that Article.
The notice of the respondent Nos. 2, 3 and 4 calling upon the appellants
to pay the certified price was also under Article 57-A. [1103-D-E)
2.10. As there was no time fixed either under Article 57-A or in the
offer letters, the question of time being of the essence did not at all arise E
and it was not open to a party to unilaterally stipulate a time and then
cancel the contract because of an alleged failure of the other party to act
within the time stipulated. [1096-D-F)
S.C. Gomathinayagam Pillai v. Palaniswami Nadar, AIR (1967) SC 868,
relied on.
National Co-operative Sugar Mills Ltd., Alanganallur v. Mis. Albert and
Co., AIR (1981) MAD 172 (D.B.), referred to.
F
2.11. Compliance with the provisions of Section 108 was and is
mandatory. Before the sale of the 3417 shares was made to the Group of G
Respondent No. 5 by the Executors, it was abundantly clear from the
conduct of 'S' (i) that she had revoked consent she may have given qua
Executor and Trustee to the sale of the 3417 shares to third parties and
(ii) that the appellants were desirous of purchasing the shares themselves
in whatever capacity. Executors' resolution authorizing one of them to H
1070
SUPREME COURT REPORTS
(2005] 2 S.C.R.
A effect the transfer of the shares could not override the provisions of Section
108 of the Companies Act. It would be of no consequence as far as Section
108 is concerned to exclude the reluctant share holder on the ground that
the share holder had refused to execute the form. The remedy of the other
joint share holders to compel the reluctant share holder to sign the transfer
B form would lie elsewhere and not in a breach of the requirement of Section
108 of the Companies Act. [1098-D; 1099-D; 1100-EI
c
D
Manna/al Khetan v. Kedar Nath Khetan and Ors., (19771 2 SCC 424;
Jarnail Singh v. Bakshi Singh, (1960130 C.C. 192 and L. Janakirama Iyer v.
P.M Ni/kanta Iyer and Ors., (19621 Supp.I SCR 206, referred to.
Barton v. London and North Western Railway Co., (1889) 24 QRD 77
(CA), referred to.
Halsbury's Law of England, 4th edn.Vol.7 para 1632 and Palmers
Company Law, 24th Edn. Pg.63, referred to.
2.12. The instruments of transfer had admittedly been improperly
executed. It was therefore not lawful for the company to register the
transfer. The principle that a Court will not interfere in the affairs of the
company if the defect complained of can be cured would apply ifthe defect
is a technicality and is curable. The non-compliance of Section 108 is not
E a technicality. [1100-G-HI
2.13. The Division Bench erred in holding that the violation of Section
108 was ratified at the Board Meeting. Ratification is possible in respect
of an act which is incompetent, by a person who would have been
competent to do such act. The violation of Section 108 could not be ratified
F by the Board of Directors as the act was one which the Board was
incompetent to allow. The Board of Directors never had the legal capacity
to direct the registration of shares invalidly transferred. (1101-GJ
G
2.14. Under Sections 51 and 52 of the Transfer of Property Act, 1882
a trustee may not use or deal with trust property for his own profit or
any other purpose in connection with the trust. And no trustee whose duty
it is to sell trust property may directly or indirectly buy the same or any
interest therein, on his own account or through his agent or third person.
Article 57-A does not envisage 'S' purchasing the shares through her
nominee. One of her rights under Article 57-A was no doubt to purchase
H the shares herself. But she could also nominate any other person to
·~
CLAUDE-LILA PARULEKAR v. SAKAL PAPERS PVT. LTD.
1071
purchase the shares. The transferor then would have to make an offer to A
such other person who would then, independently of 'S', be entitled to a
transfer of the shares. In the latter case there is no question of any conflict
of interest between 'S' in her capacity as trustee under the Will and as a
nominator under Article 57-A. Here, 'S' was not purchasing the shares.
It is true that she could have done so in exercise of her preemptive right B
under Article 57-A, but she did not and only nominated her daughter as
the person to whom shares should be sold. [1102-C-D-E-F]
3.1. The increase in issuance of share capital does not fall within the
exceptions carved out in Article 94 as not being special business. Article
94 reflects the substance of Section 173 of the companies Act, 1956 and it C
was, therefore, incumbent for notice to be given not only indicating the
issuance of the share capital as a special item of business but also giving .
a statement setting out all material facts relating thereto. The violation of .
Article 94 by the company is patent and the Annual General Meeting is
to the extent of the violation vitiated thereby. [1105-F-G]
LIC v. Escorts, (1986) 1 SCC 246, referred to.
Pacific Coast Coal Mines Ltd. v. Arbuthnot and Ors., (1917) AC 607
PC Baillie v. Oriental Telephone and Electric Company Ltd., (1915) 1
Ch.D.503 (CA), referred to.
3.2. Section 188 of the Act provides that a meeting could be
requisitioned by the prescribed number of members, after notice ·or any
resolution which may properly be moved and is intended to be moved at
a meeting together with a statement with respect to the matter referred
D
E
to in any proposed resolution. It is clear from the Articles that compliance
with Section 188 was in addition to the requirements with the other parts F
of Article 94 which admittedly have not been complied with.
(1106-G; 1107-B]
3.3. As the sale of 3417 and 93 share to the Group of Respondent
No. 5 was bad, the Group did not legally have the majority to push through G
the decision to increase the share capital or to allot the further shares to
themselves. Besides, the majority cannot be permitted to ride rough sh.od
over the provisions of the Articles and the Companies Act merely because
they could if they so desired follow the proper procedure. The haste with
which the Group sought to ensure their position in the company is evident
from the fact that a Board Meeting was held immediately after the Annual H
1072
SUPREME COURT REPORTS
[2005] 2 S.C.R.
A General Meeting at which the Board resolved to issue the additional 17,666
shares at par to the Group. There was no notice given of the Board meeting
at all. (1107-E-G]
3.4. Increase of share capital is dealt with in Articles 14 and 15. No
offer was made by notice in writing in terms of this Article. The fresh
B shares were allotted on the day they were issued before the expiry of 15
days without waiting for the expiry of the period. The allocation of shares
to the Group contrary to this Article was invalid. [1108-F]
3.5. The Respondent Company was bound to offer the further shares
C on a fresh issue of capital to the existing equity share holders in proportion
to the capital paid up on the shares at that date.[1107-H]
4. Although the logical conclusion of findings of the Court would be
to set aside the transfers and restore the status quo ante, but in view of a
sea change in the factual scenario aμd weighing in the balance the
D i:omparative advantages and disadvantages of granting the appellant the
relief of rectification, it would not be appropriate at this stage to exercise
discretion to grant the relief of rectification. However, the fact remains
that the appellant has been wronged and she is entitled to be compensated ..
Section 155 of the Companies Act, allows the giving of damages in addition
to or in lieu of rectification. The ends of justice would be met by directing
E that the appellant should be compensated with an amount of Rs. 3 crores
to be paid by the Company to the appellant in full and final settlement of
the appellant's claims in respect of the 3417 and 93 shares. Additionally,
the company will also allot shares to the appellant out of the 17,666 shares
on par proportionate with the appellant's present share holding. The
F appellant is at present employed by the company and is also a Director of
the company. The appellant shall continue in this capacity for the
appellant's life time. [1111-B-C)
G
H
Needle Industries (India) Ltd v. Needle Industries (Newey) India Holding
Ltd., [1981] 3 SCC 333, relied on.
CIVIL APPELIATE JURISDICTION : Civil Appeal Nos. 698-700 of
1995.
From the Judgment and Order dated 30.4.91/2.5.91 of the Bombay
High Court in A. Nos. 742, 711 and 1214 of 1998.
CLAUDE-LILA PARULEKAR v. SAKAL PAPERS PVT. LTD. [RUMA PAL, J.) 1073
Manoj Goel, Shuvodeep Roy and Wajeeh Shafiq for Ms. Suruchi A!
Agarwal for the Appellant
F.S. Nariman, K.K. Venugopal, Ashok H. Desai, P.H. Parekh, Sandeep
Parekh, Arun Francis, Sumit Goel, Anip Sachthey, Shriniwas R.Khalap, E.
Vanu Kumar and Harshad V.Hameed, with them for the Respondents.
The Judgment of the Court was delivered by
RUMA PAL, J. In 1933 Dr. N. B. Parulekar and his wife Shanta,
started a Newspaper called Sakal. In 1948, Dr. Parulekar and Shanta promoted
B
a company known as M/s. Sakal Papers Pvt. Limited, which is the respondent C
No. 1 and is referred to hereafter as 'the company". Dr. Parulekar died in
1973. Shanta died during the pendency of the appeal before this Court. The
appeal which is now being prosecuted by the daughter of Dr. Parulekar and
Shanta, arises out of proceedings initiated by Shanta and the appellant under
Section 155 (as it stood in 1986) of the Companies Act, 1956 (referred to
hereafter as 'the Act') in_ the Bombay High Court.
D '
The appellant was brought on record as Shanta's only legal heir and
representative. As Shanta was alive during the proceedings before the High
Court, to avoid unnecessary verbiage, the appellant and Shanta are referred
to hereafter as 'the appellants'.
One of the matters in dispute in this appeal relates to the transfer of
3417 shares in the company belonging to the estate of late Dr. Parulekar by
three of the four executors of the will of Dr. Parulekar. The executors named
E
in the will were Shanta, the respondent No. 2, the respondent No. 3 and the
respondent No. 4. There is also a challenge to the transfer of 93 shares by F
the respondent Nos. 3 and 4 in the company. The basis of the claim of the
appellant and Shanta with regard to the 3417 and 93 shares was the failure
to allow the appellants to exercise their undisputed right of preemption in
respect of the shares. The ~econd branch of the appellants' grievance pertains
. to the issue and allotment of 17,666 shares of the company. The beneficiary
of these transfers/allotments is the respondent No. 5 and his group represented
by the respondents Nos. 6 to 16 (hereafter referred to collectively as the
Pawar Group). According to all the respondents briefly speaking, the appellants
were precluded from exercising any right of preemption and had in any event
failed to exercise their right of preemption in respect of the 3417 and 93
shares. As far as the issue of 17 ,666 shares are concerned it is submitted that H
1074
SUPREME COURT REPORTS
[2005] 2 S.C.R.
A it was validly done and the allotment of the shares was duly made to the
Pawar group.
The learned Single Judge held that the transfer of the 3417 shares was
made contrary to the appellants rights of preemption. He also held that the
transfers had been made in violation of the provisions of the Section 108 of
B the Companies Act, 1956 and the Articles of Association of the Company. It
was held that the respondent No. 5 and his group were not bonafide purchasers
of the shares as they were aware of the preemptive right of the appellants to
the shares. On the issue and allotment of 17,666 shares the Trial Court held
that they were invalid. Having effectively held in favour of the appellants on
C merits, the Trial Court did not set aside the transfer of the 3417 and 93 shares
but set aside the transfer of 3417 and 93 shares to the respondent No. 5 and
his group conditional upon the appellants depositing a sum or Rs. 80, 73,000
in the Court within a period of six weeks. As far as the 17 ,666 shares were
concerned, it was directed that they should be allotted to such persons or
D persons at such price as the Board of Directors may decide. The Company
was directed to pay back the Pawar group a sum of Rs. 17,66,600 in respect
of the 17 ,666 shares. It was then said that in the event the appellants did not
deposit a sum of Rs. 79,86,110 within six weeks the entire petition filed by
the appellants would stand dismissed. The appellants filed an appeal from
this order in so far as it was made conditional on the deposit of the sum of .
E Rs. 79,86, 110. They also filed an application for extension of time for
depositing the amount in terms of the Trial Court's order before the Trial
Court. The application was dismissed.
In the meanwhile the Appellants filed two suits being CS 225 and 226
F of 1988 before the Court in Pune against the respondents seeking specific
performance of the contracts of sale of 3417 and 93 shares to them.
Alternatively for damages by way of compensation of Rs. 3 Crore or 4
Crore? The suits are pending. Also between the decision of the single Judge
and the filing of the appeal by the appellants, the company became a Public
Limited Company by virtue of Section 43A of the Act.
G
At the time of admissiqn of the appeal an interim order had been
passed by the Division Bench on 21st December, 1989 directing that pending
disposal of the appeal, the appellants' right of preemption was not to be
disturbed and the company was directed not to issue or invite any fresh
H· capital.
'
....._
CLAUDE-LILA PARULEKAR v. SAKAL PAPERS PVT.LTD. [RUMA PAL, J.] 1075
The appeal filed by the appellants against the Judgment and order of A
the learned Single Judge as also cross appeals filed by the respondents were
heard and disposed of by a common judgment. The Division Bench dismissed
the appellants' appeal and allowed the cross appeals filed by the respondents
holding inter alia that the violation of S.108 was a mere irregularity which
was curable, that the sale of 3417 shares had been validly made to the Pawar
group and that although there was some irregularity in issuing the 17,666 B
shares, the irregularity had been cured by the subsequent ratification of the
decision. At the instance of the appellants the interim order passed by the
High Court on 21st December, 1989 was directed to continue for 8 weeks.
Before the eight weeks expired, the appellants filed the pre.sent appeal C
and an interim order was granted on 16th September, 199 l in terms of the
order passed by the High Court on 21st December, 1989. That interim order
is operating till today. The matter has been pending before this Court since
1991 and has been heard in part by different Benches from time to time.
Efforts for an amicable settlement were not fruitful. In the meantime several
of the parties including Shanta died. The applications for substitution were D
allowed.
The respondents have raised a preliminary objection questioning the
entertainment of the appellant's application under Section 155 of the Act in
the first place. It is submitted that complex questions of fact were involved
and the ordinary procedure of a civil suit as opposed to the summary remedy E
available under Section 155 was more appropriate. This was more so because
not only had the appellant and Shanta reserved their right to file a suit for
transfer of the disputed shares to them in the Section 155 application they
had in fact filed suits being CS No. 225 of 1988 and 226 of 1988 before the
Courts in Pune claiming specific performance of the contract alleged to be p
existing in favour of the appellants for transfer of the 3417 and 93 shares. It
is submitted that the issues involved in the Civil Suits and the proceedings
under S. 155 overlapped in so far as the 3417 shares are concerned and that
this appeal should be considered only with regard to the challenge to the
issuance and allotment of the 17,666 shares.
The appellants have submitted that they had no alternative but to file
the Company Petition for rectification of the company's Register of Members
by deleting the names of the respondents No. 5 and his group under Section
G
155 of the Companies Act. Reliance has been placed on the decision of this
Court in the case of Ammonia Supplies Corporation (P) ltd v. Modern H
1076
SUPREME COURT REPORTS
[2005] 2 S.C.R.
A Plastic Containers Pvt. Ltd. and Ors., [ 1998] 7 SCC I 05 in which this Court
said that :-
"So far as exercising of power for rectification within its field there
could be no doubt the court as referred under Section 155 read with
Section 2(11) and Section IO, it is the Company Court alone which
B
has exclusive jurisdiction''.
It is also submitted that even if the jurisdiction under Section 155 was
not exclusive and the Company Court had concurrent jurisdiction with Civil
Courts, this Court should not relegate the appellants to the alternative remedy
of a Civil Suit having regard to the facts of this case, especially, the pend ency
C of the matter before the different Courts from 1986.
·
The Trial Court had rejected the preliminary objection and held that it
was open to the parties to choose any one of the remedies available to such
party and that the remedy under Section 155 of the Companies Act was
D equally "efficacious, definitely more speedy and certainly appropriate". The
Division Bench did not go into the issue having held in favour of the
respondents on the merits.
E
F
G
Section 155 of the Act (as it stood in 1986) provided inter a/ia as
follows : -
S.155, Power of Court to rectify register of members- If-
(a) the name of any person-
(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 on the register the fact of any person having become,
or ceased to be, a member, the person aggrieved, or any
member of the company, or the company, may apply to the
Court for rectification of the register.
(2) The Court may either reject the application or order rectification
of the register, and. in the latter case, may direct the company to
H
pay the damages, if any, sustained by any party aggrieved.
CLAUDE-LILA PARULEKAR ''·SAKAL PAPERS PVT. LTD. [RUMA PAL, J) 1077
In either case, the Court in its discretion may make such order as to A
costs as it th inks fit.
(3) On an application under this section, the Court-
(a) may decide any question relating to the title of any person
who is a party to the application to have his name entered B
in or omitted from the register, whether the question arises
between members or alleged members, or between members
or alleged members on the one hand and the company on
the other hand; and
(b) generally, may decide any question which it is necessary C
or expedient to decide in connection with the application for
rectification.
(4) From any order passed by the Court on the application, or on any
issue raised therein and tried separately, an appeal shall lie on the
ground mentioned in Section 100 of the Code of Civil Procedure D
1908 (V of 1908)-
(a) if the order be passed by a District Court, to the High
Court;
(b) ifthe orders be passed by a single Judge ofa High Court
consisting of three or more Judges, to, a Bench of that High E
Court.
(5) The provisions of sub-sections (1) to (4) shall apply in relation to
the rectification of the register of debenture-holders as they apply
in relation to the rectification of the register of members".
The power of the Court under Section 155 is limited to the rectification
of the register of members of a Company in three situations (a) when the
name of a person is wrongly entered in such register (b) when the name of
a person, whose name having been entered in the register is omitted therefrom
F
and (3) when default is made in entering the name of any person who has
already become or who has ceased to be a member. None of the three situations G
envisaged under sub-section (1) of Section 155 would allow the person whose
right as a member qua the disputed shares is yet to be established to apply
for rectification by inclusion of such person's name. The appellants could
not, therefore have applied for transfer of the disputed shares in their favour
under Section 155 of the Companies Act. They would have to establish that H
1078
SUPREME COURT REPORTS
[2005] 2 S.C.R.
A right by way of a separate suit or otherwise. The appellants in paragraph 26
of the Company Petition correctly reserved their right to file appropriate
action for transfer of the 3,417 shares to themselves.
B
c
D
E
The relevant prayers in the appellants Company Petition 476/86 were
as.follows : -
"(a) That this Hon'ble Coui'Fbe pleased to order the rectification of
the Register of Members of the 1st respondent Company and
order that the names of Respondent Nos. 5, 6, 8, 11, 12, 13 and
14 be removed from the Register of Members of the 1st
Respondent Company in respect of 3,417 shares belonging to the
estate of Dr. N.R Parulekar and 93 shares belonging to the 2nd
Respondent;
(b) That this Hon'ble Court be pleased to order rectification of the
Register of Members of the I st Respondent Company and do
order that the names of Respondent Nos. 11, 12, 13, 15 and ·16
be removed from the Register of Members of the I st Respondent
Company in respect of 17,666 shares;
(c) That Respondent Nos. 5, 6, 8, 11, 12, 13 and 14 be ordered and
directed by a mandatory order and injunction of this Hon 'hie
Court to deliver up to the I st respondent the share certificates in
respect of the said 3417 shares and 93 shares for removal of their
names there from;
(d) That the Respondent Nos. 11, 12, 13, 15 and 16 be ordered and
mandatory injunction of this Hon'ble Court to deliver up to the
I st Respondent the share certificates held by them in respect of
F
17,666 shares allotted on 16.11.1985 to the I st Respondent for
cancellation";
.
.
As had been noted by the learned Single Judge, there was no prayer for
transfer of the disputed shares to the appellants. The only prayers related to
the cancellation of the impugned transfers and the rectification of the Register
G of Members of the Company by removal of the names of the Respondent 5
and his group.
The prayers in the appellants' suits pending in Pune are inter alia as
follows :
H
"(a) that this Hon'ble Court be pleased to declare that there is a valid
-
CLAUDE-LILA PARULEKAR '"SAKAL PAPERS PVT. LTD. [RUMA PAL, J.] J 079
and subsisting contract entered into between the Plaintiffs, on the A
one hand and the Defendants 2, 3 and 4 on the other for the sale
by the Defendants 2, 3 and 4 and purchase by the Plaintiffs of
3417 shares of the I st Defendants bearing distinctive numbers
more particularly described in Exhibit '-'
(b) that the Defendants 2, 3 and 4 be directed to specifically perform B
the said contract by executing the necessary Transfer Forms and
doing all other acts necessary to effectually carry out the said
transfer;
(c) that the lst Defendant be directed to register the said shares upon
such transfer under prayer (b) in favour of the 2nd Plaintiffs;
C
(d) that in the alternative to prayer (b) above, the Defendants 2, 3 and
4 be ordered and decreed by this Hon'ble Court be pay to the
Plaintiffs a sum of Rs. 3 Crores or such other sum as this Hon 'ble
Court may determine as damages for breach of the .contract.''
Similar prayers were made in respect of the 93 shares. Clearly the D'
reliefs prayed for in the Company Petition were different from for the reliefs
claimed in the Civil Suits filed by the appeHants.