1. This is a petition filed by Amrit Banaspati Co. Ltd. (hereinafter called "ABC") under Section 111 of the Companies Act, 1956, praying for rectification of the register of members by deleting the names of 88 firms holding 16,704 equity shares and 1,019 preference shares in the share capital of the company and for transferring all these shares in the name of one of the directors who will hold these shares in trust.
2. ABC was incorporated in 1940 under the Indian Companies Act, 1913, as a company limited by shares. Subsequent to its incorporation the company has allotted shares to various subscribers which included certain partnership firms. According to the petition, the allotments in the name of partnership firms besides for others were made in accordance with the provisions of the Indian Companies Act, 1913.
Subsequently, after the coming into force of the Companies Act, 1956, bonus issues were made in 1972, 1980 and 1989. Bonus allotments were also made in the names of these firms as made to the other shareholders. In the year 1972, the Department of Company Affairs, Government of India, issued a circular stating that no firm can be a member or a shareholder of any company and as such necessary corrections should be made by companies in their register of members in case the names of any firms have been entered as members. Though in pursuance of this administrative circular, the company on its own started the process of making the necessary corrections by getting the shares transferred in the names of partners of such firms it was unable to trace the individuals behind 88 firms which hold 16,704 equity shares and 1,019 preference shares. The list of these firms along with their respective shareholding had been annexed to the petition. These numbers have undergone changes consequent to later developments which were brought to our notice through proper applications. In May, 1992, the company was served with a notice by the Registrar of Companies, Uttar Pradesh, Kanpur, calling upon it to rectify its register of members by deleting the names of the firms and substituting the same by the names of their partners. Though the company has already started the exercise of substituting the names it could not do anything with regard to the above-said firms in the absence of necessary information being furnished by the said firms. These, firms have altogether failed to respond to the company's notices. It is the apprehension of the petitioner-company that such firms may not exist at all as they were entered initially in the register of members as long back as between 1940 to 1946.
3. The Registrar of Companies, Uttar Pradesh, filed a complaint in the Court of Special Chief Judicial Magistrate, Kanpur, against the company, under Sections 150(1) and 150(2) of the Companies Act, 1956.
Thereafter, the company filed an application/petition in the Allahabad High Court under Section 482 of the Code of Criminal Procedure, challenging the validity of the complaint. The court passed an order staying the proceedings before the Special Chief Judicial Magistrate.
The company has submitted that it is not within its means to make corrections in the register of members, nor is it feasible in law to delete the names of the firms. In September, 1992, the board of directors of the company decided to file the petition under Section 111(4) before the Company Law Board praying for suitable directions for rectification of the register of members so as to delete the names of the firms and transferring such shares in the name of a nominee who shall hold the shares in trust.
4. At the hearing held on December 6, 1993, Shri N. R. Khaitan and Shri R. Bhasin, advocates, appeared and reiterated the contents of the petition. Prior to this hearing, the company was directed to serve notice of this hearing on December 6, 1993, along with a copy of the petition to all the firms as per the addresses found in the register of members. None appeared on behalf of the shareholders at the hearing held on December 6, 1993. The company made written submissions along with a confirmation of despatch of notice as directed. Subsequent to the sending of the notices, there was response from one party claiming entitlement in respect of 272 equity shares registered in the name of Ayodhya Prasad and Sons under folio No. A/29. The company secretary by an affidavit dated July 14, 1994, has confirmed that on furnishing the required documents to the company, these shares have been transferred in the name of the claimants. The final hearing was held on July 15, 1994, when also no one preferred any claim to the shares. It was submitted on behalf of the company that it is willing to transfer these shares in the name of any person whom the Company Law Board identifies and not necessarily in the name of one of the directors.
5. We have given careful consideration to the averments made in the petition and submissions made during the hearing. The company allotted shares in the names of firms during the period 1940 to 1946 as per the then prevailing practice. Even the Government decided only in the year 1972 that shares should not be allotted to firms. These shares constitute roughly 0.2 per cent of the total paid up capital. The company has all along been trying its best to locate the partners of these firms to get the shares allotted to them but it has not succeeded. The efforts taken by the company in this regard reveal the earnestness of the company in getting the legal violation remedied.
Even though at this point of time there are no claimants for these shares as is apparent from the non-response to the notices issued by the company to the firms, there could be future claimants in respect of these shares and as such the only way to protect the interest of the possible claimants of these shares and also to protect the company from the legal proceedings against it is to transfer all the impugned shares to a trust so that the shares may be held in the name of the trust for the benefit of the future claimants. In view of this, we do not propose to accept the suggestion of the company to transfer these shares in the name of a director. Accordingly, we hereby direct the company to form a trust in the name and style of "Firms Shares Trust" and transfer all the impugned shares as set out in the annexure hereto in the name of the trustee subject to Section 153 of the Companies Act. The company shall correspondingly issue duplicate certificates which will be in the custody of the trustees. All the expenditure in the creation of the trust will be borne by the company. The trust will hold the shares for the benefit of the claimants of the shares and as and when any claim in respect of these shares arises, such shares will be transferred to such claimants on production of satisfactory evidence regarding entitlement.
Any bonus shares that may accrue in respect of these shares will also be allotted to the trust but the trust will not be entitled to any rights issue in respect of these shares. The trust will not dispose of these shares under any circumstances except by way of transfer to legally entitled claimants. Dividends in respect of these shares will be credited to the "Unclaimed dividend account" and further dealt with in accordance with the provisions of the Companies Act. The company will give a public notice setting out the fact of issue of duplicate certificates along with the certificate and distinctive numbers and that the claimants, if any, can contact the trustees with full details.
6. The process for creation of the trust and transfer of the shares will be completed within a period of six months from the date of this order.
7. While parting with this case, we would like to make an observation regarding the issue involved. The basis for complaint by the Registrar of Companies is a circular of the Department of Company Affairs stating that a partnership firm not being a "per on" as contemplated under Section 41 of the Companies Act, cannot be a member of a company.
Though these provisions were contained in the earlier Act as well (Indian Companies Act, 1913), the practice of registering partnership firms as members had continued. Even the Government decided to issue a circular only in 1972. Since the company has initiated action on its own and now that it has taken full remedial steps, the complaint against the company does not survive. Hence, it is appropriate that the department withdraws the complaint.
8. Let a copy of this order be sent to the Registrar of Companies, Uttar Pradesh, Kanpur.