Rajendra Nath Mittal, J.
1. Briefly, the facts are that respondent No. 1 is a private limited company with its registered office at Kapurthala. The authorised capital of the company is 5,000 shares of Rs. 100 each. Out of that, 2,550 ordinary shares of Rs. 100 each have been issued and the subscribed capital on each share is Rs. 50.
2. Madho Ram Puri, husband of the petitioner, had purchased 100shares of the company in his individual name and another 100 shares jointlywith Raghbir Singh, respondent No. 5. He died on December 31, 1968.At the time of his death, he held the abovesaid shares. After his death,his shares were to be entered in the name of the petitioner as his otherheirs gave an affidavit that they had no objection in case the shares weretransmitted in her name.
3. The company instead of showing 100 shares individually in the nameof the deceased showed them as jointly owned by the deceased and Raghbir Singh. Thus, it treated 200 shares to be jointly owned by both ofthem.
4. It is pleaded that the petitioner came to know in February, 1972,that Raghbir Singh transferred the abovesaid shares to Raj Rani and UshaRani, respondents Nos. 2 and 3, who were not shareholders of the company at the time of transfer. They later transferred the shares to ParkashChand Aggarwal, respondent No, 4, who was also an outsider at the time ofthe transfer. According to the memorandum and articles of association ofthe company, the shares can be transferred to an outsider if the existingshareholders are not willing to purchase them. It is further alleged thatbefore transferring the shares, a duty was enjoined upon Raghbir Singh tointimate the company in that regard. Therefore, the company was required to give notices to the shareholders including the petitioner to theeffect that the shares were being transferred by him in favour of outsidersand in case they were ready to purchase them they could do so. But nosuch notice was served upon her. Thus, the transfer of shares by RaghbirSingh in favour of respondents Nos. 2 and 3 was void.
5. She had filed a petition under Section 155 of the Companies Act (hereinafter referred to as 'the Act') for a rectification of the register of the company, praying that the 100 shares of Rs. 100 each be transmitted toher name alone and be not shown as a joint holding of the petitioner and Raghbir Singh and that the transfer by Raghbir Singh in favour of respondents Nos. 2 and 3 and by the latter in favour of respondent No. 4 be set aside and that the name of the said respondents be deleted.
6. The application has been contested by the respondents. Respondent No. 1 has pleaded that the petitioner filed a civil suit regarding the same matter in the Court of the Senior Subordinate Judge, Kapurthala, and, consequently, the petition was liable to be dismissed. On merits, it has been pleaded that the deceased held 200 shares jointly with Raghbir Singh against share Nos. 601 to 700 and 701 to 800. Two separate certificates for 100 shares each were issued in their names jointly. After the death of Madho Ram, 50 shares from each set of certificates were transferred in the name of the petitioner on March 31, 1970. The shares, however, remained joint with Raghbir Singh. Thus, she is holding 200 shares jointly with Raghbir Singh. It is admitted that the paid-up capital of the shares was to the extent of 50 per cent.
7. It is further averred that at the time when Raghbir Singh wanted to transfer the shares, a notice was given by the company to all the shareholders that if any one of them was interested to purchase them, he could do so. The shares were transferred to respondents Nos. 2 and 3 thereafter. It is further averred that Smt. Raj Rani, respondent No. 2, was a shareholder of the company. It is also admitted that respondents Nos. 2 and 3 transferred the shares in favour of respondent No. 4, who was an outsider. The other respondents took similar pleas. On the pleadings of the parties, the following issues were framed :
(1) Whether the petitioner has filed a suit in the court of the Senior Subordinate Judge, Kapurthala, in which the same matter is sub-judice, and the said suit is still pending
(2) If Issue No. 1 is proved, whether this petition is maintainable
(3) Whether shares Nos. 601 to 700 and shares Nos. 701 to 800 were held jointly by the petitioner and her husband, late Shri Madho Ram Puri, as alleged by the respondents, or 100 out of those were held separately by the petitioner individually and by her late husband individually?
(4) Whether the transfer of 100 shares by Raghbir Singh, respondent No. 5, in favour of Smt, Raj Rani and Smt. Usha Rani, respondents Nos. 2 and 3, respectively, was legal and valid, and in accordance with the relevant articles of association
(5) Whether the transfer of the aforesaid 100 shares by Smt. Raj Rani and Smt. Usha Rani, respondents Nos. 2 and 3, respectively, in favour ofParkash Chand Aggarwal, respondent No. 4, was valid, and in accordance with the articles of association of the company ?
(6) Whether the register of members of the company requires to be rectified in any manner as a result of the finding on the above issues
8. Issues Nos. 1 and 2.--The petitioner instituted Civil Suit No. 323/1970, titled as Smt. Amrit Kaur v. Kapurthala Flour, Oil and General Mills Co. P. Ltd., for a declaration that the sale of shares in defendant No. 1 by defendants Nos. 2 to 9 in favour of defendants Nos. 10 to 14, who were not shareholders of defendant No. 1, was illegal, ultra vires and violative of the terms and conditions in the memorandum and articles of association of defendant No. 1 and that an injunction directing defendants Nos. 1 to 9 to sell the said shares not otherwise than in accordance with the terms and conditions in the articles and memorandum of association be issued. In the suit, respondents Nos. 2 to 5 were not parties and the shares regarding which the suit was filed were different from those in the present case. The suit was decreed by the Senior Subordinate Judge, Kapurthala, on April 30, 1974. On appeal, the decree of the trial court was set aside and the suit of the plaintiff was dismissed by the District Judge, Kapurthala, on August 6, 1976. The plaintiff came up in second appeal (R. S. A. No. 1756 of 1976) to this court, which was accepted, vide judgment dated August 20/1981, and the judgment and decree of the trial court was restored. Neither the parties nor the subject-matter in both the litigations are the same and, therefore, it cannot be held that the present petition under Section 155 of the Companies Act is not maintainable.
9. Issue No. 3.--It is not disputed that two share certificates were issued by respondent No. 1, one regarding shares Nos. 601 to 700 and the other regarding shares Nos. 701 to 800. The learned counsel for the petitioner has vehemently urged that shares Nos. 601 to 700 were purchased by Madho Ram Puri in his individual name and shares Nos. 701 to 800 by him jointly with Raghbir Singh, respondent. In support of this contention, he referred to the certified copies of the annual returns filed by respondent No. 1 to the Registrar of Companies, dated April 27, 1957, (Ex. PW 1/A), April 26, 1958, (Ex. PW 1/B), May 16, 1959, (Ex. PW 1/C), May 30, 1960, (Ex. PW 1/D), two call notices, dated January 29, 1948, (Ex. PW 6/4 and PW 6/5), a certificate signed by Mohan Lal Puri, managing director, dated August 29, 1969, (Ex. PW4/1), share scrips (Ex. PW 4/2 and PW 4/3), shareholders' register (Ex. PW 7/2) and capital register (Ex. PW 7/5). On the other hand, learned counsel for the respondents has argued that both the sets of shares were purchased by Madho Ram Puri and Raghbir Singh jointly and the amount of share money was paid by themin equal shares. Subsequently. Madho Ram Puri and Raghbir Singh wrotea letter dated May 10, 1961, (Ex. PW 3/1), to the managing director of the company that the abovesaid shares were in their joint names, that thesebe split and each of them be given 100 shares. On the basis of that letter,the company passed a resolution (Ex. PW 4/5) dated Jane 22, 1961. According to him, in the aforesaid situation, it cannot be said that Madho RamPuri was the owner of 100 shares individually and 100 shares jointly withRaghbir Singh.
10. I have heard the learned counsel -for the parties at considerable length and given thoughtful consideration to their arguments. I have also seen all the documents carefully. It is evident from the letter dated May 10, 1961 (Ex. PW 5/1), that Madho Ram Puri admitted Raghbir Singh to be a joint shareholder with him with respect to both sets of shares and both of them requested the company that these be split and each of them be given 100 shares. It is not disputed that the letter bears the signatures of Madho Ram Puri and Raghbir Singh. The former was the director of the company. When the above letter came up for consideration in a meeting of the board of directors of the company on June 22, 1961, Madho Ram Puri, being one of the directors, was also present in that meeting. It was resolved there that the shares bearing Nos. 601 to 700 be entered in the name of Madho Ram Puri individually and the shares bearing Nos. 701 to 800 be entered in the name of Raghbir Singh individually. It is further mentioned in the resolution that both the sets of shares were previously held jointly by them. It appears from the letter (Ex. PW 3/1) that Madho Ram Puri was having a vast business. It is stated on the pad on which the said letter is drafted that he was carrying on the business as a coal merchant, kiln owner, arms and amunition dealer and PWD and MES contractor. In that situation, it cannot be said that he signed the document without understanding its language. In addition, he was present at the time of the meeting in which the shares were ordered to be split in their names.
11. Raghbir Singh, RW 2, appeared as a witness and deposed that he purchased 100 shares in the company for Rs. 5,000 and the payment was made by him. through cheque. The shares were allotted to him jointly with Madho Ram Puri, who wrote to the company for splitting up the shares. He further says that Madho Ram Puri never paid him Rs. 2,500. There are no grounds, to disbelieve his statement. That statement also finds support from the statement of Haipartap Rai, PW 7, who is the son of Madho Ram Puri, deceased. He deposed that his father paid Rs. 2,500 to Raghbir Singh In December, 1946, for payment to the company with the request that he should add another Rs. 2,500 from his own pocket. Thus,it is clear from his statement that an amount of Rs. 5,000 was paid by Raghbir Singh to the company. The question arises as to whether Madho Ram Puri paid him Rs. 2,500 or not. There is nothing on record to support the said assertion except the statement of Harpartap Rai. If Rs. 2,500 were paid by Madho Ram, Puri to Raghbir Singh, there must have been some documentary evidence in that regard. In the absence of any documentary evidence, the ipse dixit of the witness, Harpartap Rai, cannot be accepted. It is already stated above, while narrating the facts, that the subscribed capital of the company was 50 per cent. Thus, the value of 100 shares comes to Rs. 5,000. From the aforesaid circumstances, it is evident that Raghbir Singh was the owner of 100 shares.
12. Certified copies; of the returns, Exs. P.W. 1/A, P.W. 1/B, P W. 1/C and P.W. 1/D. the call notices, Exa. P.W. 6/4 and P.W. 6/5, the share scrips, Exs. P.W. 4/2 and P.W. 4/3, shareholders' register. Ex. P.W. 7/2, and the capital register, Ex. P.W. 7/5, were prepared prior to the letter dated May 10, 1961, Ex. P.W. 3/1, written by Madho Ram Puri to the company for splitting up the shares. It appears that through oversight the shares Nos. 601-700 were entered exclusively in the name of Madho Ram Puri in the relevant papers of the company and that mistake continued for a long time. The returns were prepared on the basis of the papers with the company and, therefore, wrong information was supplied to the Registrar of Companies. In view of the fact that thereafter Madho Ram Puri himself admitted that he and Raghbir Singh were joint holders of shares Nos. 601 to 700, much importance cannot be attached to the said documents. It may be relevant to point out that in the shareholders' register, Ex. P.W. 7/2, the corrections were made later and Rughir Singh's name was added in entry relating to shares Nos. 601 to 700. It further appears from the entries against shares NOS. 601 to 700 and 701 to 800 that the former were entered in the name of Madho Ram Puri and the latter in the name of Raghbir Singh in the first instance. But later, the name of Raghbir Singh was introduced in the former and that of Madho Ram Puri in the latter. It is, however, difficult to say when the above changes were made. Similarly, in the capital register, the entry. Ex: P.W. 7/6; relates to shares Nos. 601 to 700. In that as well, the name of Raghbir Singh has been added later. The shares Nos. in the relevant column seem to be in the same ink and pen in which the name of Raghbir Singh was added! It may be relevant to point out that the ink and pen with which the shares Nos. 701 to 800 were entered in Ex. P.W. 7/7 also appear to be the same with which numbers 601 to 700 were added in Ex. P.W. 7/6. Thus, it cannot be said that there are interpolations in the register. In my view, the abovesaid entries do not help the petitioner. In both the share scrips, Ex. P.W. 4/3 (relating to shares Nos.601 to 700) and Ex. P.W. 4/2 (relating to shares Nos. 701 to 800), the name of Raghbir Singh was added later. In both the scrips, his name appears to have been added by the same person with the same ink and pen. It further affirms that in the scrip, the name of Madho Ram Puri only had been entered and, thereafter, the correction was made by adding the name of Raghbir Singh and it was done simultaneously. It is not disputed that the name of Raghbir Singh in the share scrip relating to shares Nos. 701 to 800 was entered correctly. If it was so, it cannot be doubted that the name of Raghbir Singh was entered incorrectly in the share scrip relating to shares Nos. 601 to 700 which, as already stated above, has been done by the same person with the same pen and ink. The counsel for the petitioner has also placed reliance on Exs. P.W. 6/4 and P.W. 6/5, call notices, both dated April 29, 1949. Both relate to 100 shares each but the numbers of the shares have not been mentioned therein. Both are addressed to Madho Ram Puri, contractor, Kapurthala. However, in Ex. P.W. 6/5, subsequently an addition has been made in another hand and the words 'joint with Sardar Raghbir Singh'. The photostat copies and not the originals have been produced. I have already made a mention of the statements of Raghbir Singh and Harpartap Rai, son of Madho Ram Puri, who have admitted that Raghbir Singh paid Rs. 5,000 to the company. The notices are also prior to the date of the application filed by Madho Ram Puri and Raghbir Singh for a splitting up of the 200 shares. In the aforesaid situation, these documents are not of much help to the petitioner.
13. After taking into consideration all the aforesaid circumstances, I am of the opinion that both the sets of shares were owned equally by the deceased and Raghbir Singh. It is not disputed that the petitioner inherited the shares of her husband to the exclusion of other heirs. Therefore, after the death of Madho Ram Puri, the petitioner and Raghbir Singh became owners of both sets of shares jointly. I decide the issue accordingly.
14. Issue No. 4:
15. In order to determine the issue, it is relevant to refer to Articles 20 to 23, which are as follows:
' 20. A share may be transferred by a member or other person entitled to transfer the same to any other member holding shares who is selected by the transferor but save as aforesaid and save as provided hereinafter no share shall be transferred to a person, who is not a shareholder, so long as any shareholder is witling to purchase the same at a price fixed as hereinafter provided.
21. Except where the transfer is made to a shareholder selected as aforesaid, the person proposing to transfer any share (hereinafter called the 'proposing transferor') shall give notice in writing (hereinafter called ' the transfer notice ') to the company that he desired to transfer the same.
22. Such notice shall specify the sum one proposing transferor fixes as the fair value and shall constitute the directors, his agent, for the sale of the share to any shareholder at the price so fixed by the auditor as hereinafter provided in these articles. The transfer may include several shares and in such case shall operate as if it were a separate notice in respect of each share. The transfer notice shall not be revocable except with the sanction of directors.
23. If the directors within the space (the space of six months after being served with such notice) find a shareholder willing to purchase the share ('hereinafter called the purchasing member') and shall give notice thereof to the proposing transferor he shall be bound upon payment of the price so fixed to transfer the share to the purchasing member.'
16. From a reading of the above articles, it is clear that a share can be transferred to another person who is not a shareholder, in case a shareholder is not willing to purchase the same at a price to be fixed as mentioned in the articles. It further provides that the transferor shall send a notice to the company that he wants to transfer the share, if he intends to transfer the same to the name of a person other than a shareholder. After the receipt of the notice, if the directors, within the space of six months, find a shareholder willing to purchase the share, they shall give notice to the proposed transferor in that regard. In case of dispute regarding the price, a procedure has been prescribed for determining it. Thus, restrictions have been imposed, for the transfer of shares, in the articles of association.
17. The petitioner had served notices on the company, under Section 53(2)(a), that whenever a notice is required to be served upon her, it should be sent under registered cover. She had also sent the requisite money for that purpose, vide despatch receipts of money orders, dated August 10, 1970 (Ex. P.W. 7/16), dated August 31, 1971 (Ex. P.W. 7/17), dated September 11, 1971 (Ex. P.W. 7/18), and dated March 9, 1972 (Ex. P.W. 7/19). The case of the respondents is that a resolution dated September 7, 1969 (Ex. R.W. 1/5), was passed wherein it was decided that for transferring the shares by Raghbir Singh to Usha Rani, the prescribed notices be issued. Thereafter, in pursuance of the resolution, notice was sent, vide postal certificate receipt dated February 25, 1971 (Ex. R.W. 1/2), and thepetitioner did not send any reply in pursuance of that notice. Regarding the sale to Smt. Raj Rani, it is stated that she was a shareholder and, therefore the transfer in .her favour cannot be questioned by the petitioner.
18. I have gone through the matter carefully.
19. Even if the story of the respondent is accepted that a resolution was passed on September 7, 1969, to issue notices to the shareholders regarding purchase of shares of Raghbir Singh, the certificate of posting (Ex. R.W. 1/2) does not appear to be proper. In the said certificate, complete address of Smt. Amrit Kaur has. not been given. The letter is alleged to have been posted to her at the following address :
Smt. Amrit Kaur Puri and
Shri Raghbir Singh,
Bhagat Singh Street,
Kapurthala is a fairly big town and it was necessary to mention thenumber of the house where she was residing. At least the name of herlate husband should have been given in the address. It is pertinent tomention that along with her name the name of Shri Raghbir Singh ismentioned, who is not a resident of Kapurthala but of Bhatinda. In thesaid situation, it cannot be said that the letter posted under the said certificate must have reached the addressee. The letter which is alleged tohave been sent through certificate of posting is also not on the record.Moreover, the specific instructions of the petitioner that the notices shouldbe sent to her under registered covers were not followed. In that situation,it cannot be said that a notice was given to the petitioner regarding thesale of shares by Raghbir Singh to Smt. Usha Rani.
20. It is relevant to point out that the petitioner has challenged that part of the resolution wherein a decision was alleged to have been taken regarding service of notice and, in my view, rightly. Item No. 4 of resolution No. 4 reads as follows :
'BusinessResultRecovery of arrears of rent and issue of notices regarding sale of shares by directors and someother shareholders.
A suit for the recovery of arrears of rent, etc., that have again fallen due as also for the ejectment of the lessees,has been instituted in the court before the court closed for September vacation. Resolved that theaction taken be and is hereby approved.Passed unanimously, Further resolvedthat as desired by directors andsame shareholders pre-scribed notices beissued re, sale oftheir shares. Passed unanimously.'
21. It appears from a perusal of the original resolution that the portionsunderlined above were interploated later on as the ink and the pen with which the said portions were written are different. It further appears that there was only one line left between resolution No. 4 and resolution No. 5 and the entries were squeezed in those lines in the column 'result'. It may also be highlighted that the resolution was passed in September, 1969, but no action was taken on it till September 25, 1971, when the notices are stated to have been despatched. No explanation has come forth from the company as to why there was such a delay in sending the notices. From the above circumstances, it appears that there is interploation in resolution No. 4 and the words underlines have been added subsequently.
22. Mr. Bhagirath Dass also challenged the validity of the above resolution on the ground that, according to Article 98, the quorum for a meeting was of four directors. However, there were only three directors present in the meeting in which the resolution was passed and, therefore, it was illegal. On the other hand, the learned counsel for the respondent has urged that the quorum for meetings has been provided in Section 287 of the Act and, according to that, the quorum for a meeting was 1/3rd of its total strength or of two directors, whichever is higher. According to him, there could be nine directors in the company at that time and, therefore, the quorum was of three directors, and, as such, the resolution was proper.
23. In order to determine the question, it will be relevant to refer to Articles 79, 85 and 98, which read as follows:
'79. Unless otherwise determined by a general meeting of the company, the number of directors shall not be less than four nor more than nine and the first directors of the company shall be:...
85. The director shall have power at any time, from time to time, to appoint any person to be a director of the company either to fill a casual vacancy or as an addition to the board but so that the total number of directors shall not at any time exceed the maximum number by the articles.
98. The directors shall meet together for the despatch of business, adjourn and otherwise regulate their meetings in such manner as they may from time to time direct. Until otherwise determined, four directors shall be a quorum. Any two directors or the managing director may at any time convene a meeting of directors. Questions arising at any meeting shall be decided by a majority of votes irrespective of the number of shares held by each director. In case of equality of votes, the chairman shall have a second or casting vote. It shall not be necessary to give notice of any. meeting of the directors to any director who is for the time being absent from India.' (Emphasis provided).
24. According to Article 98, the quorum for a meeting is of four directors. The question arises whether in view of Section 287, the company could provide in its articles that the quorum shall be of four directors. Sub-section (2) of Section 287, which relates to quorum, reads as under :
' 287(2) The quorum for a meeting of the board of directors of a company shall be one-third of its total strength (any fraction contained in that one-third being rounded off as one), or two directors, whichever is higher.'
25. The contention of the learned counsel for the respondent is that the maximum number of directors as provided in Article 79 is nine and, therefore, the articles could provide a quorum of three and in case there is provision for a quorum of more directors than three, that is ultra vires the section.
26. I have not been able to persuade myself to accept this contention. No doubt, it is true that the Act has provided a quorum of one-third of the total strength of the directors or two directors, whichever is higher, but it does not forbid the company to fix a higher number of directors to form a quorum. It provides the minimum number of directors. That means that the company in its articles cannot provide a quorum of lesser number of directors than what is provided in Sub-section. (2) of Section 287. However, it can provide a quorum of directors on the higher side. According to Section 9(b), the provisions contained in the articles are void if these are repugnant to the provisions of the Act. In my view, there is no repugnancy between the provisions of Article 98 and Section 287. Therefore, the minimum quorum for the meeting of the directors is four. However, there were three directors present when resolution No. 4, reproduced above, was passed and, therefore, it is illegal.
27. After taking into consideration all the abovesaid circumstances, it cannot be held that the company gave a notice, much less a valid notice, to the petitioner to purchase the shares of Raghbir Singh transferred by him in the name of Smt. Usha Rani. Therefore, the transfer by him in her favour is illegal. However, it is not disputed that Smt. Raj Rani was a shareholder of the company. A shareholder had a right to transfer his shares in the name of another shareholder, according to Article 20. Therefore, the transfer by Raghbir Singh in favour of Smt. Raj Rani is a valid transfer. I decide issue No. 4 accordingly. Issue No. 5:
28. I have already held above that the transfers of shares by Ragabir Singh in favour of Smt. Raj Rani was valid and in favour of Smt. Usha Rani was invalid. If Smt. Usha Rani had no interest in the shares she could not further transfer them to Parkash Chand Aggarwal, respondent No. 4, It has not been disputed that Parkash Chand Aggarwal was not a shareholder of a company and, therefore, Smt. Raj Rani could not transfer the shares in his name unless the procedure mentioned in arts, 20 to 23 was followed. Admittedly, no such procedure was followed. Thus, the transfer by Smt. Raj Rani in his favour is also illegal. Issue No. 5 is decided accordingly.
29. Issue No. 6 :
30. In view of the aforesaid findings, I hold that Raghbir Singh was rightly shown as the owner of shares Nos. 601 to 700 and 701 to 800, along with the petitioner in the register of members, that the transfer of shares by Raghbir Singh in favour of Smt. Raj Rani is valid but that in favour of Usha Rani is invalid and that the transfers of shares by Smt. Usha Rani and Raj Rani in favour of Parkash Chand Aggarwal are invalid. I, therefore, partly accept the petition and direct that the registers of the company be rectified accordingly. In view of the partial success of the case, I make no order as to costs.