Malleswara Finance and Investments Co. Pvt. Ltd. vs Company Law Board and others

A.R. Lakshmanan, J.—The above writ petition has been filed for the following relief :

To issue a writ of certiorari calling for the records of the first respondent culminating in its order dated May 28, 1993, in C.P. No. 29 of 1992 and

quash the same.

The case of the petitioner is as follows :

By a resolution of the board of directors of the petitioner dated June 5, 1992, it was resolved that an intercorporate deposit of Rs. 2,40,000 be

made to the eighteenth respondent for a period of three years interest at the rate of 15 per cent. per annum. The said deposit was to be secured by

the pledge of 20,000 shares of the third respondent. On June 6, 1992, a letter of pledge was executed by the eighteenth respondent in favour of

the petitioner, which, inter alia, entitled the petitioner to enjoy all legal rights as a shareholder of the third respondent, including the exercise of

voting rights and entitlement to all accretions of the said shares during the period of pledge.

Pursuant to the said letter of pledge, the petitioner, under cover of a letter dated June 7, 1992, despatched the following documents to the third

respondent :

(a) Duly executed and stamped transfer deed dated June 5, 1992, relating to the said 20,000 equity shares executed by the eighteenth respondent

in favour of the petitioner.

(b) The original share certificates relating to the said 20,000 equity shares.

(c) Extract from the minutes of the meeting of the board of directors of the petitioners held on June 5, 1992, containing the resolution authorising

the pledge of shares in favour of the petitioner.

(d) A true copy of the letter of pledge dated June 6, 1992, from the eighteenth respondent in favour of the petitioner.

(e) A copy of the memorandum and articles of association of the petitioner.

On receipt of the said letter dated June 7, 1992, from the petitioner along with the accompanying documents, the third respondents duly

registered the petitioner as a holder of the said 20,000 equity shares in its register of members on June 15, 1992, pursuant to a resolution passed at

a duly convened board meeting of the third respondent held on June 15, 1992. The third respondent by a letter dated June 16, 1992, confirmed to

the petitioner that in its board meeting held on June 15, 1992, the said transfer of shares in favour of the petitioner was duly approved and that a

separate folio number had been allocated to the petitioner in respect of the said shareholding. The intimation relating to the said transfer of shares in

favour of the petitioner was also sent to the second respondent.

On or about July 15, 1992, respondents Nos. 4 to 7 preferred a petition before the first respondent, being C.P. No. 29 of 1992, under sections

397 and 398 of the Companies Act, 1956 (hereinafter referred as ""the Act""), seeking various reliefs against respondents Nos. 3 to 18. In

pursuance of the summons dated August 26, 1992, issued by the first respondent to the petitioner in those proceedings regarding production of

certain documents, etc., before the first respondent, a representative of the petitioner through its counsel complied with the said directions of the

first respondent. The petitioner made an oral application to the first respondent to be impleaded as a party to the proceedings since its interests

were involved in the proceedings as a pledge of the shares having voting rights and the right to receive dividends, etc. But, the first respondent

declined the above request and proceeded with the hearing without giving an opportunity to the petitioner to represent its case. However, the

petitioner being interested in the proceedings, deputed one of its counsel to be present in the proceedings as a spectator. The petitioner was not a

part to the said proceedings. But the order of the first respondent dated May 28, 1993, which is impugned in this writ petition, the name of the

petitioner was ordered to be deleted from the register of members of the third respondent immediately.

The petitioner approached the Karnataka High Court by way of a writ petition against the impugned order and the Karnataka High Court

granted interim status quo order. Subsequently, the said writ petition was withdrawn by the petitioner. On a memo filed by it, without prejudice to

its rights, the Karnataka High Court was pleased to dismiss the writ petition on the ground that it did not have jurisdiction to entertain the same.

Meanwhile, the eighteenth respondent appears to have filed an appeal before the Delhi High Court against the impugned order u/s 10F of the Act

on a preliminary objection being taken by respondents Nos. 4 and 5 on the question of jurisdiction, which culminated before the Supreme Court,

which by its judgment dated October 5, 1993, held that the proper forum to file the appeal would be the Madras High Court within whose

jurisdiction the registered office of the third respondent is situate. It is further understood that the third respondent has filed an appeal against the

impugned order u/s 10F of the Act before the Madras High Court. The petitioner is not a party to any of the proceedings or the appeal. The

petitioner has not approached any other forum except the Karnataka High Court as stated supra.

The petitioner has filed this writ petition on the ground of violation of principles of natural justice since the petitioner was not made a party to the

proceedings before the first respondent in C.P. No. 29 of 1992, in which the name of the petitioner was ordered to be deleted from the register of

members. The petitioner is not canvassing the merits of the impugned order in this writ petition except in so far as it has been passed without the

petitioner being made a party and without the petitioner being given an opportunity of hearing in the proceedings before the first respondent.

Further, the impugned order is clearly in violation of section 111(5) of the Act under which, before any order of rectification of the register of

shareholders is made, the concerned parties should be heard. In the instant case, this mandatory statutory requirement has not been followed, thus

violating the provisions of the Act. According to the petitioner, a perusal of the impugned order would clearly show that it is an indisputable fact

that the petitioner was not a party to the proceedings before the first respondent despite the repeated pleas of respondents Nos. 3 and 18. Thus,

the present writ petition has been filed in this court.

At the time of hearing, paragraphs 5.4, 5.5, 7, 12, 13, 16, 18, 20 and 21 of the impugned order have been referred to, to substantiate the

above plea.

M. S. Janarthanam J. on October 26, 1993, in W.M.P. No. 29969 of 1993, granted interim stay of the impugned order. To vacate the said

order, respondents Nos. 5 and 7 have filed W.M.P. No. 31264 of 1993.

Respondents Nos. 5 and 7 filed a counter-affidavit opposing the writ petition. The following are their submissions :

(a) The petitioner has participated in the proceedings before the Company Law Board as evident from the impugned order. The petitioner has,

therefore, a right of appeal u/s 10F of the Act.

(b) In fact, Mr. Jaideep Gupta, advocate for the petitioner, was present as authorised by the petitioner during the proceedings before the Company

Law Board and he filed the relevant documents covering the pledge and transfer of shares, which fact is borne out by the averments made by the

petitioner in paragraph 6 of the writ petition filed before the Karnataka High Court. The extract of the same is given below :

Even after the petitioner produced the said documents as directed, the first respondent failed to discharge the petitioner from further appearance.

It is thus obvious that the petitioner was neither a stranger nor a bypasser in the proceedings of the Company Law Board but an active participant,

who not merely delivered or produced the documents but advanced arguments to ensure that its rights are protected.

(c) The language of section 10F of the Act does not give any room for ambiguity but makes it clear that any person aggrieved by the order of the

Company Law Board could prefer an appeal.

(d) The rights of the petitioner to the shares which formed the subject-matter of the dispute adjudicated by the Company Law Board are that of a

pledgee. The jural relationship between the eighteenth respondent and the petitioner is that of a pledgor and pledgee. The petitioner did not

subscribe to the shares of the third respondent and no shares were allotted to it.

(e) The Company Law Board issued notices to all the parties concerned including the petitioner and afforded a reasonable opportunity to file their

replies and documents. The hearing lasted nearly eight months and elaborate affidavits were filed. The petitioner was present throughout the

hearing. The petitioner not only produced documents but also appeared through a counsel, advanced elaborate argument on several issues

including issues nor relevant to them and they were heard in every respect.

(f) The order of the Company Law Board was passed on May 28, 1993. The eighteenth respondent filed an appeal before the Delhi High Court

against the impugned order and sought interim stay. The appeal came up for admission on July 22, 1993. The fifth respondent and others appeared

and raised a preliminary objection regarding the jurisdiction of the Delhi High Court to entertain the appeal. The Delhi High Court passed an order

on July 29, 1993, holding that the Delhi High Court had necessary jurisdiction. The fifth respondent filed a SLP on August 3, 1993, before the

Supreme Court and the Supreme Court held that u/s 10F of the Act, the Delhi High Court does not have jurisdiction. Meanwhile, the Delhi High

Court admitted the appeal on August 4, 1993, but no order of interim stay was granted.

(g) Respondents Nos. 3 and 8 to 12 filed C.M.A. No. 743 of 1993 before the court on July 26, 1993, and sought interim orders. The appeal was

admitted but no interim order was passed. The appeal and the stay petition are still pending before this court.

(h) The allegation that the petitioner was not permitted to participate in the proceedings is denied. The petitioner has the alternative remedy of filing

an appeal u/s 10F of the Act.

(i) The impugned order is not arbitrary or capricious as alleged.

The third respondent filed a counter-affidavit admitting the filling of an appeal in this court u/s 10F of the Act challenging the order of the

Company Law Board dated June 4, 1993, which is impugned in this writ petition. The appeal was admitted by this court and is pending. It is

stated that no opportunity was given to the petitioner by the Company Law Board and that notice ought to have been given to the petitioner as the

petitioner''s name is shown in the register of members and without hearing the petitioner, there is a direction to delete its name. There is a clear

violation of the principles of natural justice.

The petitioner filed a detailed reply affidavit denying the allegations contained in the counter-affidavits.

Elaborate arguments were advanced by all learned counsel. The hearing itself lasted for several days. Mr. R. Krishnamurthi, learned senior

counsel appearing for the petitioner, contented that the petitioner is the owner of 20,000 shares as its name is found in the register of members

maintained by the third respondent and, therefore, the direction given by the Company Law Board for removal of the petitioner''s name from the

register of members is not only violative of the principles of natural justice but also against the mandatory provisions of section 111(5) of the Act.

Learned senior counsel, in support of his contention cited the decision in The Jawahar Mills Ltd. Vs. Sha Mulchand and Co. Ltd., and the decision

of the Supreme Court in Life Insurance Corporation of India Vs. Escorts Ltd. and Others, . Learned senior counsel further contended that the

petitioner''s property rights have been affected by the order of the Company Law Board and that the petitioner had made an oral application

before the Company Law Board for impleading it and the same was wrongly disallowed.

Mr. T. Raghavan, learned counsel appearing for the third respondent, supporting the contention of Mr. R. Krishnamurthi, contended that it

makes no difference as to whether a person is a pledgee or owner and that so long as the person''s name is found in the register of members, the

same cannot be removed unless notice is given to the concerned party. Mr. T. Raghavan further submitted that the petitioner was duly registered as

a holder of 20,000 equity shares in the register of members of the third respondent on June 15, 1993, and a separate folio number has been

allotted to the petitioner in respect of the said shares. Consequently, the petitioner is entitled to all rights and privileges as a shareholder, except for

the future accretions in the shares, which were to the benefit of the eighteenth respondent, in terms of the declaration filed u/s 187C of the Act.

According to Mr. T. Raghavan, the privileges of a member can be exercised only by that person whose name is entered in the register of

members and, consequently, no one other than the petitioner can exercise the rights and privileges of a member in respect of the said 20,000 equity

shares. This proposition is well settled by virtue of the decision of the Supreme Court in Balkrishan Gupta and Others Vs. Swadeshi Polytex Ltd.

and Another, and A.M.P. Arunachalam Vs. A.R. Krishnamurthy and Others, .

Mr. T. Raghavan would submit that the proceedings before the Company Law Board, though under sections 397 and 398 of the Act, were, in

effect and substance, a proceeding for rectification of the register of members, for which a substantive provision is available u/s 111 of the Act.

Consequently, where the Act itself provides for a mode of rectification of the share register, the substantive provision cannot be bypassed by

invoking a general provision. It is well-settled that where a power is given to do a certain thing in a certain way, that thing must be done in that way

or not at all. Applying this principle to the facts of the case on hand, where the Act itself contains a specific provision for rectification of the register

of members, u/s 111 of the Act, the Company Law Board does not have the jurisdiction to entertain and direct rectification of the register of

members in a proceeding under sections 397 and 398 of the Act.

K. Shanmukham J., by order dated December 24, 1982, in C.A. No. 622 of 1982, etc., in C.P. No. 48 of 1982, has held that when there is

an express provision for rectification of registers, under the old section 155 (equivalent to the present section 111), such rectification cannot be

done in proceedings under sections 397 and 398 of the Act. In proceedings under sections 397 and 398, the register of members has to be taken

as such and the presumption that all the members whose names are entered in the company''s register of members are valid members. In view of

the above, when the admitted fact is that the petitioner had become a shareholder and was shown in the register of members, its name cannot be

deleted in proceedings under sections 397 and 398 of the Act, that too without being heard.

The order of the Company Law Board, which has in effect set aside the status of the petitioner as a shareholder having been issued without

hearing the petitioner is in violation of the principles of natural justice. The Company Law Board admittedly did not issue notice to the petitioner

notwithstanding the fact that the attention of the Company Law Board was drawn to the fact that before granting reliefs prayed for in the petition,

the petitioner, whose interests are sought to be prejudicially affected, ought to be heard. The failure of the Company Law Board to implead the

petitioner as party to the proceedings has deprived the petitioner of a valuable right as a shareholder of the third respondent.

Even otherwise, according to Mr. T. Raghavan, the Company Law Board ought to have seen that in a proceeding for rectification of the

register of members, the person whose membership is questioned ought to be heard as otherwise, any such order would be in contravention of the

principles of natural justice. In this regard, the Company Law Board has overlooked this mandatory requirement embodied in section 111 of the

Act. Even assuming that the rectification of registers can be effected in a proceeding under sections 397 and 398 of the Act, the procedure and the

manner prescribed u/s 111 of the Act has to be mandatorily followed. Admittedly, when in the case, while ordering rectification of the register of

members, since the mandatory requirements of section 111 of the Act have not been followed, the order of the Company Law Board is vitiated

and ought to be set aside.

Mr. T. Raghavan then submitted that the Company Law Board having noted that the petitioner was present at the proceedings pursuant to

notice issued by the Company Law Board for production of documents, ought to have held that the petitioner was in the position of a third party

witness who was only present to comply with the direction of the Company Law Board for the production of documents. The Company Law

Board ought to have issued notice to the petitioner impleading it as a party to the proceedings or at least to show cause as to why its name should

not be deleted from the register of members. In the absence of the same, the order of the Company Law Board removing the name of the

petitioner from the register of members is against the principles of natural justice. The salutary principle that a member has to be heard before his

name is removed from the register of members, as laid down by this court in the order dated December 24, 1982, in C.A. No. 622 of 1982, etc.,

in C.P. No. 48 of 1982 has been disregarded by the Company Law Board.

Mr. T. Raghavan was followed by Mr. Habibullah Badsha, learned senior counsel appearing for the eighteenth respondent, and he supported

the case of the petitioner. Mr. Habibullah Badsha submitted that the finding of the Company Law Board that the petitioner is only a pledge has no

basis and that directions to the eighteenth respondent to pay the money borrowed from the petitioner was not even prayed for in the company

petition. He further queried as to what would happen if the third respondent does not make payment of the amount paid by the eighteenth

respondent towards the shares. He also relied on the decision in The Jawahar Mills Ltd. Vs. Sha Mulchand and Co. Ltd., . Mr. Habibullah Badsha

further invited my attention to the provisions of sub-sections (e) and (f) of section 402 of the Act and contented that the order of the Company

Law Board has set aside an agreement without hearing the petitioners and, therefore, the same is a bad in law.

Mr. A. L. Somayaji took the lead on behalf of the contesting respondents and replied first on behalf of the fifth respondent and has taken the

court through the complete history leading to the filling of the company petition and gave a chronology of events. From a perusal of the

chronological events, it could be seen that in April, 1992, there was a split in Chhabria''s family. The fourteenth respondent stood on one side and

the other members stood on the other side.

According to Mr. A. L. Somayaji, the seventh respondent''s group issued a notice on April 22, 1992, to the third respondent about its affairs.

On April 30, 1992, the disputed meeting of the board of directors of the third respondent was held in which it was decided to increase the shares

in the third respondent from 5,000 to 25,000. On May 2, 1992, a letter of offer was purported to be sent to the existing shareholders of the third

respondent. On May 5, 1992, the thirteenth respondent filed a petition under sections 247 and 250 of the Act before the Company Law Board to

enquire into the ownership of the shares held in Gordon Woodroffe and Co. Ltd. No interim order was granted and the petition was posted on

May 13, 1992. The fourth respondent is said to have rejected the offer to subscribe in the enhanced shares of the third respondent by its letter

dated May 20, 1992. The eighteenth respondents is said to have accepted 8,000 shares offered to it by its letter May 21, 1992, and seem to have

suggested that they would take additional shares if so allotted. The last date for acceptance was said to be May 22, 1992. In the counter-affidavit

filed on May 23, 1992, by the third respondent in the petition filed by the thirteenth respondent, there was no whisper about any increase of shares

in the third respondent.

On May 25, 1992, the third respondent offered 12,000 shares alleged to have been refused by respondents Nos. 4 to 5 to the eighteenth

respondent and by letter dated June 1, 1992, the eighteenth respondent is alleged to have accepted the offer and made payment of Rs. 1,20,000

by demand draft. On June 4, 1992, the board of directors of the third respondent made an entry for the additional 20,000 shares in the name of

the eighteenth respondent in its register of members. On June 5, 1992, the third respondent''s board allotted 2,000 shares (additional) to the

eighteenth respondent. On the same day, the eighteenth respondent claims that it had decided to accept an intercorporate loan of Rs. 2.4 lakhs

from the petitioner against the pledge of 20,000 shares. On June 5, 1992, the board of directors of the petitioner resolved to grant an

intercorporate deposit of the pledge of 20,000 shares. On June 6, 1992, the eighteenth respondent seems to have executed a letter of pledge in

favour of the petitioner. On June 7, 1992, the petitioner wrote a letter to the third respondent about the pledge of 20,000 shares. On June 9, 1992,

respondents Nos. 4 and 5 made an application to implead themselves in the petition under sections 247 and 250 of the Act filed by the thirteenth

respondent.

On June 15, 1992, the board of directors of the third respondent are alleged to have entered the name of the petitioner in the register of

members. On August 20, 1992, the Company Law Board directed the petitioner to appear in the next hearing to file documents by September 25,

1992, and thereafter, the petitioner was attending through its counsel Mr. Gupta at every hearing of the petition when held. On May 28, 1993, the

Company Law Board passed the impugned order. According to Mr. A. L. Somayaji, all the events alleged to have taken place in the third

respondent are disputed by the fifth respondent. The fifth respondent gave a notice u/s 169 of the Act to the third respondent to call for an

extraordinary general body meeting in which the subject matter proposed was the removal of the board of directors of the third respondent. On

July 5, 1993, the third respondent received the notice and on July 19, 1993, the third respondent rejected the request of the requisitionist. On July

22, 1993, the eighteenth respondent filed an appeal in the Delhi High Court. On July 25, 1993, C.M.A. No. 743 of 1993, was filed by the third

respondent but no stay was granted. On July 27, 1993, the petitioner filed a writ petition in the Karnataka High Court and obtained an order of

status quo. But, on August 12, 1993, the same was withdrawn. On October 25, 1993, the present writ petition has been filed.

After reciting the aforesaid dates of events, Mr. A. L. Somayaji submitted as follows :

(a) The petitioner having appeared through counsel in the proceedings before the Company Law Board is not entitled to complain that it should

have been impleaded or that notice should have been given to it before the impugned order was passed.

(b) The jurisdiction under sections 397 and 398 of the Act is wide enough to pass orders of the kind made by the Company Law Board.

(c) The status of the petitioner is only that of a pledgee and not that of a transferee and therefore, if the petitioner had any grievance of its pledge

being affected, it should seek recourse from the eighteenth respondent and not to file a writ petition against the order of the Company Law Board.

(d) The petitioner was not a person aggrieved. Learned counsel also pointed out the closeness of the dates on which the allotment was made to the

eighteenth respondent, the immediate creation of the pledge in favour of the petitioner and the immediate entry in the register of members of the

third respondent and also referred to the findings of the Company Law Board as to how the whole thing was manipulated. Therefore, the entire

transaction is suspicious and fraudulent, carried out not with any genuine object but with extraneous matter of getting control of the third

respondent to get at the voting rights of the third respondent in Gordon Woodroffe Ltd.

(e) It was also argued that the board of directors of the third respondent have no business to enter the name of the petitioner in the register of

members when the status of the petitioner at best could only be that of a pledgee in a transaction between itself and the eighteenth respondent.

(f) The petitioner did not avail of the opportunity to implead itself before the Company Law Board and the present complaint is only mala fide.

(g) Learned counsel also pointed out that the present claim of the petitioner that it made an oral application to the Company Law Board is an

afterthought as no such averment was made in the writ petition filed in the Karnataka High Court. The conduct of the petitioner in the proceedings

clearly disentitles it for the grant of any discretionary relief under article 226 of the Constitution.

(h) Substantial justice was done between the parties by the Company Law Board and the petitioner does not have any locus standi to file the writ

petition.

(i) The direction of the Company Law Board to remove the name of the petitioner is in consonance with the decision in Radhakrishnan (V.) v. P.

R. Ramakrishnan [1993] 78 Comp Cas 694 (Mad). Setting aside the order of allotment is meaningless if consequential order are not passed.

(j) The complaint that the suit, C.S. No. 966 of 1992, was withdrawn does not merit any contention as the same was withdrawn with leave under

Order 23, rule 1 of the Civil Procedure Code. When there was an alternative relief of appeal provided u/s 10F of the Act, the petitioner is not

entitled to file a writ petition.

(k) That the Company Law Board had found that fraud had been played in the affairs of the third respondent and had referred to the findings of the

Company Law Board in its order and said that if any intervention is made in the order the Company Law Board in this writ petition, it would

amount to blessing a fraudulent act.

Mr. A. L. Somayaji relied on the passage contained in page 894 in the book Law of Writs, fifth edition, by Mr. V. G. Ramachandran. He also

relied on the decision in The Chairman, Board of Mining Examination and Chief Inspector of Mines and Another Vs. Ramjee, , for the proposition

that natural justice is not an unruly horse. He also relied on the decision in Ved Gupta Vs. Apsara Theatres, Jammu and Another, , to say that the

petitioner should have a legal right to challenge a particular order. The petitioner does not possess that right. He further relied on the decision in

State of U.P. Vs. District Judge, Unnao and Others, and The Hindustan Construction Co. Ltd. Vs. Shri G.K. Patankar and Another, , for the

proposition that violation of the principles of natural justice is not an absolute rule and has to be decided in accordance with the facts and

circumstances of each case and should not be applied blindly.

In the instant case, according to learned counsel, Mr. A. L. Somayaji, the petitioner had not suffered any injury nor was it taken by surprise by

the order of the Company Law Board and, therefore, would not be entitled to the application of the rule of violation of the principles of natural

justice. Mr. A. L. Somayaji also referred to the order of M. S. Janarthanam, J. made in Contempt Application No. 528 of 1993 in which it was

held that notice to the pledgor is notice to the pledgee and since the pledgor/eighteenth respondent was present at all times and participated in the

proceedings, no separate notice is necessary for the petitioner and that the participation of the eighteenth respondent in the proceedings is sufficient

compliance with any mandatory provision. Mr. A. L. Somayaji concluded that once an allotment is set aside, the security itself is extinguished and

the petitioner cannot agitate its right in a writ petition.

Mr. C. Harikrishnan, appearing for the fourth respondent, confined himself to answering the propositions of company law argued by learned

counsel appearing for the petitioner and respondents Nos. 3 and 18. According to Mr. C. Harikrishnan, Mr. T. Raghavan is not right in his

contention that no relief of rectification of the register of members can be granted in proceedings under sections 397 and 398 of the Act. He

refuted the contention that rectification can be made only u/s 111(5) of the Act. He brought to the notice of this court, the decision of a Full Bench

of the Delhi High Court in Ammonia Supplies Corporation P. Ltd. v. Modern Plastic Containers P. Ltd. [1994] 79 Comp Cas 163, wherein it was

held that the judgment of a learned single judge of the same High Court, which held that a suit is barred under old section 155 of the Act and that if

a person desires rectification of the register of members he should have recourse only to the provision of section 155 (present section 111(4)),

does not state the law correctly. Therefore, the principle that if a statute prescribes a particular method of remedy then it alone should be followed,

does not apply to rectification of the members'' register. A reading of the said provision indicates that the aggrieved party need not seek recourse

to the remedy u/s 111 of the Act and that the court need not even grant the relief even if such a petition is filed. The Delhi High Court had

approved the judgment of the Madras High Court in Swaminathan (E.V.) v. KM. MA. Industries and Roadways P. Ltd. [1993] 76 Comp Cas 1.

Therefore, according to Mr. C. Harikrishnan, Mr. T. Raghavan was not correct in his submission about the restriction regarding rectification of the

share register.

Proceedings further, Mr. C. Harikrishnan pointed out that the judgment of K. Shanmukham J. in Meenakshi Mills'' case was considering only a

prima facie case for the grant of an interim order and though the learned judge held that on a prima facie reading of section 155 of the Act, it

appeared that rectification could be made only u/s 155 of the Act, still the learned judge concluded saying that it was only his prima facie view and

that the petitioner in the said case could still agitate the matter in the proceedings. Therefore, it cannot be a governing precedent for the proposition

argued by Mr. T. Raghavan Mr. C. Harikrishnan further proceeded to submit that a reading of section 111 of the Act itself would indicate that the

interpretation of Mr. T. Raghavan cannot be correct as the expression ""may"" has been employed at three places thereby indicating that choice is

given to the aggrieved party and also to the court whether to grant the relief or not. In such circumstances, to place a restricted interpretation that

any person seeking rectification of the register of members should at all times proceed only u/s 111 of the Act is not a sound proposition.

Dealing with the provisions of sections 397 and 398 of the Act, it was pointed out by Mr. C. Harikrishnan, that absolute powers of court are

not only embodied in sections 397 and 398 of the Act itself, but also further confirmed in sub-section (g) of section 402 of the Act. When the

statute states that any order could be passed, there cannot be any restriction as to the nature of the order to be passed. He also cited the decision

in Bennet Coleman and Co. Vs. Union of India and Others, in which it was specifically held that the grant of relief under sections 397 and 398 of

the Act is not controlled by any other law or memorandum or articles of association or any other provision under the Companies Act. This decision

was followed in Debi Jhora Tea Co. Ltd. Vs. Barendra Krishna Bhowmick and Others, He also cited the judgment of the Supreme Court in

Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 to say that even in a case where the

petition filed under sections 397 and 398 of the Act is dismissed, still the court is not powerless to grant equitable relief.

Mr. C. Harikrishnan cited the decision in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp

Cas 743 (SC); Eastern Linkers Pvt. Ltd. Vs. Dina Nath Sodhi, and In Re: Gluco Series Pvt. Ltd. and Others, to say that relief can be granted by

setting aside an issue of shares. He also contended that the controversy raised in the company petition before the Company Law Board was not

merely confined to transfer alone and it includes issue of shares and allotment thereof, which are all different from transfer of shares. When once the

issue of shares is set aside, it would amount that 20,000 shares alleged to have been issued are not in existence and, therefore, the third respondent

would be under a duty to give effect to the order of the Company Law Board to remove the name of the petitioner from its register of members

without any specific direction by the Company Law Board.

According to Mr. C. Harikrishnan, while that would be the state of the legal position, it would be futile to contend that the Company Law

Board has passed orders only questioning the share transaction. Once it is held that are no shares, it would amount to pledge of a non-existing

security and, therefore, if the petitioner has suffered on account of that, it is a matter between the eighteenth respondent and the petitioner.

Regarding the point of lack of hearing, he submitted that the proceedings under sections 397 and 398 of the Act are representative in character

and the petitioner, who claims to be a shareholder and who had knowledge of the proceedings, ought to have made its representations, if any, and

is therefore, not justified in complaining.

Mr. C. Harikrishnan would submit that the relief under sections 397 and 398 of the Act is said to be emergent in nature and to say that a

person should spend time in applying for rectification, to say the least, is shocking. Answering Mr. Habibullah Badsha, Mr. C. Harikrishnan

submitted that when the interest of the petitioner was safeguard, the eighteenth respondent is not entitled to complain and if the eighteenth

respondent now supports the petitioner, it is mala fide. If the third respondent does not make payment, it is for the eighteenth respondent to

recover the same from the third respondent.

In so far as Mr. Habibulla Badsha''s reliance on sub-sections (e) and (f) of section 402 of the Act is concerned, it was pointed out by Mr. C.

Harikrishnan that the said argument is without any substance. Those two sub-sections speak about termination and modification of agreements

between the company on the one hand and the third party on the other. No argument about the mala fide and fraudulent issue of shares was

addressed by the eighteenth respondent. No transaction was set aside. The issue and allotment of shares cannot be sustained and therefore the

Company Law Board passed the equitable order which, according to the Supreme Court, should be made for the purpose of doing substantial

justice between the parties. Hence, the argument of Mr. Habibulla Badsha has to be rejected.

So far as the judgment in The Jawahar Mills Ltd. Vs. Sha Mulchand and Co. Ltd., , is concerned, Mr. C. Harikrishnan elaborated the facts

contained in that judgment and submitted that it was a case of rectification sought for in a case of forfeiture which took place five years earlier and

simply because monies were realised from the defaulting shareholders, it would not mean that the shareholders would automatically get an order of

rectification. The passage relied on by learned senior counsel Mr. R. Krishnamurthi and Mr. Habibulla Badsha in the said case has no relevance to

the facts of the present case. It was not held in any authority cited by learned counsel that while passing orders under sections 397 and 398 of the

Act granting a relief of rectification of the register of members, notice must be given to every one of the affected parties.

So far as the contention of Mr. Habibulla Badsha as to how the Company Law Board could give a finding that the petitioner is only a pledgee,

Mr. C. Harikrishnan read out ground No. C, paragraph 5 of the affidavit in the writ petition and also the finding of the Company Law Board in

respect of the status of the petitioner and submitted that it is an undisputed fact that the petitioner is only a pledgee. On the face of the letter of

pledge, the company would not be entitled to contend that there was no pledge.

In so far as the submission of Mr. Krishnamurthi that so long as the petitioner''s name is found in the register of members, it should be

considered that it is a shareholder is concerned, that is a proposition which is unsound not only in law but also on the facts. Mr. C. Harikrishnan

took out the form filed by the third respondent u/s 187C of the Act and showed it to the court that the third respondent itself had filed the form to

say that the petitioner was only holding beneficial interest in the shares of the eighteenth respondent. Such forms are also filed by the petitioner as

could be seen from page 111 of the typed set of papers furnished by the respondents. In the face of such form, to say that the petitioner is the

owner of the shares is misleading. To be a shareholder of a company, he should be in a position to contest for the post of a director. The

eighteenth respondent''s name still continues as holder of 20,000 shares in the register of members. If that be the case, if the petitioner''s alleged

holding is also taken into account, then the total number of shares would exceed even the issued share capital of the company. Therefore, to say

that the petitioner is the owner is totally unacceptable. Mr. C. Harikrishnan further said that merely because a person''s name is entered in the

register of members, he would not automatically be a shareholder of the company. If somebody''s name is entered in the register of members

without anybody''s knowledge, would that person be a member of the company ? Has not the company the power to remove that person from the

register of members without recourse to section 111 of the Act ? These are questions posed. I am of the opinion that Mr. T. Raghavan and Mr.

Habibulla Badsha should not be allowed to support the petitioner and obtain reliefs indirectly, when their clients have filed appeals against the very

same order of the Company Law Board.

Mr. G. Subramaniam, learned senior counsel appearing for the sixth respondent, made a following submissions :

(a) The present writ petition is an abuse of the process of the court. The court take into consideration the attitude of the petitioner and its conduct

in moving the writ petition with utter mala fides. The petitioner''s conduct is such that the court would not extend or grant the discretionary relief of

a writ under article 226 of the Constitution.

(b) There is an efficacious alternative remedy available to the petitioner u/s 10F of the Act and the petitioner ought to have moved the appellate

forum with the leave of court and it cannot circumvent the alternative relief by resorting to article 226 of the Constitution.

(c) By this writ petition, this court is asked to resolve disputed questions of fact, which is not normally done under article 226 of the Constitution.

The petitioner cannot request the court to resolve the controversy and entertain the writ petition on the mere alleged failure to comply with natural

justice and absence of notice. Even this cannot be done unless the petitioner''s position is made known. Even for this purpose of deciding the

character of the relationship between the petitioner and the company, it is not necessary to determine the fact as to whether they are shareholders

or pledgees.

(d) The plea of the petitioner that it was not a party to the company petition before the Company Law Board and on this short ground, it is entitled

to succeed is an argument to be rejected, for, it was physically present before the Company Law Board and its case was effectively represented

both by its own advocates as well as by the party on record, viz., the eighteenth respondent. Under such circumstances, the question of non-

joinder will not arise.

(e) The petitioner is only an eo nomine party and it has no right to be heard.

According to Mr. G. Subramaniam, a party cannot be complimented for his omission to be vigilant despite his knowledge that his interest was

a subject matter of litigation before a Tribunal or court of competent jurisdiction. The normal course of human conduct, about which the court can

draw a presumption u/s 114 of the Evidence Act, 1872, is that when somebody is informed that his interests are in a litigation, he will immediately

seek either to get himself impleaded or to see that his interests are safeguarded through somebody. In the instant case, as seen from the impugned

order, notice was taken by the petitioner and it produced the documents and was present throughout. The order of the Company Law Board at

page 49 (internal page 36) of the typed set is to the following effect :

It is an admitted position both by Malleswara and Bhankerpur that the only interest Malleswara has in these shares is as a pledgee. It is also clear

from the documents relating to this pledge filed before us that the intercorporate deposit is for a period of three years and once it is repaid as per

terms and conditions, the interest of Malleswara in these shares comes to an end.

The above observation of the Company Law Board is based on the admission by counsel for the petitioner and all other parties before the

court.

It is settled law that once an order of court records certain things as having taken place before it, it is not permissible to any party to contradict

it in the appellate forum. In the writ affidavit also it is not stated anywhere that these statements of fact are wrongly referred to. In the decision in

State of Maharashtra Vs. Ramdas Shrinivas Nayak and Another, , the Supreme Court has observed as follows (headnote) :

The court is bound to accept statements of judges recorded in their judgment, as to what transpired in the court. It cannot allow the statement of

the judges to be contradicted by statements at the Bar or by affidavit and other evidence. If the judges say in their judgment that something was

done, said or admitted before them, that has to be the last word on the subject. The principle is well-settled that statements of fact as to what

transpired at the hearing, recorded in the judgment of the court, are conclusive of the facts so stated and no one can contradict such statements by

affidavit or other evidence. If a party thinks that the happenings in court have been wrongly recorded in a judgment, it is incumbent upon the party,

while the matter is still fresh in the minds of the judges, to call the attention of the very judges who have made the record to the fact that the

statement made with regard to his conduct was a statement that had been made in error. That is the only way to have the record corrected. If no

such step is taken, the matter must necessarily end there.

Therefore, according to Mr. G. Subramaniam, the passage at page 36 of the impugned order, that there was admission by the party, is

conclusive.

Then again, inter parts in the order of M. S. Janarthanam J. in C.A. No. 528 of 1993, it has been observed as follows :

From the Board''s orders, as extracted above, it is rather crystal clear that the interest of Malleswara was only that of a creditor, who had placed

an intercorporate deposit and received the shares as security for the loan amount along with interest.

Even in the present writ petition, in the affidavit at page 7, the petitioner stated as follows :

The petitioner made on oral application to the first respondent to be impleaded as a party to the proceedings since its interests were involved in

the proceedings as a pledgee of the shares having voting right, right to receive dividends, etc.

In the Karnataka High Court, the petitioner has sworn to an affidavit, which is at page 85 of the typed set, stating as under :

Even after the petitioner produced the said documents, as directed, the first respondent failed to discharge the petitioner from further appearance.

Even in the present affidavit at paragraph 5, it is clearly stated that a pledge was made. Right through, the petitioner has been putting only a

case of pledge. It is now the petitioner shifts the stand as a shareholder. This aspect as to whether the petitioner can be called a shareholder has

already been dealt with by me while considering the arguments of Mr. C. Harikrishnan and Mr. Vedantam Srinivasan.

The petitioner has no consistent case and it is only trying to divert the attention of the court from the main issues which fall for consideration in

the regular appeal against the Company Law Board''s order u/s 10F of the Act. In the writ petition, the court is not going to decide whether the

petitioner is a shareholder or a pledgee. Even that will necessitate a determination of fact. If the attitude of the petitioner in trying to shift its stand

from Karnataka to Madras having been present throughout the Company Law Board''s proceedings merely watching the proceedings while its

interest was protected by the eighteenth respondent, partly guilty of such a conduct, it cannot be given any relief in this writ petition.

The conduct of the petitioner is blameworthy as demonstrated by three different stands, viz., in the writ petition the petitioner says that it made

an oral application. In the Karnataka High Court, it said that even after production of documents, it was not discharged. In the present reply

affidavit, the petitioner says that it is not its responsibility to get impleaded. Mr. Vedantam Srinivasan, by referring to the Company Law Board''s

regulations has explained this position that the petitioner is deemed to be a party.

On the question of alternative relief, no doubt, there are some decisions which say alternatively it is not a bar to a writ petition. Here, it is a

case of alternative remedy u/s 10F of the Act. The right of appeal is a right created by statute. Where if he is a party to the judgment, he has got

every right to appeal before the higher forum. But, if he is not a party and if his interests are affected, it is incumbent on him to seek special leave of

the court and file the appeal. In such circumstances, the court always grants leave freely even for the mere asking. The following decisions fairly

reflect the above point : Dimmiti Pullayya v. Abdebolu Nagabhushanam, AIR 1962 AP 140; Smt. Jatan Kumar Golcha Vs. Golcha Properties (P)

Ltd., ; State of Madhya Pradesh v. D. K. Jadav, AIR 1968 SC 1186 and K. Ponnalagu Ammal Vs. The State of Madras and Others, . It is not a

mere question of alternative remedy and an option to move the court for sanction. Actually, an appeal was filed by the eighteenth respondent,

under whom the petitioner claims. Consequently, the petitioner cannot invoke article 226 of the Constitution.

The above is a disputed question of fact. What took place in June is a matter to be decided on evidence. It has been tried on evidence before

the Company Law Board. It is only under these circumstances that the status of the petitioner becomes a disputed question. If it is a question of

fact, it has to be decided elsewhere and not to be decided in the writ petition. Learned senior counsel, Mr. G. Subramaniam, relied on the

following two decisions in support of this contention : D.L.F. Housing Construction (P) Ltd. Vs. Delhi Municipal Corpn. and Others, and Hari

Singh and Others Vs. State of U.P. and Others, .

The point about non-compliance with natural justice is answered by Mr. G. Subramaniam by the following submissions. It is not an invariable

rule that in a litigation everybody who is interested must be made a party. If the interest of anyone interested is sufficiently safeguarded or litigated

upon by another party on record, that will be sufficient compliance with the legal requirements relating to the joinder of parties. In this connection, it

is to be remembered that a proceeding under sections 397 and 398 of the Act is representative in character. This court in the decision in L. M. K.

Narayanan v. Puthuthotam Estates (1943) Ltd. [1992] 1 MLJ 253 ; [1992] 74 Comp Cas 30 (Mad) held so. In that case, this court followed the

ruling in Rai Mathura Prasad Vs. Hanuman Prasad Bhagat and Others, If it is a representative action, then, under Order I, rule 8, clause 2 of the

Civil Procedure Code, everybody can come on record on his own. An order passed in a representative capacity is binding on all persons whose

interests are affected by it. Therefore, the submission of learned senior counsel for the petitioner that no notice was given as a party is of no

consequence. u/s 11, Explanation VI of the Code of Civil Procedure, the position is made clear.

When a private right is claimed in common for themselves and others, all persons interested in such right shall, for the purpose of the section,

be deemed to claim under the persons so litigating. Consequently, the non-impleading of the petitioner/Malleswara eo nomine party will not render

the proceedings before the Company Law Board unsustainable. In this connection, learned senior counsel relied on the decision reported in A.

Janardhana Vs. Union of India (UOI) and Others, , wherein it has been held that all through the case of direct recruits has not gone unrepresented

and in that case, the names of respondents Nos. 3 to 18 originally included but later on deleted. Even under such circumstances, the Supreme

Court said there is no question of non-joinder.

In the decision reported in The General Manager, South Central Railway, Secunderabad and Another Vs. A.V.R. Siddhantti and Others, , it

has been held in paragraph 20 that when a particular decision is challenged relating to seniority, the non-impleading of the individual workman likely

to be affected is not fatal to the writ petition.

The last point is the withdrawal of the writ petition before the Karnataka High Court. The relevant records are placed before the court, which

reveal that no leave was ever granted for instituting another writ petition on the same subject-matter by the court. Under such circumstances, the

ruling reported in Sarguja Transport Service Vs. State Transport Appellate Tribunal, M.P., Gwalior and Others, .

Another submission is, it is basic jurisprudence that one court will not entertain any proceeding in respect of which a proceeding in another

court is pending particularly if it is an earlier proceeding. Here is the reason for such a view, viz., it will lead to conflict of judicial decision. If the

writ petition is now entertained, this will virtually stultify the appeal already filed by the third respondent, which is pending before this court and

where no stay is granted. Recently, the Supreme Court has occasion to consider the statutory authority of TADA. There, the question of issue of

writs was discussed in detail. The substance of the judgment is, that judicial discipline and comity of courts require that the court should adopt a

sense of self-imposed restriction and limitation in order to observe the judicial discipline and comity of courts. The court will not exercise its

discretion, for, otherwise it will be impinging propriety. The court should observe constitutional propriety and comity of courts imposing self-

discipline and decline to interfere in any proceedings under article 226 of the Constitution.

Mr. Vedantam Srinivasan, learned counsel appearing for the seventh respondent, made the following submissions. To become a member of a

company, there is a definite procedure prescribed u/s 41 read with section 82 of the Act. A mere entry of a name in the register of members of the

company would not confer on such a person rights as that of a member of the company. In the instant case, the entry of the name of the petitioner

in the register of members of the third respondent is fraudulent and at any rate, the petitioner at best could be only a pledgee of the shares issued

by the third respondent and therefore would not be entitled to claim membership of the company. Article 9 of the articles of association of the third

respondent prohibits any third party to be a member. The Company Law Board has rightly found that the name of the petitioner should not have

been entered in the register of members of the third respondent.

According to Mr. Vedantam Srinivasan, a pledgee cannot claim a higher rate than that of a pledgor. The documents and the pleadings in the

case without doubt show that the petitioner can only be the pledgee of the shares issued to the eighteenth respondent and therefore, it would be

taking the said shares with all defects contained therein. If the issue of shares has been set aside, the petitioner cannot complain and its remedy is

only against the eighteenth respondent and it cannot contend that it should have been heard before the Company Law Board passed the

consequential order of removal of the name of the petitioner from the register of members of the third respondent. Mr. Vedantam Srinivasan

refuted the contention on behalf of the petitioner that it should have been impleaded before the order was passed by the Company Law Board.

The petitioner need not be heard as it has nothing to do with the internal affairs of the third respondent. He also pointed out the effect of section

187C of the Act and the corresponding rules and stated that by reason of filing a declaration, it has been made clear that the petitioner has only a

beneficial interest in the shares and by no stretch of imagination could be described as or called a member of the third respondent. Once it is

decided that the petitioner has nothing to do with the affairs of the company and that its interest is only in claiming the money from the eighteenth

respondent, no notice need be given to the eighteenth respondent by the Company Law Board.

Mr. Vedantam Srinivasan would submit that the proceedings under sections 397 and 398 of the Act are representative capacity action and if

the petitioner, who had knowledge about the proceedings, wanted to intervene, it was its duty to do so and cannot merely watch the proceedings

and later complain about not being heard in the proceedings. Even otherwise, in the definition contained in rule 2(p) of the Company Law Board

Regulations, it has been clearly said that a party would include any person who would be entitled to make suggestions and objections apart from

the parties and the other officials. He also focussed the attention of the court on rules 19, 14, 29 and 30 of the said Regulations to say that when

the petitioner was called upon to produce documents, the Company Law Board had deemed the petitioner a party and once the said position is

accepted, it is for the petitioner to have made representations.

Contending about the alternative remedy, Mr. Vedantam Srinivasan pointed out that rule 30 of the Company Law Board Regulations has

provided that even if a person has not been a party to the proceedings, he would be entitled, as a matter of right, to a copy of the order and the

complaint of the petitioner that no order was communicated to it and therefore, it was not able to file an appeal is an afterthought and

misconstruction of the terms of the said rule. The petitioner could have obtained a copy and filed an appeal. He concluded by saying that the

petitioner and respondents Nos. 3 to 18 had played a fraud in the affairs of the company and it was held so by the Company Law Board and the

court should not come to the assistance of a person who had played a fraud on the statutory Tribunal. He relied on the decisions reported in

Thansingh Nathmal and Others Vs. A. Mazid, Superintendent of Taxes, ; The British India Steam Navigation Co. Ltd. Vs. Jasjit Singh, Addl.

Collector of Customs, Calcutta and Others, and Girdharilal Bansidhar Vs. Union of India (UOI), , wherein the Supreme Court had laid down the

rules as to what are all the circumstances in which a person could be allowed to invoke the powers under article 226 of the Constitution in spite of

an alternative remedy being available.

Mr. R. Krishnamurthi, learned senior counsel, on behalf of the petitioner, replied that the rules in the Company Law Board Regulations relied

on by Mr. Vedantam Srinivasan would not apply to the facts of the present case in view of the specific finding of the Company Law Board that the

petitioner was not a party. Further, he is not concerned about merits and otherwise as to how the name of the petitioner was entered in the register

of members of the third respondent and that it would be sufficient that the court finds that there was a violation of the principles of natural justice

and on that ground alone, the petitioner would be entitled to succeed.

Referring to the case reported in Ammonia Supplies Corporation (P) Ltd. Vs. Modern Plastic Containers (P) and Others, , Mr. R.

Krishnamurthi contended that a Full Bench of the Delhi High Court in that case had only decided that there is no bar to a suit for rectification of

register of members and therefore, the proposition advanced to Mr. C. Harikrishnan cannot be correct. Mr. R. Krishnamurthi stated that the

decision in Institute of Chartered Accountants of India Vs. L.K. Ratna and Others, , is a case in which the Supreme Court was considering the

suspension of a member of the Institute of Chartered Accountants. The Supreme Court clearly held that an alternative remedy is not a bar to filing

a writ petition. Learned senior counsel, at the same time, read the passage that in the said case the learned judges had held that they are granting

relief only on the ground that an order impugned thereunder was affecting the professional reputation of the petitioner and such a rule cannot be

extended to any injury or monetary claim. Mr. R. Krishnamurthi concluded by saying that the court need not go into the merits of the case but

should decide on the mere question of law as to whether there was violation of principles of natural justice in so far as the petitioner is concerned.

Mr. T. Raghavan followed Mr. Krishnamurthi and said that he would still rely upon the judgment of K. Shanmukham J. to say that rectification

of the register of members cannot be the subject-matter of proceedings under sections 397 and 398 of the Act. He would tone down his

proposition by saying that if the court holds that the powers under sections 397 and 398 of the Act are comprehensive enough, the Company Law

Board when it decided to set aside the issue of shares, should follow the procedure prescribed u/s 111 of the Act.

In so far as the declaration u/s 187C of the Act is concerned, Mr. T. Raghavan would submit that the real owner is the petitioner and that the

beneficial owner is the eighteenth respondent.

Mr. Habibulla Badsha, learned senior counsel, stated that he was misunderstood by the other side about his contention relating to sub-sections

(e) and (f) of section 402 of the Act. What he wanted to contend was that when a provision is made for setting aside an agreement even with

regard to third parties, a similar right should also be extended to shareholders. He also refuted the contention that alternative remedy is controlled

by any fixed rule and the courts will always adhere to the rule of issuing a writ in spite of availability of alternative remedy in appropriate cases. The

case on hand is one such instance and therefore, the court should set aside the order of the Company Law Board.

In order to appreciate the respective contentions of the parties, it is necessary to decide the rights of Malleswara over the shares which are the

subject-matter of the company petition before the Company Law Board. Malleswara had decided in the meeting held on June 5, 1992, to make

an intercorporate deposit of Rs. 2,40,000 for a period of three years at an interest of 15 per cent. per annum with Bhankerpur against the pledge

of shares held by the latter in SSPL. The resolution of Malleswara shows that during the period of the pledge they would enjoy all legal rights as a

shareholder of SSPL. In this connection, it is necessary to refer to the following clauses in the letter of pledge dated June 6, 1992 :

Without prejudice to any rights available to you in law as pledgee, we shall from time to time if and when so required by you, executes in favour

or you and your nominee fresh transfer deeds in respect of the said securities pledged hereunder before the validity period of the transfer deeds

lodged by us expires so as to ensure that you or such nominee always has in its possession valid transfer deeds in respect of the said securities.

During the period of the pledge, you will be entitled to all the rights of a shareholder as available under law. You shall also have the right to have

separate folio allotted to you in the register of members in respect of the shares held by you under pledge.

During the continuance of this security all voting rights in respect of any of the said securities shall be exercisable solely and exclusively by you.

We declare hereby that the said securities are our absolute property and free from any lien or encumbrance and we shall not so long as the

borrower(s) remain indebted to you under the said account create any lien charge or encumbrance in respect of the said securities or any of them

or do or permit to be done or omit to do any act whereby the security hereby created shall be in anywise prejudicially affected.

A reading of the letter of pledge clearly reveals that Bhankerpur has only created a pledge in favour of Malleswara in respect of 20,000 shares

as security for the inter corporate deposit of Rs. 2,40,000 made by Malleswara with Bhankerpur. With a view to secure repayment of the said

inter corporate deposit which has been treated as a loan, Bhankerpur has pledged the 20,000 equity shares with Malleswara. Clause 3 which has

been extracted above shows that the transfer deeds have been executed so as to ensure that the pledgee is in possession of valid transfer deeds.

Clause 17 makes it clear that the shares are the absolute property of Bhankerpur. Inasmuch as the letter of pledge and other connected documents

have been sent by Malleswara to SSPL, it is to be presumed that SSPL is fully aware of the nature of the transaction between Malleswara and

Bhankerpur. In fact on June 7, 1992, Malleswara has sent a certified true copy of the letter of pledge along with certain other documents to SSPL.

No doubt, SSPL has recorded the name of Malleswara in the register of members but that is only for the purpose of enabling Malleswara to

exercise voting rights and receive dividend during the period of pledge in accordance with the terms and conditions of pledge. I am of the view that

a reading of the board resolutions of Malleswara and the letter of pledge make it clear and beyond doubt that Malleswara is only a pledgee of the

shares of SSPL held by Bhankerpur. In fact, the Company Law Board has said in its order ""it is an admitted position both by Malleswara and

Bhankerpur that the only interest Malleswara has in these shares is as a pledgee."" No exception has been taken to the said statement in the affidavit

filed by the petitioner in support of the writ petition. The Company Law Board also has found that the interest of Malleswara in the shares is only

as a pledgee. Therefore, when once the allotment of 20,000 equity shares by SSPL is set aside it necessarily follows that Malleswara cannot claim

any right over these shares.

The Company Law Board in exercise of its equitable jurisdiction as envisaged u/s 402 thought it fit that the interest of Malleswara should be

protected. Therefore, it directed Bhankerpur to immediately repay the inter corporate deposit of Rs. 2,40,000 along with interest due to

Malleswara. In my opinion the Company Law Board has fully protected the interest of Malleswara as a pledgee. Malleswara cannot complain that

the order passed by the Company Law Board in this regard is prejudicial to their interest. As a pledgee holding the shares as security the interest

of Malleswara is only to protect the inter corporate deposit of Rs. 2,40,000 made by them. They cannot claim any independent interest or right in

the 20,000 equity shares, the allotment of which has been set aside by the Company Law Board. I am unable to accept that any prejudice has

been caused to Malleswara by the order of the Company Law Board directing SSPL to rectify the register of members to remove the name of the

Malleswara.

What is contended by learned senior counsel for the petitioner is that before deleting their names from the register of members, the Company

Law Board should have hear them. I am unable to accept this contention. When once the allotment made by SSPL in favour of Bhankerpur is set

aside it follows automatically that all consequential transfers will automatically fall to the ground.

It is also seen that the representative of Malleswara was present pursuant to the notice dated August 26, 1992, issued by the Company Law

Board, calling upon Malleswara to produce the relevant documents relating to the inter corporate deposit, pledge and transfer of shares. In fact

Malleswara was represented by a lawyer as could be seen from the impugned order of the Company Law Board. It is surprising to note that

Malleswara did not take any steps to get itself impleaded as a party to the proceedings. A reading of the order of the Company Law Board shows

that the parties were seriously arguing the maintainability of the petition on the ground that Malleswara has not been a party to the petition. It is

strange that Malleswara should keep quiet and watch the proceedings without moving its little finger. Therefore, Malleswara cannot complain at

this stage that the impugned order is in violation of the principles of natural justice and that it was not heard by the Company Law Board. The

Principles of natural justice cannot be invoked by Malleswara, which has been adopting a supine indifference before the Company Law Board. If it

was really interested, it could have taken necessary steps to get itself impleaded as a party before the Company Law Board.

As a matter of fact, Bhankerpur in the counter before the Company Law Board have admitted that they have pledged their shares in favour of

Malleswara. In the affidavit filed in support of the writ petition before the Karnataka High Court, in para 11, Malleswara has stated that if the order

of the Company Law Board is allowed to stand, it will have no security.

I may also refer to the conduct of Malleswara in the course of proceedings before the Company Law Board. As already noticed Malleswara

did not take steps to get itself impleaded as a party even though the parties to the petition u/s 397 were seriously agitating the question whether

Malleswara was a necessary party or not. It is also seen that the lawyer representing Malleswara was present throughout the hearing and a finding

has been recorded to this effect by the Company Law Board in the impugned order. I also find that in the affidavit filed in support of the present

writ petition the petitioner has stated as follows :

In pursuance of the summons dated 26th August, 1992 issued by the first respondent to the petitioner in those proceeding regarding production of

certain documents, etc., before the first respondent, a representative of the petitioner through counsel complied with the said directions of the first

respondent. The petitioner made an oral application to the first respondent to be impleaded as a party to the proceedings since its interests were

involved in the proceedings as a pledgee of the shares having voting rights and the right to receive dividends, etc.

Surprisingly in the writ petition filed before the Karnataka High Court, which was earlier in point of time, the petitioner has nowhere stated

about its having made an oral application to the Company Law Board to be impleaded as a party. On the contrary in the writ petition before the

Karnataka High Court the petitioner has stated as follows :

Even after the petitioner produced the said documents, the first respondent failed to discharge the petitioner from further appearance.

This clearly shows that the Malleswara was not interested in getting itself impleaded in the proceedings. Therefore, the allegation made in the

affidavit filed in support of the writ petition for the first time, that they made an oral application before the Company Law Board cannot be true.

Further, in the reply affidavit filed by Malleswara it is stated that it is for the sixth respondent or the Company Law Board to have impleaded

Malleswara. It is clear from the above that Malleswara has been taking inconsistent stands before different courts. The statement extracted by me

also shows that Malleswara wanted to protect its interests as a pledgee of the shares having rights and the right to receive the dividend. When once

the allotment of shares of SSPL in favour of Bhankerpur is set aside the only right of Malleswara is to get return of the intercorporate deposit made

by it with Bhankerpur together with interest. In other words, independently, Malleswara cannot claim any interest or right in the shares merely on

the ground that they have been given voting rights and right to receive dividends which is made available to them only as a pledgee under the terms

of the letter of pledge.

It is next contended that when once the name of Malleswara is recorded in the register of members the Company Law Board cannot direct

rectification of membership register to remove the name of Malleswara without hearing Malleswara. I am unable to accept this contention. I have

already taken the view that when once the allotment and issue of shares in SSPL, in favour of Bhankerpur is set aside, the share register in respect

of these 20,000 equity shares has to be automatically rectified. When once the allotment is set aside, there is no scope for invoking the aid of

section 111. With the setting aside of the allotment, the allotment itself becomes non est in law. In this connection, I refer to the following decision

of the Madras High Court in Radhakrishnan (V.) v. P. R. Ramakrishnan [1993] 78 Comp Cas 694 :

One argument, however, which does not appear to be of any serious consequence, we may dispose of before we part with this judgment.

Objection has been taken to the direction issued by the learned company judge wherein he has said after holding that allotment of 7,000 equity

shares to respondents Nos. 5, 6 and 8 to 11 is null and void, ''consequent amendment of register of members is also void, is register is rectified

accordingly'', on the ground that under the amendments carried out by the Amendment Act of 1988 the power to amend the register of rectify the

register has been vested in the Company Law Board. In the instant case, we do not find any merit in this submission. We also do not see any

conflict of jurisdiction. We may say so for the reason that once it is found that allotment of 7,000 equity shares to respondents Nos. 5, 6, and 8 to

11 is null and void, it has to follow as a matter of course that the shareholding stood as on 21st September, 1991, before the alleged meeting of the

board held on the said date. Unless such consequential command is issued, the declaration that the allotment of 7,000 equity shares to respondents

Nos. 5, 6 and 8 to 11 is null and void will be meaningless.

Further, the name of Malleswara has been recorded in the register of member of SSPL only to enable Malleswara to exercise voting rights and

to receive dividends in terms of the letter of pledge.

The next contention raised on behalf of the petitioner is that u/s 111 of the Act, it is obligatory on the part of the Company Law Board to have

issued notice to the petitioner. This argument proceeds on the assumption that the proceedings before the Company Law Board were u/s 111. On

the contrary, as noticed by me earlier, the proceedings were taken only under sections 397 and 398 of the Act, and the Company Law Board has

set aside the allotment and issue of additional shares. It goes without saying that all transfers that had taken place should also fall to the ground

when once the allotment is set aside. In a proceeding under sections 397 and 398 of the Act, the Company Law Board has got wide powers. I am

unable to agree that the proceedings before the Company Law Board under sections 397 and 398 of the Act have been converted into

proceedings u/s 111 of the Act. The petitioner whose only right is to claim back the intercorporate deposit consequent upon loss of its security

cannot claim that it should be heard by the Company Law Board. The Company Law Board was fully protected the interest of the petitioner by

directing Bhankerpur to return the intercorporate deposit with interest.

Even otherwise, the principles of natural justice can be invoked only when a right of a person is adversely or prejudicially affected. In this case,

the Company Law Board has amply protected the interest of the petitioner as a pledgee. Therefore, there is no scope for invoking the principles of

natural justice.

It is a well-settled principle that natural justice cannot be imprisoned in a strait-jacket formula. Principles of natural justice have to be applied

depending upon the facts and circumstances of each particular case and they are variable. On the contrary natural justice is not static. Principles of

natural justice have been evolved to vindicate one''s rights. A person who complains of violation of natural justice should have been prejudicially

affected. Natural justice is not a ""mantra"" which can be invoked on all sundry occasions and to reduce them to a mechanical ritual. Hence, a person

who complains of violation of natural justice has to establish his rights first and them demonstrate that such rights have been prejudicially affected.

Wade in his book Constitutional and Administrative Law, tenth edition page 644, observes as follows :

In what circumstances are bodies other then courts bound to observe the rules of natural justice ? It would be an exaggeration to suggest that

natural justice must be observed whenever an official or public body exercise a legal power. The duty arises in a variety of situations, whenever it is

particularly important to an individual directly affected by the decision that a fair procedure should be observed. Therefore if the exercise of power

directly affects a man''s rights, or his property, or his character, it is more likely to be subject to natural justice, so is a decision which follows a

procedure involving the confrontation of two opposing views, in a manner comparable to that of litigation.

In A.K. Roy and Others Vs. Union of India (UOI) and Others, , the apex court has observed as follows (at page 749) :

But the importance of the realisation that the rules of natural justice are not rigid norms of unchanging content, consists in the fact that the ambit of

those rules must vary according to the context, and they have to be tailored to suit the nature of the proceeding in relation to which the particular

right is claimed as a component of natural justice.

In the book on Administrative Law, second edition, by Durgadas Basu at page 231, it has been stated as follows :

Though both in England and India it has been held that there is no universal or uniform standard of natural justice applicable to all cases coming

within the purview of the doctrine and that the contents or requirements of natural justice vary with the varying constitution of different quasi-judicial

bodies and their functions, the subject-matter of enquiry, the relevant statutory provision and other circumstances of the case, nevertheless it is

agreed on all hands that there are certain broad principles deducible from the Latin maxims which form the foundation of the doctrine and extend to

all case where the doctrine is attracted.

Garner in his book on Administrative Law, seventeenth edition, page 179, has stated as follows :

What will actually be required to have been done to satisfy these basic obligations may vary much from one context to another (i.e., what is due

notice or adequate information, or fair opportunity to state one''s case), will depend on context.

Thus at one end of the spectrum they may approximate to judicial procedures associated with the courts of law, viz., clear and timely advance

notice of charges or the case to be met all evidence upon which the decision is to be based to be openly available to affected parties, opportunities

to make representations to counter such charges or allegations to produce witnesses and to cross-examine the witnesses by the other side, no

hearing of one side in the absence of the other and in appropriate cases the opportunities to be represented by a lawyer.

P. P. Craig, in his book on Administrative Law, second edition, at page 210, has observed as follows :

The court will take into account a wide variety of factors : the type of decision being given, whether it is final or preliminary, the nature of individual

interest, the type of subject-matter and how far it is felt necessary to supplement the statutory procedure, to name but a few. None of these

principles will be determinable.

De Smith in Judicial Review of Administrative Action, fourth edition, at page 158, has observed as follows :

No proposition can be more clearly established than that a man cannot incur the loss of liberty or property for an offence by judicial proceedings

until he has had a fair opportunity of answering the case against him unless indeed the Legislature has expressly or impliedly given an authority to

act without that necessary preliminary.

In Ved Gupta Vs. Apsara Theatres, Jammu and Another, , it has been held as follows (at page 987) :

In the absence of any legal right or legitimate expectation being available to the petitioners there is no obligation on the part of the District

Magistrate to afford them a hearing before passing the impugned order.

In State of U.P. and Another Vs. Dr Abdul Quddus and Others, , it has been laid down as follows :

That an order prejudicially affecting the person shall not be made without hearing him and considering his objections, if any, to the proposed

order. But an order can be said to affect a person prejudicially only if any right of his would be affected adversely.

It is clear from what is stated that the requirements of natural justice must depend upon the circumstances of the case, the subject-matter that is

being dealt with and so forth. Before a person can invoke the aid of the principles of natural justice, it is necessary to establish that his right has

been adversely affected by an action of a quasi-judicial or administrative authority. If the person complaining of violation of principles of natural

justice has no legal right, there is no obligation on the part of the authorities concerned to afford a hearing. On the facts of the present case, I have

already come to the conclusion that the petitioner is only a creditor who has taken pledge of the shares as security. If that be so, the only right of

the petitioner as a creditor and as pledgee is to get back the inter-corporate deposit made by the petitioner with Bhankerpur. So long as that right

of the petitioner is not in any manner affected by the impugned order, the petitioner cannot complain of violation of the principles of natural justice.

The Company Law Board in the impugned order has amply protected the right of the petitioner by directing Bhankerpur to return the

intercorporate deposit of Rs. 2,40,000 together with interest. Consequently, the petitioner cannot make any grievance that any of his rights much

less a legal right has been adversely affected. If the contention of the petitioner is accepted, it would to unnatural expansion of the principles of

natural justice.

Mr. R. Krishnamoorthy, learned senior counsel, then contended that his right to receive the dividend and right to vote has been taken away by

the Company Law Board under the impugned order. This contention does not merit any consideration. The very right to exercise voting rights

flows only from the terms of the letter of pledge which specifically confers the right on the petitioner. But for the terms contained in the letter of

pledge, the petitioner cannot exercise the voting rights and claim dividends. Therefore, I am unable to lend support to the contention raised on

behalf of the petitioner on this aspect of the matter.

It is next contended that when once the name of the petitioner is recorded in the register of members, it cannot be removed without hearing

him. The name of the petitioner has been recorded pursuant to the letter of pledge so as to enable the petitioner to exercise voting rights and claim

dividends. In my opinion, this is not a case wherein the name of the petitioner has been recorded in the register of members pursuant to a sale or

transfer of shares. In my opinion, it is only because of the express terms of the letter of pledge that the name of the petitioner has been recorded in

the register of members. This is not a case of transfer of shares from Bhankerpur to the writ petitioner for a valid consideration. I am unable to shut

my eyes to the circumstances and facts preceding the recording of the name of the petitioner in the register of members. Apart from this, it is also

to be mentioned that article 6 of the articles of association of SSPL has a bearing on this question. For the purpose of convenience, article 6 is

extracted below :

If at any time any shareholder desires to transfer his or her share held in the company, the share shall, in the first instance, be offered at a price

determined by the auditors of the company to the existing shareholders or to such other party to whom the board of directors may agree.

The above article makes it clear that it is obligatory on the part of a shareholder desiring to transfer the share to offer it in the first instance to

the existing shareholders and the price is to be determined by the auditors of the company. If the existing shareholders decline to accept the offer

then it can be transferred to an outsider and even then it is necessary that the party to whom the shares are transferred should be agreeable to the

Board of Directors. Therefore, it is clear that Bhankerpur could not have transferred the shares to Malleswara without first offering the same to

Standard"" and ""Stridewell"". Therefore, any transfer of shares made by SSPL in favour of the writ petitioner will be ultra vires the company.

Hence, it is to be held that the name of the writ petitioner was recorded in the register of members only for the limited purpose of enabling the

petitioner to receive dividend and exercise voting rights pursuant to the letter of pledge. As noticed by me already, the letter of pledge is very clear

in that it specifically provides that the shares which are offered as security are the absolute property of Bhankerpur.

Heavy reliance has been placed on the unreported decision of Shanmugham J. in C.C. Nos. 622 to 625, 705 and 738 of 1992, dated

December 24, 1992, in support of the proposition that the remedy to rectify the register of members can only be done u/s 155 equivalent to the

present section 111 of the Act. I have gone through the order. The order relied on by the petitioner was given at an interlocutory stage in a main

proceeding under sections 397 and 398 of the Act. Judgment rendered at an interlocutory stage may not constitute a binding precedent. Even

otherwise, that was a case where the learned judge was considering the question of an interlocutory stage before the allotment of shares was set

aside, whereas in the present case the Company Law Board has already found in the impugned order that the allotment and issue of further capital

by SSPL to the extent of rupees two lakhs to Bhankerpur is illegal and has set aside the same. Therefore, the order made by Shanmugham J. is not

of any assistance for deciding the present case.

Further, the Division Bench ruling reported in Radhakrishnan (V.) v. Ramakrishnan (P.R.) [1993] 78 Comp Cas 694 (Mad), referred to and

extracted supra, will clearly apply to the facts of the present case. The ruling of the Division Bench is binding on me and I respectfully follow the

same. Therefore, when once the allotment is held to be null and void it is to follow as a matter of course that the register of members has to be

rectified. Otherwise, it will lead to a strange situation wherein notwithstanding the setting aside of the allotment the name of the person to whom the

shares have been allotted or transferred will continue to remain on the register of members.

Thus, on a careful consideration of the entire materials on record and of the arguments of all learned counsel, I am of the opinion that the

Company Law Board has done substantial justice to the petitioner and the petitioner cannot feel aggrieved by the order of the Company Law

Board in so far as it directs Bhankerpur to return the intercorporate deposit together with interest, consequent upon the setting aside of the

allotment and to rectify the register of member of remove the name of Malleswara.

For the foregoing reasons, this writ petition is liable to be dismissed and is accordingly dismissed. No costs.