Rectification in winding up

 The jurisdiction can be exercised whether before or after the winding up, though after an order of winding up has been made, the leave of the court will be necessary for an application (s. 446 of the 1956 Act), and the order, if made be made retrospective;  But an application for rectification after winding up will be refused, if made after long unexplained delay, even though the case may be proper one for rectification. Rectification will not be permissible after a winding up order is made and rights of third parties have come into existence. The Court referred to an earlier decision of the Division Bench of the Madras High Court where it was held that a petition for rectification could lie after filing a winding up petition and before the winding up order is passed. The Division Bench also held that the court will normally reject the petition if the company is already in a notorious state of bankruptcy. The Division Bench of the Bombay High Court has held that rectification of register is permissible after the company has gone into liquidation if the application for transfer of shares was made before the winding up order but there is delay or default on the part of the company in dealing with the application. A liquidator, however, may apply, and there will be no question of delay in his case; as the cause of action for his application will arise only on the making of the order for winding up.

Rectification of register of members in SICA Company

 The company stood as a principal to its share transfer agent. Certain shares were sent to the agent for registering a transfer. They were not returned to the transferee. In the meantime, the company became a sick industrial company under SICA. It was held that s. 22, SICA, gives no protection to the company against its default in registering a share transfer. The CLB can issue a direction to the company under ss. 111 and 111-A of the 1956 Act for rectification of the register of members. The CLB can in a petition before it decide any question relating to the title of any person who is a party to the petition to have his name entered in or omitted from the register of members.

Rectification-membership of a club

When a member of a club formed a company for promotion of sports he was expelled from the membership of the club. A petition filed by him under s. IIl of the 1956 Act for rectification of the register of members was not maintainable and his remedy would be in the Civil Court as a common remedy.

Plural remedies

When a person seeks to implead himself in a petition under s. 111 of the 1956 Act, he cannot simultaneously seek for rectification of the register of members in his favor as the same would amount to seeking plural remedies which are inconsequential to each other and as such in terms of Regulation 20 of CLB Regulations, the application is liable to be dismissed.

Rectification of mistaken entries

He plaintiff contended that he was the real owner of the shares which were entered in the company’s register of members in the names of others. He wanted a declaration that the shares belonged to him and that the register of members be rectified by replacing those names with his name. It was held that such a claim was not maintainable. There was no question of declaration. If the entries in question were proved to be wrongful, rectification would automatically follow.

Where name of HUF or partnership firm or a proprietorship concern is entered by mistake in the register of members of a company, the mistake can be rectified by the directors on being satisfied as to the facts without the necessity of executing a transfer deed. The intervention of CLB will be necessary only where the directors refuse to rectify the register of members on sufficient cause shown.

Original share certificate returned to transferor by mistake

Where in the office of the company the transfer deed became separated from the share certificate and the company by mistake returned the original share certificate comprising half the number of shares under transfer to the original owner who transferred them again and the subsequent transferee having agreed to receive compensation for his loss in respect of those shares, the CLB ordered that the original owner be directed to pay the agreed amount to the frustrated buyer and the duplicate share certificate which was prepared for him but not issued be destroyed. Where by the mistake of company, in respect of the same set of shares two certificates came into being and issued, the company was held liable to compensate the person who bona fide purchased the shares of the company on basis of any one of the two sets.

Company’s duty to maintain register up-to-date

It is the duty of the company to maintain its register of members with up-to-date information posted in it. The company will not be allowed to take any unfair advantage of its dereliction of duty in this respect. Thus in a petition for prevention of oppression and mismanagement the shareholders to whom share certificates had been issued but whose names were not figuring in the register were held to be competent to file the petition. The responsibility within the infrastructure of the company for maintaining the register and keeping it posted is a matter to be dealt with by the company’s articles. Thus where under the articles of a club registered as a company the membership was restricted to 1,500 members which could, however, be increased by the “general committee”, it was held that it was not proper for the directors to have increased the number of their own accord and to have the new members’ names entered in the register and that, therefore, a petition for rectification of the register by deleting such names was maintainable but the petition was not allowed to go further unless all those persons whose names had to be removed were also joined as parties.

Considering the family nature of the company and shareholding as it originally existed, it was found that the Board of Directors had altered the register of members to rectify the errors and to bring back the register to the state of original state in reference to the shares in question. The CLB said that there was a sufficient cause for such alteration. A deceased shareholder’s wife could not claim any interest in his shares simply because of the probate. This was despite the claim of the wife that the shares were held jointly.

Pending petition against oppression and mismanagement

The pendency of a petition under s. 397 of the 1956 Act [s. 241 of the 2013 Act]for relief against oppression is not a ground for staying an application for rectification of the company’s register of members. The petitioner’s name was dropped from the register by substituting it with another person’s name without sufficient cause and he was seeking restoration of his name. There was the question of locus standi to file a petition for relief against oppression and mismanagement. There was allegation as to sale of shares and therefore no status as shareholder, but there was no evidence on the point. It was held that a company could not register a transfer based on mere communication. The CLB could not reach a conclusion that petitioners were not shareholders in the absence of undisputed materials to support it. The petition was therefore maintainable.

Scope and limits of jurisdiction: Jurisdiction confined to entries in register

It may be noted that the jurisdiction to rectify, though very wide, is confined to matters pertaining to entries in the register. There is no jurisdiction to rectify any mistake in articles of association of a company on any ground even where they do not accord with the intention of the subscribers.

Refusal of registration unless charges levied by company are paid

The claimant was the owner of the leasehold interest in 25 flats in a block of flats in London. The freehold of the block was owned by a company set up by the leasehold tenants for the purpose of owning and managing the block with the exception of four of the leasehold tenants, every lessee owned one share in the company for each flat. The objects of the company were management and administration of flats and to carry out necessary repairs and renovations. Under the articles the shareholders could be required to contribute to funds for establishment of capital reserves management or a sinking fund. Any owner transferring his flat was required to transfer his share also to the new owner. The company was also empowered to refuse to accept the transfer of shares. The company levied certain amounts on the claimant’s flats which were disputed and payment refused. The claimant transferred two flats, but the company refused to register transfer of shares unless levies were paid. It was held that directors could refuse registration of a transfer of shares if they thought it to be necessary in good faith in the interest of the company. It could not be said that a refusal, unless legitimate levies were paid, to be in bad faith.

Compliance with formalities necessary

Because of a statutory restriction on shareholders, a person transferred some of his shares to a lady whose signature he obtained on a blank transfer form. He retained the share certificate and the transfer instrument. He secured the entry in her name in the register of company. Subsequently, and still without the knowledge of the lady, he transferred the shares to another person who had apparently given no consideration. His name was entered in the register and that of the lady struck out. It was held that the lady was entitled to have her name put back in the register. The court has power under the Section 111(7) of the 1956 Act to entertain a petition even where the petitioner has not complied with the requirements of section 108 of the 1956 Act because, when once the petitioner has made out his title to the shares in question, the court can order the execution of the necessary documents for complying section 108. The question of compliance with section 108 of the 1956 Act arises only when the title to the shares is establishment. The mere fact of non-filing of the share transfer form cannot be ground for dismissing the petition on merits. But where the petitioner cannot even make out his title the court cannot help him. Mere acquisition of the assets of a company is not the same thing as the transfer of its shares unless there is also an agreement to that effect. On appeal against this decision the company was directed to rectify its register of members for entering the names of the petitioners. This was because of peculiar history of the case under which the court presumed that the actual transfer under the will of the original holder must have taken place.

 Compliance with Act and articles necessary

It is necessary before invoking the jurisdiction of the court under s. 155 of the 1956 Act [s. 111(4) of the 1956 Act; s. 59(1) of the 2013 Act] that the provisions of the articles of association have been complied with. Where the articles required that the share certificates in respect of the shares under transfer and transfer fee must be deposited with the company, it was held that without compliance with these requirements the court had no power to order rectification. Depositing these documents in the court would not be sufficient. Similarly where the instrument of transfer was executed by a person who had still not become a registered shareholder or had no other authority to deal with shares, it was held that the transfer form was invalid and no order could be issued on the basis of such a form under section 155 of the 1956 Act. Rectification may not be allowed if some formality still remains to be complied with or of the directors have still not exercised their discretion as may be required by the articles.

Rectification of register of members by removing registered transfer

The petition was by a father seeking removal from the register of members his minor son’s name as shareholder. He disputed the validity of the transfer forms under which the minor’s name was entered in the register and which were executed by the minor’s mother on his behalf. The records of the company showed that the mother had been acting as a natural guardian throughout. The father was present at the meeting in his capacity as an officer of the company which approved the transfer but did not object. His objections came one year after that date. He had naturally lost the locus standi to question the validity of the entries. He was also not able to show anything wrong in the form and formalities under which the entries were made.

Rectification of register where transfer without authority

 A person whose shares have been transferred without his authority may seek rectification of the register of members for restoration of his name. Such a transfer is without compliance with the requirements of s. 108 of the 1956 Act. The shares in question were held by a German company in an Indian company. The transfer was made in favor of an American company. The share transfer form was executed without explicit authority of the German company. The manner in which the registration of the transfer was approved by the transfer committee of the Indian company raised doubts about the bona fides of the entire transaction. In the absence of legal authority empowering the executant to sign the share transfer form on behalf of the German company, the Indian company acted in contravention of s. 108(1) of the 1956 Act. The court, therefore, held that the German company was entitled to seek restoration of its name in the register of members of the Indian company. Directors nominated by the American company exercising shareholders rights on the Board of Directors of the Indian company also ceased to be directors with immediate effect.

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