Section 111 of Companies Act, 1956
Section 111(4) of the 1956 Act corresponds to sub-section (1) of s. 59 of the 2013 Act. As stated earlier, s. 111(4) was applicable only to private companies, however, section 59 is applicable to public companies as well. The notes below are in the context of s. 111(4) of the 1956 Act, and are relevant in the context of s. 59(1) of the 2013 Act. Please note that the case law below may also be in the context of s. 155 of the 1956 Act. This refers to the erstwhile s. 155 which was migrated into s. 111 of the 1956 Act by the Companies (Amendment) Act 1988. This article clearly specifies a rectification of register under the Companies Act, 1956 and also the Amendment act, 2013.
Rectification of register
The word ‘rectification’ means that there is either something in the register which should not be there or something omitted from the register which should rightly be there, and the register is accordingly ordered to be rectified. Where something is done by the operation of law or in accordance with the directions of the Court, there is no question of any wrong or defect which requires rectification. Where the facts showed proper execution of transfer forms, attestation of signatures, surrender of share certificates and payment of consideration through bank, rectification was held to be not allowable without proving that the facts on record were wrong. On appeal the order of the single Judge was reversed. The transfer of the shares alleged to have been made by the petitioners was declared as invalid on the technical ground that transfer forms though stamped, the stamps were not cancelled and, therefore, they had to unstamped. The petitioners were accordingly declared to be continuing as the members of the company. Some others who had similarly transferred shares and who were not a party to the petition, the Court passed no order in reference to them.
Those who were present at the meeting which approved a transfer were not afterwards permitted to challenge the validity of the transfer. The challenge in this case was on the ground that the shares transferred by the transferor were part of the petitioner’s Strachan property and therefore the transferor did not have the power of the disposal without her consent. The case arose under s. 155 before its absorption into section 111of the 1956 Act and the courts then usually refused to look into such extraneous matters. This judgment of the single Judge was affirmed in Suresh Kumar Manchanda versus Prakash Roadlines Ltd., Cases. The court counted the factors that may disentitle a petitioner from relief, namely, suppression of material the factors that may facts, acquiescence, delay, laches, etc. Apart from delay, there was also acquiescence in this case because petitioners participated in meetings which were attended by transferee and it would seem that the transfer under question had been taken as an accomplished fact. This fact was suppressed by the petitioner. All these factors put together dis-entitled the petitioner from seeking relief of rectification. In another case involving similar facts the transfer of shares in a public company made ten years earlier with the approval of the Board was not allowed to be questioned when the persons objecting did not do so in the relevant meeting of the Board and the transferees since then had been enjoying all the legal rights and benefits arising from those shares.
Earlier to repeal of s. 155 and its re-enactment in s. 111(4) of the 1956 Act it was held that the power of the court under the section was untrammelled by s. 111 of the 1956 Act (i.e., s. 111 as it stood prior to incorporation of s. 155 into it). The transferee might seek relief either under s. 111 or under s. 155 [This is to be understood as the position prior to the 1988 amendment. After the1988 amendment transferee may seek relief under s. 111 of the 1956 Act. Under the 2013 Act, transferee may seek relief under s. 59(1). The Court could not determine the beneficial ownership of shares in proceedings under s. 155 of the 1956 Act [s. 111(4) of the 1956 Act; s. 59(1) of the 2013 Act]. The section gives unlimited jurisdiction to the Court to rectify the register. In all cases where justice requires it, the order to rectify will be made.
Acting under the power of the articles of association which declared that, if the transferee is a proper person the share will be transferred to the name of the transferee, the Company declined to register the transfer of a share. The transferee of the share applied to the Court for rectification of the register of shares by having his name substituted for that of his transferor. The court allowing the claim held that it had jurisdiction to decide, even without reference to the directors or the company, whether the transferee had a right under the articles to get his name registered or not and for that purpose to determine whether he was a proper person.
Applicability of Table A of Companies Act, 1956
Where in the absence of any specific provisions in regard to transfer of shares by legal heirs of deceased shareholder in the articles of association of the company, such transfers have to be regulated in accordance with Regulations 26 and 27 of Table A [corresponding Regulations 24 and 25 of Table F of Schedule I to the 2013 Act] of Schedule I to the 1956 Act.
Discretion of court in ordering rectification
The discretion to order or refuse rectification of register of members is the same as discretion to grant, or refuse specific performance of agreement to allot shares. One of the questions in this case was whether there could be refusal to exercise discretion on grounds of delay and prejudice. The court said that the exercise of discretion could be affected by delay and prejudice. By sitting back and doing nothing for seven years until it suited him to enforce his rights, the petitioner had failed to display the need for promptitude which was ordinarily required of a person seeking specific performance. Further, the rectification of the company’s register was going to cause manifest injustice to the party who had purchased control of the company in ignorance of the petitioner’s claim to certain unregistered shares and also on the footing that the acquisition was of the whole of the company’s issued share capital. It followed that even if the petitioner had established an enforceable claim to the allotment of 10,000 shares in the company, the court would have exercised its discretion under s. 359 of the 1985 [UK] Act, to refuse to grant relief.
The expression “aggrieved person” would include a transferor of shares who had handed over the transfer documents to the transferee who lodged them with the company and the same were rejected by the company as bad delivery (signature of transferor not agreeing). Before the merger of s. 155 into s. 111 as sub-s (4) under the 1956 Act and prior to the 1913 Act, too an appeal lay to the High Court against an order of a District Judge rejecting an application for rectification of the register of members. So long as the grievance of a member or an aggrieved person or company is that there has been default or unnecessary delay in entering in the register the fact of any person having become or ceased to be a member, an application under s. 111(4) of the 1956 Act can be made. The cause of action to invoke the provisions of s 111(4) of the 1956 Act arises only when the fact of any member having ceased to be a member is brought before the company or its Board and there is default or delay in taking decision. The petitioners failed to furnish any evidence that they approached the board of directors of the company seeking removal. Hence, there was no cause of action against the company.
Specific instances of rectification
Please see below for a list of illustrative instances where rectification has been held to be permissible in the context of English Law as well as cases in the context of erstwhile s.155 and amended s. 111 of the Indian 1956 Act. These cases can aid understanding the circumstances under which rectification is permissible under s. 59 of the 2013 Act. However precedence must be given to the 2013 Act and the rules issued under it, and they will prevail.
- applicant induced to take shares by misrepresentation;
- shareholders’ name removed under unlawful surrender of his shares,
- allotment of shares before consent under the Capital Issues (Control) Act, 1947
- allotment irregular,
- Allotment in violation of articles made by two directors in favour of their relatives without the sanction of the Board only for the purpose of increasing the majority of the directors.
- Name of nominee entered in register without his knowledge or consent.
- A forged transfer acted upon the act.
- Applicant’s name improperly entered in register and then struck off on forfeiture of shares.
- Invalid forfeiture of shares:
- Illegal discount issue;
- Improper neglect or unreasonable delay in registering transfer;
- Accepting payment for shares in kind without filing particulars in compliance within main enactment;
- Placing on the register signatory of an underwriting letter not amounting to a contract;
- Allotment not made within reasonable time;
- Joint holders seeking to split the holding into individual holding;
- Company’s register showing matters which are not required to be there;
- Allotting shares to a non-resident without permission necessary for foreign exchange
- Improper or illegal refusal to accept a transmission; Transmission of the shares of the deceased shareholder was pending. Allotment of further shares proportionately ought to have been kept intact till transmission issue was resolved. There was no justifiable reason for allotment of shares to other shareholders without making an offer to the petitioning shareholders. The allotment being mala fide was ordered to be rectified.
- Entering a person’s name in the register without agreement in writing as require by s. 41 of the 1956 Act.
- Entering a person’s name in the register in respect of certain shares without any transfer form and also without any consideration; the original owner’s name was ordered to be restored.
- When the CLB records the finding that the requirements of s. 22A of SCRA 1956 (Since omitted) were not violated by the proposed transfer the CLB would have to order rectification.
- Allotment of bonus shares and entry in the register when subsequently it was discovered that the memorandum of the company prohibited dividend to be paid out of surplus realized on sale of property and there was no other allocable profit.
- Allotment in violation of memorandum.
- The company failed to produce any document showing transfer of shares or registration of transfer. There was also no proof of any payment of consideration. A direction for rectification of the register of members was held to be proper.
- There was an arrangement in a private limited company that shareholding would be in a certain proportion. The board of directors was held to be bound by it. The provision in the articles which conferred discretion on the Board in the matter of allotment of shares could not be taken to be unfettered. Such power could not be used to obtain a majority. The register of members was to be rectified to the extent of allotment in violation of the arrangement.
- There was illegal withdrawal and diversion of money from the company’s account representing its share capital. There was no authorization for this purpose by the company’s Board of Directors or under articles of the company. Shares allotted in lieu of it were directed to be cancelled and the register of members to be rectified accordingly.
- Names of certain persons were entered in the register of members as joint shareholders. The company failed to produce any document or Board resolution to establish the decision for inserting such names. No justification for doing so was there. Names of such persons were directed to be deleted.
Fraudulent allotment of shares
When a person secures allotment of shares by fraud and misrepresentation, in exercise of powers under s. 11(4) of the 1956 Act the Company Law Board can cancel the allotment and order rectification of the register of
- members. It may be noted that in the context of the 2013 Act, these powers are
- granted by s. 59(2) of the 2013 Act, and are to be exercised by the Tribunal. However
- applicable provisions in the 2013 Act, constituting Tribunal are not yet notified, at the
- time of going to press. Refusal to register transfer in family company. The directors of a family company refused to accept transfer of shares in their discretion on the ground
- that it would destablise the management and control of the company to the detriment
- other family members. The refusal appeared to be legitimate and not shown to be
- oppressive or fraudulent. The CLB is not to review discretion exercised by directors.
- Mutation of name in other company’s register of members.
- The company which has
- changed its name would be entitled to ask those companies in which it is holding shares
- to substitute the company’s new name in their register of members in place of the old name.