K. KALYANARAM (FORMERLY KNOWN AS K. KALYANARAMAN) Vs. V.K. KALYANASUNDARAM AND SONS HOTELS P. LTD. (NOW M/S. KENCES CONSTRUCTIONS P. LTD.) AND OTHERS

JUDGEMENT

(1.) THIS is a petition filed under section 111(4) of the Companies Act, 1956 ("the Act") seeking to set aside the transfer of 20,000 shares made in favour of respondents Nos. 2, 3 and 6 and to rectify the register of members by entering the name of the petitioner in respect of the above shares. The petitioner is a permanent resident and citizen of Malaysia. His grandfather V.K. Kalyanasundaram (now deceased) acquired respondent No. 1 company which was then known as V.K. Kalyanasundaram and Sons Hotel P. Ltd. (now named as Kences Construction P. Ltd). The company invested land and building in Tirupati in order to put up a hotel. However, the company could not accomplish the object. The authorised share capital of the company is Rs. 50,00,000 divided into 5,00,000 equity shares of Rs. 10 each. The petitioner purchased 20,000 shares in the company in the year 1993. The petitioner's father V.K.K. Krishnamurthy was assisting V.K. Kalyanasundaram in all his ventures. V.K. Kalyanasundaram died on February 10, 1994. His wife Amminiammal is alive. The petitioner was pre -occupied with his studies in the United States. After his graduation in 2001 he returned to Malaysia. Even though he used to visit India very often since the elders were managing the properties and the business venture of the family, the petitioner trusted the elders and believed that they will act as trustees of his investments in the company and he did not probe into the affairs of the company. The affairs of respondent No. 1 company were being managed by a board of directors and respondents Nos. 4 and 5, the sons -in -law of V.K. Kalyanasundaram. The petitioner used to sign proxy forms for all purposes of the company. During a visit to India in March -April, 2003, the petitioner found a newly built hotel functioning in the property of the company at Tirupati. The name of the hotel indicated as Kences Fortune Hotels P. Ltd., as against the original name Hotel Vishnupriya. On enquiry he was informed that substantial shares in respondent No. 1 company has been acquired by the sixth respondent. The petitioner was informed that respondents Nos. 4 and 5 had disinvested their interest in the company. The share certificates in the name of the petitioner were left in the custody of respondents Nos. 4 and 5 and other family members. Subsequent enquiry revealed that the shares held by the petitioner had been illegally sold by someone to third parties. The letter dated July 14, 2010, issued by Suri and Co., chartered accountants and the note of auditors revealed that the 20,000 shares belonging to the petitioner had been illegally sold to respondents Nos. 2 and 3 who are the daughters -in -law of V.K. Kalyanasundaram. The auditor's report indicates that the alleged transfer of shares by the petitioner to the second and third respondent did not actually take place. On further enquiry it is revealed that respondents Nos. 2 and 3 had subsequently sold the 20,000 shares to the sixth respondent. The petitioner neither executed any transfer deed nor received any consideration. The alleged transfer of shares is illegal, forged and fraudulent and not binding on the petitioner. Hence the petition. Later, the company petition has been amended by correcting the name of respondent No. 1 company as Kences Construction P. Ltd.

(2.) RESPONDENTS Nos. 2 and 3 filed a counter denying the allegations of fraudulent transfers of the impugned shares. The petitioner was only a student in the year 1993 and not in a position to purchase the 20,000 shares. Since the company was closely associated within the family, his grandfather had allotted the impugned shares to the petitioner. Since the petitioner was abroad he entrusted his shares with his father to sell the same along with share transfer forms duly endorsed in the presence of witnesses. The petitioner's father sold the impugned shares to respondents Nos. 2 and 3 at 10,000 shares each and received consideration by way of cheques in the name of the parties as directed by the petitioner's father. It is denied that the shares were purchased without the knowledge of the petitioner. The purchase of shares was done in 1997 -98 and respondents Nos. 2 and 3 are bona fide purchasers. Since the petitioner was frequently coming to India he was aware of the transfer of shares as early as in 1998 itself. He has slept over his right for a very long time and filed this petition with ulterior motive and by suppressing all material facts. The company petition is barred by limitation and laches. After knowing about the transfer of the entire shareholding to M/s. Kences Foundations P. Ltd., the petitioner approached the third respondent and obtained a mortgage loan of Rs. 1,00,000 by executing a mortgage deed on December 20, 2002, in respect of the properties situated in Chokkikulam, Madurai District. On the same date, he executed a memorandum of understanding and borrowed another sum of Rs. 29,00,000. He also executed a power of attorney in favour of respondent No. 3 in respect of the above property. When the third respondent asked the petitioner to return the mortgaged amount, he executed a consent document on May 6, 2005, to dispose of the property for a sum of Rs. 60,00,000. In order to stall the sale of the property he cleverly inducted a tenant in the property and did not take any steps to evict him. Thus, the third respondent was prevented from recovering the loan amount from the petitioner. When the third respondent enquired about the above matters, he filed the present petition with ulterior motive to deceive respondents Nos. 2 and 3, the petitioner has not come with clean hands. The impugned shares were transferred by the petitioner's father in his capacity as manager/executive director. However, he is not made a party to this petition. Respondent No. 1 company has been taken over by M/s. Kences Foundations P. Ltd. It is therefore prayed to dismiss the company petition.

(3.) THE petitioner was domiciled in Malaysia. According to him, he purchased 20,000 shares in 1993 from his grandfather V.K. Kalyanasundaram. Kalyanasundaram died in the year 1994. The petitioner's case is that since he was in the United States in connection with his studies, respondents Nos. 4 and 5 were managing the affairs of respondent No. 1 company. He returned from the United States in 2001 and again returned to Malaysia after signing proxy forms. Evidently, the 20,000 shares held by him were transferred to respondents Nos. 2 and 3 in the year 1998. According to the petitioner he came to know about the transfer of 20,000 shares sometime in 2003 from the note of the auditor's report. The definite case of the petitioner is that he has neither transferred the shares, signed the share transfer forms nor received any consideration. It is averred that the transfer of shares in favour of respondents Nos. 2 and 3 are vitiated by fraud, forgery and illegality and hence liable to be set aside.