17 June 2014

CLB not empowered to order issue of shares

The Company Law Board (CLB) does not have power under Section 111 of the Companies Act, 1956 to decide on right to shares and decree suits for specific performance as well as order rectification of register. The Bombay High Court examined the powers of the CLB as regards ordering rectification of register when on facts, there was no agreement to purchase shares, no consideration was paid and when provisions including those relating to acquisition of shares by a foreign company were not complied with. The CLB can decide on a question relating to the title but when title itself is in dispute, a party cannot apply to the CLB for rectification. Title has to be established through trial in a civil court.

The respondent (Ponds Investment Ltd.), along with its subsidiaries who had advanced loans and were trading partners, claimed that it was a majority shareholder in the company of the appellant (Advansys (India) P. Ltd.) and the former was refusing to register the same in its books.

The High Court emphasised that right to shares has to be established by way of valid transfer deed and share certificate. A mere letter of accommodation is not a share certificate. In the instant case, an undertaking signed by directors without the company’s seal, issued for ‘internal purpose’ of the purported holder, was the basis of the claim to shares. The consideration which was claimed to be paid towards the share was loan amount and there was no record of any intention to appropriate the same towards consideration. Regarding the respondent’s claim that as a foreign resident, it could invest through the automatic route without approval, the High Court pointed out on 9-5-2014 that the subject company was governed by the Industries (Development & Regulation) Act, 1951, and it was also not an SSI.


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