Registrar Has Right To Step In

THE Supreme Court has clarified the powers of the Registrar of Companies and declared that he can prosecute a company which defaults in the transfer of shares within the time specified in Section 113 of the Companies Act (Registrar of Companies vs Rajshree Sugar & Chemicals Ltd). Earlier there were some doubts about the registrar's standing in this matter and some judgments of the high courts in recent times had denied it to him.

. Section 113 requires a company to deliver the share certificates to the allottee or transferee within three months after the allotment and within two months after the application for registration of transfer of shares. The period is extendable in certain circumstances on application by the company to the Company Law Board (CLB), subject to a maximum of nine months.

 

If a company defaults in this, the company and every officer dealing with it shall be punishable with fine which may extend to Rs 500 for every day during which the default continues. Moreover, the buyer of the shares may apply to the CLB for a directive to the company to deliver the certificates or the debentures to him.

In the present case, the company did not send the certificates within the prescribed time. Therefore, the registrar filed a complaint before the chief judicial magistrate in Coimbatore.

He dismissed it, ruling that the registrar moved the court too late. On appeal, the Madras high court not only upheld the magistrate's view but made the situation worse for the registrar by declaring that he had no standing in the matter.

However, the Supreme Court has now saved the situation for the registrar by allowing it to prosecute defaulting companies. It held that the registrar indeed is a "person aggrieved" in such instances. Under the Criminal Procedure Code, a complaint can be filed only by a person aggrieved or by a police officer. But the Supreme Court pointed out that under the Companies Act, the position was different. Section 621 allows the registrar or a shareholder can file a criminal complaint.

It explained that if the person aggrieved alone was allowed to file complaint, the transferee or allottee of shares or debentures would not be able to do so at all. This is because he is not an existing shareholder of the company.

The court clarified that Section 113 provides for both criminal and civil action against companies and their officials.

While it provides for fine for default in Section 113(2), in another part, the section provides for compensation to the aggrieved person. A person who buys shares (transferee) who is not an existing shareholder of the company cannot file a criminal complaint. It may be done by the registrar. But for civil liabilities, there is no such restriction.