2016 (6) TMI 1228 - HC - Companies Law

Share transfers cancellation request - appellant ceased to be a shareholder of the 1st respondent Company - seeking rectification of register - oppression and mismanagement - locus standi of the appellant to maintain the Company Petition - Held that - In the instant case, the CLB in Annex. A12 order non-suited the appellant on a finding that, the transfer of shares by the appellant to the 4th respondent is legal and valid, and on such transfer the appellant ceased to be a shareholder of the 1st respondent Company, who has no locus standi to file the Company Petition. Two circumstances taken into account by the CLB for arriving at such a conclusion are that, the appellant has not denied the transfer of shares to the 4th respondent nor disputed the signatures on the share transfer forms and that, the transfer of shares held by the appellant to the 4th respondent is shown in the annual returns of the 1st respondent Company made upto on 30.9.2011. When the fact that, on incorporation of the 1st respondent Company the appellant was issued with 500 equity shares, equivalent to 50% of the issued share capital of the Company, and the further fact that he was managing the affairs of the Company as its Managing Director are not in dispute, the burden is heavily upon the respondents to prove that the appellant ceased to be a share holder of the said Company on account of the alleged transfer of his entire shareholding to the 4th respondent and vacated the office of the Director of the Company, as provided under Section 283(1)(a) of the Act. Though the respondents would contend that, the alleged share transfer was with the approval of the Board of Directors of the 1st respondent Company, none of the documents produced along with Annex. A9 counter filed before the CLB or the additional affidavit filed before this Court would indicate any such approval/sanction. In such circumstances, we find no reason to sustain the finding in Annex. A12 order of the CLB that appellant ceased to be a shareholder of the 1st respondent Company and hence he has no locus standi to file the Company Petition. The question as to the locus standi of the appellant to maintain the Company Petition requires fresh consideration with reference to the original minutes of the meetings of the Board of Directors of the 1st respondent Company and other statutory records. As the Company Law Board stands dissolved with effect from 1.6.2016, on the constitution of the National Company Law Tribunal, by virtue of the provisions under sub-section (1) of Section 466 of the Companies Act, 2013, such exercise shall be undertaken by the National Company Law Tribunal, Chennai Bench. In the result, this Company Appeal is allowed, setting aside Annex. A12 order of the Company Law Board, Chennai dismissing C.P. No. 100 of 2011 as not maintainable and consequently vacating the interim orders, if any, operating as on that date in that Company Petition, and the matter is remanded to the National Company Law Tribunal, Chennai Bench, for fresh consideration of the question of locus standi of the appellant to maintain the Company Petition, with reference to the original minutes of the meetings of the Board of Directors of the 1st respondent Company and other statutory records.

Summary

Issues Involved:
1. Locus standi of the appellant to file the Company Petition.
2. Validity of the share transfer from the appellant to the 4th respondent.
3. Alleged coercion in executing the share transfer form.
4. Appointment of the 3rd and 4th respondents as Directors.
5. Alleged acts of oppression and mismanagement in the affairs of the 1st respondent Company.

Detailed Analysis:

1. Locus Standi of the Appellant:
The appellant challenged the order of the Company Law Board (CLB) which dismissed his Company Petition on the grounds that he lacked locus standi, having transferred his shares to the 4th respondent. The CLB's decision was based on the appellant's failure to deny the transfer of shares or dispute the signatures on the share transfer forms. The appellant argued that he was coerced into transferring his shares under threat, but failed to provide legal evidence of such coercion. The court found that the CLB's conclusion was premature as the approval of the Board of Directors for the share transfer was not evident in the documents provided.

2. Validity of the Share Transfer:
The appellant contended that the share transfer was invalid due to the lack of re-validation before its acceptance in a Board meeting. The respondents claimed the transfer was approved in a Board meeting on 28.5.2011, but there was no evidence of prior Board sanction as required by Article 16 of the Articles of Association of the 1st respondent Company. The court noted that the minutes of the meeting did not comply with Section 193 of the Companies Act, which mandates consecutively numbered pages to ensure authenticity.

3. Alleged Coercion:
The appellant alleged that he was coerced by the 4th respondent and others to sign the share transfer form under threat of bodily harm. The respondents denied these allegations and pointed out that the appellant did not report the alleged threats to the police or take any legal action. The court emphasized that the appellant's claims of coercion needed thorough examination, which was not adequately addressed by the CLB.

4. Appointment of Directors:
The appellant sought to declare void the appointment of the 3rd respondent as Director and the 4th respondent as Managing Director, as well as the change in his own designation from Managing Director to Director. The respondents argued that the appointments were legal and ratified in subsequent Board meetings. However, the court found inconsistencies in the respondents' claims and the lack of proper documentation to support the appointments.

5. Alleged Acts of Oppression and Mismanagement:
The appellant detailed various oppressive tactics and acts of mismanagement by the respondents. The respondents denied these allegations, asserting that the appellant had divested his shareholding and had no standing to question the company's affairs. The court highlighted the need for a fresh examination of these claims by the National Company Law Tribunal (NCLT).

Conclusion:
The court set aside the CLB's order dismissing the Company Petition and remanded the matter to the NCLT for fresh consideration. The NCLT was directed to examine the original minutes of the Board meetings and other statutory records to determine the appellant's locus standi and the validity of the share transfer. The court allowed both parties to produce additional documents to support their claims. No order as to costs was made.