2017 (4) TMI 1419 - AT - Companies Law

Oppression and mismanagement - illegal transfer of shares - as alleged that the respondent illegally transferred 1st respondent s/petitioner s shares to 2nd respondent - Held that - In the absence of a date of transaction alleged by the respondents to reckon the commencement of three year period, the date of knowledge becomes material and in the instant case it is contended by the petitioner that he became aware that he has not been shown as a shareholder, only from November/December, 2006 and that only in February 2007 of the alleged illegal and fraudulent transfers, after perusing the annual returns based on inspection. The respondents have not been able to rebut through any documentary evidence other than claiming that since the annual returns have been regularly filed it should be imputed that the petitioner had the knowledge of the transaction of share transfer in 2003 itself and hence should have come within the prescribed period which he had failed to do. We are unable to purchase the argument of the respondents for the simple reason that in the absence of any definite date of transaction reflected even in their own record, namely the annual return or for that matter as rightly contended by the petitioner even in the pleadings, the date of knowledge becomes material for the purpose of reckoning the period of limitation and since the petitioner has been filed within 3 years from the date of knowledge i.e. in the year 2007 and as the instant petition is only a continuum of the earlier CP 67 of 2007, we hold that the petition has been filed within the period of limitation and hence maintainable. In view of the specific and well reasoned judgement given by the Tribunal and in absence of any specific date of transfer of shares in favour of 2nd respondent, we find no ground to interfere with the impugned judgement. The appeal is dismissed.

Summary

Issues:
Transfer of shares alleged as fraudulent and sham, challenge to the impugned order based on lack of evidence, burden of proof on respondents, failure to produce necessary documents, delay in challenging transfer, knowledge of shareholders regarding transfer, preservation of records by private limited companies, annual returns as evidence, date of transfer crucial for limitation period.

Transfer of Shares Alleged as Fraudulent and Sham:
The appeal was filed against an order passed by the National Company Law Tribunal regarding the transfer of shares alleged as fraudulent and sham. The petitioner transferred shares to the 2nd respondent, and the Tribunal concluded the transfer was fraudulent and sham. The appellants challenged this finding, arguing that evidence, including annual returns, showed the transfer was legitimate. The respondents failed to produce necessary documents to substantiate the transfer, leading to doubts about the validity of the transaction. The Tribunal's detailed analysis supported the conclusion that the transfer was indeed fraudulent and sham, dismissing the appeal.

Challenge to Impugned Order Based on Lack of Evidence:
The appellants challenged the impugned order mainly on the ground that the finding of fraudulent transfer was not based on the record and was considered perverse. They argued that despite evidence, including annual returns, showing the transfer in 2003, the petitioner delayed challenging the transfer. The Tribunal, after thorough consideration of the evidence and arguments presented, upheld its decision that the transfer was fraudulent and sham, dismissing the appeal due to lack of concrete proof provided by the respondents.

Burden of Proof on Respondents and Failure to Produce Necessary Documents:
The Tribunal highlighted that the burden of proof regarding the transfer of shares for valuable consideration lay with the respondents. However, the respondents failed to produce essential documents such as share transfer forms and certificates to substantiate the alleged transfer. The absence of these crucial documents raised doubts about the validity of the transaction, leading the Tribunal to question the authenticity of the transfer and dismiss the appeal based on insufficient evidence provided by the respondents.

Delay in Challenging Transfer and Knowledge of Shareholders:
The appellants argued that the petitioner delayed challenging the transfer despite having knowledge of it. The respondents claimed that the transfer was legitimate and recorded in the ordinary course of business. However, the lack of necessary documentation and the delay in challenging the transfer raised suspicions about the authenticity of the transaction. The Tribunal's analysis emphasized the importance of timely action and proper evidence in such cases, ultimately leading to the dismissal of the appeal.

Preservation of Records by Private Limited Companies and Annual Returns as Evidence:
The respondents, a private limited company with two shareholders, claimed they were not required to preserve records beyond a certain period. They relied on annual returns to support the legitimacy of the share transfer. However, the Tribunal noted that the absence of specific dates and necessary documents cast doubt on the validity of the transfer. The analysis underscored the significance of maintaining accurate records and providing concrete evidence in legal proceedings, ultimately influencing the outcome of the appeal.

Date of Transfer Crucial for Limitation Period:
The Tribunal emphasized the importance of the date of transfer in determining the limitation period for challenging such transactions. The respondents' failure to provide a specific date of transfer and necessary documents, coupled with the petitioner's delayed knowledge of the transfer, influenced the Tribunal's decision. The analysis highlighted the relevance of accurate documentation and timely action in legal disputes involving share transfers, ultimately contributing to the dismissal of the appeal.