2018 (10) TMI 1859 - Tri - Companies Law

Registration of transfer of Equity Shares - Section 111 of the Companies Act 1956 R/ w Section 58 of the Companies Act 2013 - HELD THAT - Section 56 and 58 of the Companies Act 2013 deals with transfer and transmission of securities and the appeal to the Tribunal. As per Section 56(1) a Company shall not register transfer of securities of the Company unless proper instrument of transfer in such form as may be prescribed stamped dated and executed by or on behalf of the transferor and transferee specifying the name address and occupation of the transferee has been delivered to the Company by the transferor and the transferee within a period of 60 days from the date of execution along with certificate relating to the securities. The Company has rejected transfer of shares vide letter dated 30.10.2015 by citing two reasons for rejection. One is there are criminal/ civil cases being filed by the Petitioner and not attended the board meetings and secondly original share certificates are not enclosed. As stated supra it is not in dispute that the impugned shares were issued to respective Transferors and those shares were purchased by the petitioners for consideration by investing huge amount. The petitioner is admittedly shareholder and Director of the Company. And there are no rival claims by any party with regard to impugned transfer of shares. It is true that the Article 5 of the Articles of Association says that original share certificates has to be enclosed with Share Transfer Form. Since the Transferors themselves have furnished sworn affidavits/ indemnity bonds as stated supra by declaring that they have lost original share certificates and the Company was requested to issue Duplicate share certifies directly to the petitioner as they have sold the shares in question Company cannot again insist to produce original share certificates in question to effect impugned transfer of shares. The other contentions for refusal that there are several criminal/ civil cases filed by the petitioner and he is not attending the Board Meetings he will create problems for smooth functioning of affairs of Company etc. are not all tenable and they are liable to be rejected. It is settled position of law that a Company represented by its Board of Directors cannot exercise its powers arbitrarily and those actions are always subject to judicial review. In any case the Tribunal is empowered to have judicial review of the impugned action of rejection - The action of respondents in refusing to effect impugned shares in favour of the petitioner is arbitrary and unjustifiable. Personal and family issues will not come in the way of law taking its own course. And all the grounds raised for such rejections are hereby rejected as not tenable. Therefore the Company petition deserves to be allowed. Petition allowed.

Summary

Issues Involved:
1. Registration of transfer of 20,000 equity shares.
2. Rectification of the register of shareholders for 20,000 equity shares.
3. Registration of transfer of 12,500 equity shares.
4. Rectification of the register of shareholders for 12,500 equity shares.
5. Validity of the rejection of share transfer by the Company.
6. Delay in filing the Company Petition.

Issue-wise Detailed Analysis:

1. Registration of transfer of 20,000 equity shares:
The Petitioner purchased 20,000 equity shares from Mr. T. Shahul Hameed on 10.04.2015 and complied with all statutory formalities, including public notices and submission of necessary documents to the Company. The Company rejected the transfer request citing non-enclosure of share certificates and the Petitioner's alleged disruptive conduct. The Tribunal found that the transferor provided affidavits and indemnity bonds declaring the loss of original share certificates and requested duplicate certificates. The Tribunal held that the Company could not insist on original certificates when the transferor had declared them lost and requested duplicates.

2. Rectification of the register of shareholders for 20,000 equity shares:
The Tribunal directed the respondents to rectify the register of shareholders by incorporating the Petitioner's name in place of Mr. T. Shahul Hameed for the 20,000 equity shares, effective from the lodgement of the share transfer request on 13.08.2015.

3. Registration of transfer of 12,500 equity shares:
The Petitioner purchased 12,500 equity shares from Mr. P.A. Ibrahim Haji on 30.06.2015, following all necessary formalities. The Company rejected this transfer on similar grounds as the previous one. The Tribunal noted that the transferor also provided affidavits and indemnity bonds for the lost share certificates. The Tribunal ruled that the Company’s insistence on original certificates was unjustified under these circumstances.

4. Rectification of the register of shareholders for 12,500 equity shares:
The Tribunal directed the respondents to rectify the register of shareholders by incorporating the Petitioner's name in place of Mr. P.A. Ibrahim Haji for the 12,500 equity shares, effective from the lodgement of the share transfer request on 13.08.2015.

5. Validity of the rejection of share transfer by the Company:
The Company cited several reasons for rejecting the transfer requests, including the Petitioner's alleged disruptive behavior and pending criminal and civil cases. The Tribunal found these reasons untenable, emphasizing that personal and family disputes should not interfere with legal processes. The Tribunal highlighted that the Company’s actions must be fair and sensible, referencing the Supreme Court's judgment in Bajaj Auto Limited Vs. N.K. Firodia, which states that the discretion of the Board of Directors should not be exercised arbitrarily.

6. Delay in filing the Company Petition:
The respondents argued that the petition was barred by laches and limitation. However, the Tribunal had already condoned the delay in its order dated 30.09.2016, and this could not be reopened. The Tribunal confirmed that the petition was filed within the limitation period, considering the effective date of Section 434 of the Companies Act, 2013.

Conclusion:
The Tribunal concluded that the Company's refusal to register the transfer of shares was arbitrary and unjustifiable. It directed the respondents to register the transfers and rectify the register of shareholders accordingly. The Petitioner was instructed to submit all necessary documents within three weeks, and the Company was ordered to comply within three weeks thereafter. The Petitioner was entitled to all consequential benefits from the transfer of shares. No order as to costs was made.