2016 (12) TMI 1835 - HC - Companies Law

Transfer of cumulative redeemable preference shares in favour of Respondent No.1 - rectification in register of members - HELD THAT - There is nothing to suggest that the compromise amounts to redemption of the preference shares or conversion of the amount due thereon (or any other reduced amount) into a corporate debt. Respondent No.2, even after the sanction of the scheme, continues to be a preference shareholder with agreement to accept 70% of the face value of the redeemable preference shares over a period of 10 years without any dividend. There is no question of any redemption of shares or conversion into a corporate debt or extinguishment of transferability of the preference shares as a result. Appellant submits that Respondent No.2 has transferred the subject shares to Respondent No.1 in contravention of law including breach of RBI guidelines. Nothing is pointed out as to what particular contravention is committed by Respondent No.2 in transferring the shares. There is no merit in this contention accordingly. Appellant further submits that the shares of the face value of ₹ 100/ of 5,00,000 preference shares of the Appellant company have been transferred by Respondent No.2 to Respondent No.1 at a price of ₹ 5,000/ and that the value of the shares has thereby been severely undermined by Respondent No.2. The value of the shares is a matter between the transferor and transferee. The Company can hardly be concerned with the same. In any event, such value is not binding on the Company. There is, accordingly, no merit in this contention also. Appeal dismissed.

Summary

Issues:
Challenge to order passed by Company Law Board under Section 111A(2) of the Companies Act, 1956 regarding transfer of preference shares. Interpretation of share redemption and corporate debt conversion under Section 80 of the Act. Allegation of transfer contravention by Respondent No.2. Dispute over the price of transferred shares and its impact on the company.

Analysis:
The appeal challenged an order by the Company Law Board (CLB) regarding the transfer of 5,00,000 preference shares held by Respondent No.2 to Respondent No.1. Respondent No.1 sought registration of the transfer, which the Appellant objected to. The CLB directed the transfer of shares to Respondent No.1 and rectification of the register of members. The Appellant argued that the shares were redeemed and converted into a corporate debt under a compromise scheme, extinguishing transferability. However, the Court found that the compromise did not amount to redemption or debt conversion, as Respondent No.2 remained a preference shareholder under the scheme.

The Appellant also contended that Respondent No.2 breached laws and RBI guidelines by transferring the shares to Respondent No.1. The Court dismissed this argument, noting the lack of specific contraventions cited. Additionally, the Appellant claimed that the transferred shares were undervalued at ?5,000, undermining their worth. The Court held that the value of shares is a matter between the parties involved and not binding on the company, thus rejecting this contention. Ultimately, the company's appeal was dismissed, and no costs were awarded in the case.