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2020 (3) TMI 1268 - Tri - Companies LawRectification of the Register of Members of the Respondent Company - Restraint on Respondent Company from holding the Annual General Meeting or Extraordinary General meeting - Recovery of rental dues - auction of shares - Whether the Company by exercising paramount lien can sell off the shares of a shareholder for recovering the dues? - HELD THAT - The Respondent Company in the instant petition will fall under the category of unpaid seller who can exercise the above rights only. Nothing more. It is settled law as decided by the Hon ble Supreme Court of India in its judgement in Triveni Shankar Saxena Vs State of UP and Ors. 1991 (12) TMI 285 - SUPREME COURT a lien is only a right to retain which is rightfully and continuously in possession belonging to another until the claims are satisfied. It can be acquired either by contract or by operation of law. It is the right of retention of goods - in the absence of delineated process to exercise paramount lien, the Respondent Company can exercise lien to the extent of retention of goods; in this case shares which can be extendable payable to the shareholder - thus respondent have no right to unilaterally sell the shares which are in possession of the shareholder, without the consent. Whether the action of 1st Respondent Company is backed up by any contractual agreement to recover the rental dues by auctioning the shares? - HELD THAT - Any of the unilateral action by one party, will not bind the others and will be set aside. Further the contention that the shops are under benami holding and not conforming to the Income Tax Act is not supported by any valid notice from income Tax authorities or any credible report to support this argument. Even if we go by submissions of learned PCS for respondents, we have not come across any steps taken by the respondent company to regularise the position in respect of the shops which are the property of respondent Company. During the arguments the bench asked to the PCS representing the company whether the company has taken any steps to get the shop vacated by the occupants for their rental arrears. The respondents submitted that they have not taken any action in this regard. Whether due process is followed by the Company in auctioning and allotting the shares to a 3rd party? - HELD THAT - The Articles of Association of the company is silent about the process to be followed to ensure paramount lien. However, in the Respondent Company, the lien was exercised for recovery of rental dues by auction the shares. Here the Respondents exercised right to lien to recover the arrears of rent from the shareholder who has not agreed to execute rental/lease agreement - In the instant petition, the Respondent auctioned the shares without the consent of shareholders and without original shre certificate and transfer form in their possession. The earlier action appears to the illegal and not as per the Companies Act 2013. The company has no right to auction and allot the shares to the third parties ignoring the right of fully paid up shareholders. The rental dues claimed by the respondent company is not supported by rental/lease agreement which is agreed by shareholder - petitioner is declared as the legitimate equity share holder - the register of members of the Respondent Company to be rectified by re-entering the total number of equities shares belonging to the petitioner in the share register of the company and order to restore the total shareholding of the petitioner as it is existed prior to 08.02.2019 forthwith - Respondent Company is restrained from conducting tender for sale of 200 shares from allotting or effecting transfer of any shares belonging to the petitioner without his express consent to any members or non-members till rectification of share register.
Issues Involved:
1. Whether the Company by exercising paramount lien can sell off the shares of a shareholder for recovering the dues? 2. Whether the action of 1st Respondent Company is backed up by any contractual agreement to recover the ‘rental dues’ by auctioning the shares? 3. Whether due process is followed by the Company in auctioning and allotting the shares to a 3rd party? Detailed Analysis: Issue 1: Whether the Company by exercising paramount lien can sell off the shares of a shareholder for recovering the dues? The tribunal examined the Articles of Association of the 1st Respondent Company and the Model Articles of Association in Schedule I Table F of the Companies Act, 2013. Clause 6(1) of the Articles of Association of the Company specifies that Regulation 9 of Table A shall not apply, meaning Clause 9 of Table F is inapplicable. Clause 6(2)(b) allows the company to exercise paramount lien for dues recovery, extendable to dividends. However, the Articles do not delineate the process for such recovery. The tribunal found that the company’s action of auctioning shares without the shareholder’s consent was not supported by the Articles or the Sale of Goods Act, 1930, which only allows retaining possession until claims are satisfied. Thus, the tribunal concluded that the company had no right to unilaterally sell the shares. Issue 2: Whether the action of 1st Respondent Company is backed up by any contractual agreement to recover the ‘rental dues’ by auctioning the shares? The tribunal found no agreement indicating that the shops occupied by the Petitioner were leased. The company collected service charges without a formal lease agreement. The tribunal noted that in the absence of a written agreement, the unilateral action of the company was baseless. Claims of benami holding and non-compliance with the Income Tax Act were unsupported by credible evidence. The tribunal emphasized that any unilateral action without a basis in a contractual agreement is invalid. Issue 3: Whether due process is followed by the Company in auctioning and allotting the shares to a 3rd party? The tribunal found that the Articles of Association were silent on the process for ensuring paramount lien. The company’s action of auctioning shares for rental dues recovery was examined in light of the Delhi High Court judgment in Jagatjit Distilling & Allied Industries Ltd V. Bharath Nidhi Ltd, which differentiates between lien and pledge. The tribunal concluded that the company’s auctioning of shares without the shareholder's consent and without possessing the original share certificate and transfer form was illegal and not in accordance with the Companies Act, 2013. Order: 1. The petitioner is declared the legitimate equity shareholder under Folio No. 70 and 75. 2. The register of members of the Respondent Company must be rectified to re-enter the petitioner's total equity shares as they existed prior to 08.02.2019. 3. The Respondent Company is restrained from conducting a tender for the sale of 200 shares or effecting any transfer of the petitioner’s shares without express consent until the share register is rectified. 4. The Respondent Company must file the rectified Register of Members with the Registrar of Companies within one month. 5. The Respondent Company is directed to pay ?25,000 to the petitioner for costs and damages. Dated this the 5th day of March 2020.
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