2016 (8) TMI 240 - HC - Companies Law

Rectification of the Register of Members - transfer of shares - Held that - The transfer of shares in the instant case occurs automatically by operation of law. The respondent Company acquired an interest in the shares by operation of law without any voluntary act on its part. The question of law is answered with the observation that the transfer of shares in a third company pursuant an order sanctioning a scheme of amalgamation does not require compliance with the provisions of Section 108(1) of the Act of 1956. The order of CLB directing rectification of shares is upheld.

Issues Involved
1. Rectification of Register of Members.
2. Compliance with Section 108 of the Companies Act, 1956.
3. Effect of Amalgamation on Share Transfer.
4. Applicability of Section 111A vs. Section 111 of the Companies Act, 1956.
5. Allegations of Fraud and Locus Standi.

Detailed Analysis

1. Rectification of Register of Members
The primary issue was the rectification of the Register of Members of M/s. Metro Infrastructure Development Limited, initially resisted by the appellant. The Company Law Board (CLB) directed the appellant company to effect the registration of the transfer of 90 shares in the name of the petitioner, M/s. GNB Credit Private Limited, which later amalgamated with the respondent company. The CLB's order was affirmed by the High Court, which held that Section 111A of the Companies Act, 1956, applied to the public limited company, making Article 5A of the Articles of Association otiose.

2. Compliance with Section 108 of the Companies Act, 1956
The appellant contended that the transfer forms were not duly stamped and were not submitted within two months as required under Section 108(1A)(b)(ii). However, the CLB and the High Court held that the shares are freely transferable under Section 111A, and the mandatory requirements of Section 108 must be complied with for effecting the transfer. The judgment emphasized that the transfer of shares by operation of law, such as through amalgamation, does not require compliance with Section 108(1).

3. Effect of Amalgamation on Share Transfer
The amalgamation of GNB with the respondent company was sanctioned by the High Court, and GNB was dissolved. The High Court held that upon amalgamation, the transferor company ceases to exist, and the amalgamated company acquires a new status. The transfer of shares occurs automatically by operation of law, and the company is obliged to register the shares in the name of the amalgamated entity without the need for compliance with Section 108(1).

4. Applicability of Section 111A vs. Section 111 of the Companies Act, 1956
The CLB and the High Court determined that Section 111A applies to the rectification of the register for public limited companies, not Section 111. The High Court clarified that companies converted into public companies under Section 43A are covered under Section 111A, and the power of refusal under Section 111 cannot be extended to transfers under Section 111A.

5. Allegations of Fraud and Locus Standi
The appellant alleged that the order dated 19th April 2012 was obtained by GNB through suppression of facts and fraud, arguing that GNB had no locus to contest the appeal post-amalgamation. The High Court rejected these allegations, stating that the respondent company, as the successor-in-interest of GNB, is entitled to pursue the petition for enforcement of rights. The court also dismissed the appellant's contention that the orders were inexecutable due to the merger.

Conclusion
The High Court upheld the CLB's order directing the rectification of the Register of Members, emphasizing that the transfer of shares by operation of law through amalgamation does not require compliance with Section 108(1). The appeal was dismissed, affirming the respondent company's right to have the shares registered in its name. The court clarified the applicability of Section 111A over Section 111 for public limited companies and rejected the allegations of fraud and lack of locus standi.

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