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2017 (5) TMI 1274 - Tri - Companies LawLien on shares - Held that - The Articles of Association is a constitutional document of the company and is also a binding instrument on the shareholders and the company has all the rights to take action against the shareholder as per the Articles of Association by exercising the lien on the shares of the Petitioner. The amount which was due and payable by the Petitioner to the company have not been paid due to which the company has exercised its lien on the Petitioner s shares The company has rightly exercised its lien over the shares of the Petitioner. Therefore the Petitioner is no longer share holder in the company w.e.f. 26.12.2013. Hence the Petitioner cannot continue with this Petition after cancellation of his shares by R1 company. In view of the facts circumstances and case law stated above the Company Petition is hereby dismissed.
Issues Involved:
1. Company's right to cancel shares by exercising lien under Articles of Association. 2. Validity of lien notices sent to the shareholder. 3. Petitioner's challenge regarding the cancellation of shares and lack of notice. Analysis: Issue 1: Company's right to cancel shares by exercising lien under Articles of Association The Tribunal considered the Company Petition filed by the Petitioner against two Respondents. The Counsel for the Respondents highlighted that the 1st Respondent Company had resolved to cancel the share certificates of the Petitioner in exercise of its first and paramount lien on all shares, as per the Regulation Clause (7)(2)(b) of the Articles of Association. The Tribunal noted that the Articles of Association serve as a binding instrument on shareholders, allowing the company to take action against a shareholder by exercising the lien on shares. Citing legal precedents, the Tribunal emphasized the company's right to enforce its legal lien by selling shares for a debt due from the shareholder. Issue 2: Validity of lien notices sent to the shareholder The Counsel for the Respondents submitted that lien notices were sent to the Petitioner's registered address but returned undelivered with an endorsement of "door locked." The original covers of the returned notices were produced as evidence. The Tribunal took into account the submission regarding the notices and their return, indicating an attempt to inform the Petitioner of the company's actions in accordance with the Articles of Association. Issue 3: Petitioner's challenge regarding the cancellation of shares and lack of notice The Respondents had filed a counter to the Petition, clearly stating that the shares of the Petitioner were cancelled due to non-payment of the amount due to the company. Despite being provided with this information, the Petitioner filed a limited rejoinder claiming to have not received any notice from the company. The Tribunal observed that the Petitioner failed to establish why the company was not competent to cancel the shares through the lien, and even if the notice was not received, the Petitioner did not challenge the cancellation of shares promptly. Consequently, the Tribunal dismissed the Company Petition, emphasizing the company's rightful exercise of its lien over the shares. In conclusion, the Tribunal upheld the company's decision to cancel the shares of the Petitioner through the exercise of the lien as per the Articles of Association. The Petitioner's failure to challenge the cancellation promptly and inability to provide a valid reason for disputing the company's actions led to the dismissal of the Company Petition.
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