2018 (1) TMI 536 - HC - Companies Law

Validity of transfer of shares - Non-registration of pledged shares or subsequent registration - sanctioned scheme for compromise with creditors - Held that - The sanctioned scheme for compromise with creditors of Royal Airways Limited filed in Company Petition No.385/2003 noted the principal amount due to the respondent No.1 as ₹ 5.00 Crores. This scheme was also upheld and it attained the finality. The Division Bench of this Court in its judgment dated 09.11.2012 rejected the pleas of respondent No.1 challenging the scheme and therefore, the contention of respondent No.1 viz. the liberty granted by the Division Bench was only to determine the dues to respondent No.1 under the scheme is misleading. Admittedly, the scheme, as sanctioned on 15.07.2005, records the principal amount payable to the respondent No.1 as ₹ 5.00 Crores. The respondent No.1 s plea before the Division Bench of this Court, as recorded in its order dated 09.11.2012 was the respondent no.1 has been wrongly categorized as an unsecured creditor in the scheme and now that an amount of ₹ 1.39 Crores has been received as a sale s consideration it need to be reduced from the principal amount of ₹ 5 crore as recorded in the scheme. Such plea was ignored. The scheme has now attained finality. The debt of respondent No.1 as recorded in the scheme is ₹ 5.00 Crores and 70% amount payable to respondent No.1 has been deposited by the applicant but the respondent No.1 admittedly is not withdrawing said amount and continue to withhold the pledged shares, hence is acting contrary to the sanctioned scheme. The transfer of 40,48,200 shares by respondent No.1 appears to be fishy and hence its transfer is declared as non-est. Hence the remaining pledged shares above of the applicant be released to the registered owners - the investment companies. The respondent No.1 is also directed to collect the principal amount of ₹ 3.5 Crores already lying deposited with the Registrar General of this Court pursuant to the sanctioned scheme of compromise, including any interest accrued thereupon, if any. Further, the balance amount deposited in this Court be distributed for second tranche under the scheme of the compromise be also refunded to the applicant together with interest and respondents No.2 to 4 to accept the shares or the amount as the case may be and hence the CA No.1540/2013 stands allowed in terms of above directions.

Issues Involved:
1. Validity of the sale of pledged shares.
2. Compliance with Section 176 of the Indian Contract Act.
3. Effect of interim orders and judgments from various courts.
4. Impact of the sanctioned scheme of compromise on the sale of shares.
5. Jurisdiction and finality of judgments from different courts.
6. Status and rights of the alleged purchasers of the shares.

Detailed Analysis:

1. Validity of the Sale of Pledged Shares:
The applicant contended that the sale of 55,60,000 pledged shares by respondent No.1 was non-est and void ab initio. The shares were pledged against a loan of ?5 crores. The respondent No.1 sold these shares without proper authorization and in violation of court orders. The alleged sale was also challenged on the grounds of forged transfer deeds and lack of compliance with statutory requirements.

2. Compliance with Section 176 of the Indian Contract Act:
Section 176 requires reasonable notice to be given to the pawnor before selling the pledged goods. The respondent No.1 claimed to have sent a notice on 07.12.1998, but the authenticity and service of this notice were doubted by the Company Law Board, which found the notice to be inadequate and not properly served. The respondent No.1 failed to provide a reasonable opportunity for the applicant to redeem the shares, rendering the sale invalid.

3. Effect of Interim Orders and Judgments from Various Courts:
The sale of the pledged shares was in violation of an interim restraint order dated 23.04.1997 by the Kolkata High Court, which restrained the respondents from dealing with the shares. The Division Bench of the Kolkata High Court, in its judgment dated 11.07.2005, did not validate the sale but only addressed the consequential reliefs based on the premise that the sale had occurred. The Supreme Court stayed the transfer of shares on 12.09.2005, and the issue of the sale's validity was left open for determination by the Delhi High Court.

4. Impact of the Sanctioned Scheme of Compromise on the Sale of Shares:
The scheme of compromise sanctioned on 15.07.2005 by the Delhi High Court categorized respondent No.1 as an unsecured creditor and entitled it to only 70% of the principal amount advanced. The scheme required the return of the pledged shares to the court. The Division Bench of the Delhi High Court, in its judgment dated 09.11.2012, upheld the scheme and left the issue of the alleged sale and receipt of consideration open for determination by the Company Judge.

5. Jurisdiction and Finality of Judgments from Different Courts:
The Division Bench of the Kolkata High Court's judgment dated 11.07.2005 was challenged in the Supreme Court, which stayed the transfer of shares and directed the Delhi High Court to decide the issue of transfer. The Single Judge of the Kolkata High Court, on 23.11.2011, kept the issue of any right arising out of non-registration or subsequent registration of the shares open. The Division Bench of the Delhi High Court, in its judgment dated 09.11.2012, also left the issue open for determination by the Company Judge.

6. Status and Rights of the Alleged Purchasers of the Shares:
The alleged purchasers of the shares never initiated any proceedings to assert their rights. The transfer of shares was not completed as the shares were not registered in the company's register. The Company Law Board found the transfer deeds to be forged and fabricated, and this finding attained finality as the appeal against it was dismissed.

Conclusion:
The transfer of 40,48,200 shares by respondent No.1 is declared non-est. The remaining pledged shares are to be released to the registered owners. Respondent No.1 is directed to collect the principal amount of ?3.5 crores deposited with the Registrar General, and any balance amount is to be refunded to the applicant. The application CA No.1540/2013 is allowed in these terms.

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