2018 (5) TMI 1308 - Tri - Companies Law

Shareholders right to sell shares - Interim order dated 28-04-2016 passed by Hon ble Company Law Board questioned - change of shareholding pattern - Held that - The case on hand, Vadodara Stock Exchange Limited is a public limited company although it is not a listed company, Therefore, shareholders of Vadodara Stock Exchange Limited have got every right to sell their shares. The main objection of the original petitioner and respondent No. 7 is that the applicants in collusion with Ms. Sonal Parikh filed this petition and Ms. Sonal Parikh wants to gain majority in the General Body Meeting by purchasing the shares of other shareholders. Even if it is true, it is not a ground to restrain shareholders of Vadodara Stock Exchange Limited from selling their shares if there is a good offer of money for their shares. For that matter, even the original petitioner can purchase shares of other shareholders also. So long as there is no change in the shareholding pattern i.e. authorised and paid up share capital of company, there cannot be any grievance either to the original petitioner or to any of the original respondents, if some of the shareholders sell their shares for a good value of money. In that view of the matter it is just and proper to permit the applicants in IA 291, 293, 295 to 297, 299, 300, 302 to 311 of 2017 to sell their shares subject to approval, if any, required from the Regulatory Authorities. However, there shall not be any change in the share holding pattern of Vadodara Stock Exchange Ltd. The interim order dated 28-04-2016 passed by Hon ble Company Law Board is only in respect of shareholding pattern and capital of the second respondent company herein i.e. only respect of authorised share capital and paid up share capital. This order is applicable to the applicants who approached this Tribunal but not for other shareholders of Vadodara Stock Exchange Ltd. Thus permitting the applicants to sell their shares in Vadodara Stock Exchange Ltd. to any person of their choice, subject to approval, if any, required from other Regulatory Authorities. But, there shall not be any change in the shareholding pattern of Vadodara Stock Exchange Limited. i.e. authorised share capital and paid up share capital.

Summary

Issues Involved:
1. Intervention in proceedings by shareholders.
2. Allegations of oppression and mismanagement.
3. Validity of interim orders and their implications on shareholding.
4. Right to sell shares in a public limited company.
5. Compliance with SEBI regulations and Companies Act.

Detailed Analysis:

1. Intervention in Proceedings by Shareholders:
Intervening Petition No. 2 of 2017 was filed by shareholders holding 12.5% of the share capital of Vadodara Stock Exchange Limited, seeking to intervene in the proceedings of Company Petition No. 61 of 2016. They alleged acts of oppression and mismanagement and claimed a right to participate in the proceedings. The Tribunal found that the intervening petitioners were proper and necessary parties to the proceedings, as their participation would not change the cause of action but would help in addressing the allegations of oppression and mismanagement. Consequently, the Tribunal allowed the intervention and directed the original petitioner to amend the cause title to include the intervening petitioners as respondents.

2. Allegations of Oppression and Mismanagement:
The original petitioner alleged acts of oppression and mismanagement by the respondents, including misuse of the company by fabricating records and taking arbitrary decisions. The Tribunal noted that the dispute involved two groups of directors and shareholders within Vadodara Stock Exchange Ltd. The Tribunal emphasized that the right of the shareholders to question the acts of oppression and mismanagement could not be taken away, and the matter would be decided after the final hearing in the main petition.

3. Validity of Interim Orders and Their Implications on Shareholding:
The interim order dated 28-04-2016 by the Company Law Board directed maintaining the status quo over the shareholding and capital of the company. The applicants in IA 291, 293, 295 to 297, 299, 300, 302 to 311 of 2017 sought modification of this order, arguing that it restricted their ability to sell shares despite having good offers. The Tribunal clarified that the interim order was intended to prevent changes in the authorized and paid-up share capital, not to restrict the sale of shares by shareholders. Therefore, the Tribunal permitted the applicants to sell their shares, provided there was no change in the shareholding pattern.

4. Right to Sell Shares in a Public Limited Company:
The Tribunal referred to the Supreme Court's decision in Darius Rutton Kavasmaneck v. Gharda Chemicals Ltd., which held that restrictions on the transfer of shares in a public limited company violate the Companies Act. Vadodara Stock Exchange Limited, being a public limited company, allowed its shareholders the right to sell their shares. The Tribunal emphasized that even if the original petitioner alleged collusion to gain majority control, it was not a valid ground to restrain shareholders from selling their shares if they received good offers.

5. Compliance with SEBI Regulations and Companies Act:
The Tribunal noted that the present Board did not follow SEBI's exit order dated 09-11-2015. The original petitioner alleged violations of the Companies Act and collusion among applicants to gain majority control. However, the Tribunal found that these allegations did not justify restricting the sale of shares. The Tribunal permitted the sale of shares subject to necessary approvals from regulatory authorities, ensuring compliance with relevant laws.

Conclusion:
The Tribunal allowed Intervening Petition No. 2 of 2017, directing amendments to include the intervening petitioners as respondents. Intervening Petition No. 3 of 2017 was allowed to a limited extent, permitting applicants to sell their shares subject to regulatory approvals while maintaining the shareholding pattern. The Tribunal emphasized the shareholders' right to sell shares in a public limited company and clarified the scope of the interim order regarding shareholding and capital.