2019 (3) TMI 961 - HC - Companies Law

Misstatement in public issue of shares - Rectification of shareholder register - seeking an order against the respondent company to rectify the shareholder register of the respondent Company and to delete the name from the ownership of 1,49,300 shares allotted to the appellant on the basis of prospectus dated 11.03.1996 containing misstatement - issue was not 100% underwritten and that the respondents No. 1 to 9 who signed and issued the prospectus are personally and jointly liable for consequences and to refund the appellant s entire amount with 24% compound interest - period of limitation - HELD THAT - No worthwhile document is placed on record to show existence of a fraud. The evidence is sketchy. There is nothing to show what was the fraud played on the appellant. Company Law Board has already recorded a finding of fact that the petition is barred by limitation. The petition was barred by limitation as it pertains to the year 1996 and the petitioner/appellant has been enjoying all the benefits as a shareholder. No reason to disturb the findings of fact recorded by the Company Law Board. That apart, it is difficult to believe the version of the appellant. The public issue came in January 1996. The appellant has enjoyed the fruits of the shares allotted to it for more than 8 years and suddenly wakes up in 2004 to claim a fraud based on some hearsay evidence gathered from some proceedings pending in the Supreme Court. Even the copies of the proceedings that were pending before the Supreme Court are not sought to be placed on record. There is no worthwhile and credible evidence led before this court to come to a different conclusion. There are no substantial questions of law which would persuade this court to exercise jurisdiction under Section 10 (F) of the Companies Act.

Summary

Issues:
1. Impugning an order passed by the Company Law Board under Section 10 (F) of the Companies Act.
2. Seeking rectification of shareholder register, deletion of shares, and refund with interest due to misstatement in the prospectus.
3. Allegations of fraudulent acts by the respondent company and directors.
4. Claim of limitation based on knowledge of fraud in 2004.
5. Dismissal of the petition by the Company Law Board on grounds of limitation and enjoyment of shareholder benefits.
6. Appeal challenging the dismissal and seeking interference under Section 10 (F) of the Companies Act.

Detailed Analysis:

1. The appellant filed an appeal under Section 10 (F) of the Companies Act to challenge the order of the Company Law Board seeking rectification of the shareholder register due to misstatement in the prospectus. The appellant alleged that the respondent company and directors were involved in fraudulent acts, misleading the appellant into believing that the share offer was fully underwritten. The relief sought included deletion of shares and refund with interest.

2. The appellant contended that they discovered the fraud in 2004, leading to the petition before the Company Law Board. However, the respondent argued that the issue was fully underwritten, and the appellant had enjoyed shareholder benefits for over 8 years. The respondent provided details of underwriting agreements with other entities to support their position.

3. The Company Law Board dismissed the petition citing limitation and the appellant's prolonged enjoyment of shareholder benefits. The High Court noted the evidence presented, including an affidavit, but found it lacking substance to prove the alleged fraud. The court upheld the Board's finding of fact regarding the limitation issue.

4. The court expressed skepticism towards the appellant's sudden claim of fraud in 2004 after years of benefiting from the shares. The lack of concrete evidence or documentation from the Supreme Court proceedings further weakened the appellant's case. Ultimately, the court found no grounds to interfere with the Board's decision and dismissed the appeal, stating the absence of substantial legal questions to warrant intervention under Section 10 (F) of the Companies Act.