2019 (8) TMI 220 - AT - Companies Law

Oppression or mismanagement - Reduction of share capital of appellant - deprivation from claiming Directorship in Respondent No. 1 Company - whether profit sharing ratio can be the basis for allotment of shares in the transferee company viz. Respondent No. 1? - HELD THAT - The gains arising from the transfer of a capital asset effected in the previous year, subject to exceptions, are deemed to be the income of the previous year and chargeable to income tax under the head Capital Gains . However, transfer of capital assets falling within the clauses enumerated under Section 47 including transfer of a capital asset or intangible asset by a firm to a Company as a result of succession of the firm by a Company carrying on the same business as the firm would be exempted from being chargeable to income tax under the head Capital Gains as such transactions are not regarded as transfer of a capital asset within the meaning of Section 45. Appellant has not been able to demonstrate that his capital holding in the firm was different than the one reflected in the books and that there was a basis for allotment of share in Respondent No.1 proportionate to the profit sharing ratio of the partner in the firm. Appellant does not appear to have questioned the allotment of 100 shares to him for about two and a half years. This is apart from the fact that the Appellant holding only 0.009% shareholding and being the only aggrieved member out of 12 was ineligible to file petition under Section 241 of the Companies Act, 2013. Admittedly, no waiver has been sought and obtained from the Tribunal for filing the petition. In these circumstances, the Appellant cannot be heard to say that the acts complained of constituted oppression and any prejudice was caused to him. The impugned order is a reasoned one and does not suffer from any legal infirmity - appeal dismissed.

Issues Involved:
1. Allegation of fraud and reduction of share capital.
2. Entitlement to proportionate shareholdings and directorship.
3. Validity of the takeover agreement and its implications.
4. Basis for allotment of shares in the transferee company.
5. Compliance with Section 47(xiii) of the Income Tax Act, 1961.
6. Eligibility to file a petition under Section 241 of the Companies Act, 2013.

Detailed Analysis:

1. Allegation of Fraud and Reduction of Share Capital:
The Appellant alleged fraud by Respondents 2 to 5 in reducing his share capital to deprive him of claiming directorship in the Respondent No. 1 Company. The Tribunal found that the Appellant had agreed to the transfer of the firm to Respondent No. 1 and was allotted 100 shares based on the value of the assets and liabilities of the transferor firm. The Tribunal concluded that this did not constitute an act of oppression or mismanagement.

2. Entitlement to Proportionate Shareholdings and Directorship:
The Appellant sought proportionate shareholdings, directorship, and proportionate profits in Respondent No. 1 Company. The Tribunal held that the Appellant was not entitled to more than 100 shares, as this was based on the agreed value of the assets and liabilities of the transferor firm. The Appellant’s shareholding was less than 10 percent, making him ineligible to file the petition under Section 241 of the Companies Act, 2013.

3. Validity of the Takeover Agreement and Its Implications:
The resolution dated 24th November 2014, regarding the takeover of the firm by Respondent No. 1 Company, was followed by a 'Takeover Agreement' dated 26th December 2014. The Appellant did not challenge the Takeover Agreement, which led to the dissolution of the firm and incorporation of Respondent No. 1 Company. The Tribunal found that the Appellant had agreed to the transfer, and this finding was not shown to be erroneous.

4. Basis for Allotment of Shares in the Transferee Company:
The Tribunal examined whether the profit-sharing ratio could be the basis for the allotment of shares in Respondent No. 1 Company. The Takeover Agreement stipulated that equity shares were to be allotted based on the capital balance in the firm. The Appellant, holding only 0.01% of the capital ratio, was allotted 100 shares. The Tribunal found that the allocation of shares was based on the capital balance ratio as stipulated in the Takeover Agreement, which the Appellant had not challenged.

5. Compliance with Section 47(xiii) of the Income Tax Act, 1961:
The Tribunal considered the compliance with Section 47(xiii) of the Income Tax Act, 1961, which exempts certain transfers from being regarded as transfers for capital gains tax purposes. The conditions include that all partners of the firm become shareholders of the company in the same proportion as their capital accounts. The Tribunal found that the Takeover Agreement complied with these conditions, and the Appellant had not demonstrated any discrepancy in his capital holding.

6. Eligibility to File a Petition under Section 241 of the Companies Act, 2013:
The Appellant, holding only 0.009% shareholding and being the only aggrieved member out of 12, was ineligible to file a petition under Section 241 of the Companies Act, 2013. No waiver had been sought or obtained from the Tribunal for filing the petition. The Tribunal concluded that the acts complained of did not constitute oppression or cause prejudice to the Appellant.

Conclusion:
The Tribunal’s order was found to be reasoned and without legal infirmity. The appeal was dismissed, with no orders as to costs.

← Previous Next →