2020 (2) TMI 1080 - HC - Companies Law

Oppression and mismanagement - transfer of shares - section 111A of the erstwhile Companies Act, 1956 - HELD THAT - Though it was argued that the petitioner had become a deemed public limited company, and therefore it was not open to grant of relief under Section 111 of the Companies Act, 1956 and only petition under Section 111A of the Companies Act, 1956 ought to have been filed, it is evident that as per sub clause (14) to Section 111 of the Companies Act, 1956, company means a private company and includes a private company which had become a public company by virtue of Section 43 A of the said Act. Therefore, the company petition filed by the 1st respondent before the Company Law Board was proper - The erstwhile management of the 2nd respondent company who were the shareholders of the 2nd respondent company had decided to offload the entire share in favour of the appellant and his family which was recorded in a Board Meeting dated 20.4.1992 of the 2nd respondent company under the chairmanship of the 3rd respondent herein. From a reading of the records of the case it is evident that though the erstwhile Board of Directors of the 2nd respondent company had decided to offload the entire share in the 2nd respondent company in favour of the appellant and his family and that the 3rd respondent was authorised to do all that was necessary to implement the decision taken by the Board of Directors on 20.4.1992, the 1st respondent had failed to cooperate in this regard - It is evident when the 3rd respondent approached with the proposal to offload the shares in favour of the appellant and his family to the 1st respondent when the company was still occupying the 1st respondent s premises and therefore the 1st respondent did not wish to part with the 500 shares at that time. Thus, he has exercised the rights over the shares. He has also indicated that he was willing to transfer the shares to the appellant if the 3rd respondent agreed to pay the consideration agreed between them. Under Section 27 of the Sale of Goods Act, 1930 where any goods are sold by a person who is not owner of the goods and who sells them without authority or without the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods by his conduct can precluded from denying the sellers authority to sell - there is no dispute that the 1st respondent was in Board of the 2nd respondent Company which decided to sell the shares to the appellant and his family members pursuant to the decision taken by the erstwhile Board of directors of the 1st respondent company on 20.4.1992. The private dispute between the 1st and the 3rd respondent regarding the amount to be paid inter se has remained unsettled. Since the 3rd respondent failed to pay the amount, the 1strespondent has refused to part with 500 shares. Therefore, the transfer of shares to the appellant with the help of duplicate shares cannot be sustained. The 3rd respondent could not transfer 500 shares of the 1st respondent to Shri Girish Chimanlal Parikh. Therefore, the 1st respondent was justified in filing the said company petition before the Company Law Board by the 1st Respondent - there are no reasons to interfere with the impugned order of the Company Law Board. Further, the issue of duplicate shares also accompanied a letter of indemnity from the 3rd respondent to indemnify the 2nd respondent company on account of any adverse orders/consequences arising out of issue of duplicate shares. Therefore, it is for the appellant and the 2nd respondent to work out their remedy against the 3rd respondent. Appeal dismissed.

Summary

Issues Involved:
1. Maintainability of the company petition under Section 111A of the Companies Act, 1956.
2. Validity of the transfer of shares by the 3rd respondent in favor of the appellant.
3. Appropriateness of the Company Law Board's decision in a summary proceeding under Section 111A of the Companies Act, 1956.

Issue-Wise Detailed Analysis:

1. Maintainability of the Company Petition under Section 111A of the Companies Act, 1956:
The appellant contended that the petition under Section 111 of the Companies Act, 1956 was not maintainable as the 2nd respondent company had become a public limited company. However, the court noted that as per sub-clause (14) to Section 111 of the Companies Act, 1956, the term "company" includes a private company that has become a public company by virtue of Section 43A of the Act. Therefore, the company petition filed by the 1st respondent before the Company Law Board was deemed proper.

2. Validity of the Transfer of Shares by the 3rd Respondent in Favor of the Appellant:
The court examined the sequence of events and the actions taken by the 3rd respondent. It was established that the 3rd respondent had neither lodged the original share certificates nor the share transfer forms as they were never executed by the 1st respondent in favor of the 3rd respondent. The mandatory requirements of Section 108 of the Companies Act, 1956 were not complied with while registering the transfer of shares. The 3rd respondent had obtained duplicate share certificates by misrepresenting facts and transferred these shares to the appellant. The court concluded that the 3rd respondent had no title over the shares and thus could not validly transfer them to the appellant.

3. Appropriateness of the Company Law Board's Decision in a Summary Proceeding under Section 111A of the Companies Act, 1956:
The appellant argued that the Company Law Board should have directed the parties to file a civil suit rather than deciding the issue in a summary proceeding. The Company Law Board, however, condoned the delay and decided the matter based on the allegations of fraud and misrepresentation by the 3rd respondent. The court upheld the Company Law Board's decision, noting that the 1st respondent was justified in filing the company petition due to the fraudulent actions of the 3rd respondent.

Conclusion:
The court dismissed the appeal, finding no reason to interfere with the impugned order of the Company Law Board. The issue of duplicate shares accompanied by an indemnity bond from the 3rd respondent to indemnify the 2nd respondent company was noted. The appellant was given liberty to approach the civil court to recover the amount from the 3rd respondent on account of the fraud played by her in obtaining duplicate certificates and transferring the same to the appellant. The civil miscellaneous appeal was dismissed with no cost, and the connected miscellaneous petition was closed.