2020 (3) TMI 1059 - Tri - Companies Law

Oppression and mismanagement - illegal transfer of shares - HELD THAT - This is a petition filed under section 111 of the Companies Act, 1956. Originally company petition was filed before the hon'ble Company Law Board, Chennai bearing C. P. No. 4/111/CB/2014. On abolition of the Company Law Board and after establishment of National Company Law Tribunal, this case was transferred from the Company Law Board, Chennai and numbered as T. P. No. 149/HDB/2016. The petitioners claiming to be the share-holders are challenging invocation of pledge of equity shares 1,80,00,000. The petitioners are contending that transfer of shares in favour of respondent No. 2/ICICI Bank Ltd., is illegal. On the other hand it is the case of respondent No. 2-ICICI Bank Ltd., that the shares were pledged against the loan advanced. It is not necessary to go into the merits of the case due to developments that took place after filing of this petition. The dispute raised is in respect of the shares in respondent No. 1-company. It is undisputed fact that corporate insolvency resolution process (CIRP) was started against respondent No. 1-company in a petition filed under section 7 of the I and B Code by the Canara Bank bearing C. P. (IB) No. 41/07/HDB/17. The petition was admitted on July 5, 2017 - The petitioners have no locus standi to continue the proceedings. The petitioners have no subsisting interest in view of the fact that the resolution plan is approved for respondent No. 1-company. There is no need to go into the merits of the case rather it can be disposed of on the ground that the relief sought for by the petitioners becomes infructuous - Petition dismissed.

Issues Involved:
1. Legality of the transfer of 1,80,00,000 equity shares.
2. Jurisdiction of the Company Law Board/Tribunal.
3. Validity of the pledge agreement and invocation of the pledge.
4. Compliance with the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA).
5. Impact of winding up proceedings on the transfer of shares.
6. Developments during the pendency of the case, including Corporate Insolvency Resolution Process (CIRP).

Issue-wise Detailed Analysis:

1. Legality of the Transfer of 1,80,00,000 Equity Shares:
The petitioners, promoters of M/s. Deccan Chronicle Holdings Ltd. (DCHL), challenged the transfer of 1,80,00,000 equity shares in favor of ICICI Bank Ltd. (Respondent No. 2), alleging it was illegal. They contended that the shares were pledged in good faith but were transferred without proper execution of the pledge agreement. The petitioners received notices from ICICI Bank regarding the invocation of the pledge due to non-repayment of dues, leading to the transfer of shares.

2. Jurisdiction of the Company Law Board/Tribunal:
ICICI Bank raised a preliminary objection regarding the jurisdiction of the Company Law Board, citing the provisions of section 1(3) of the Companies Act, 2013. However, since the matter was transferred to the National Company Law Tribunal (NCLT) after the abolition of the Company Law Board, this objection was deemed irrelevant.

3. Validity of the Pledge Agreement and Invocation of the Pledge:
ICICI Bank argued that the pledge of shares was valid and invoked due to the petitioners' failure to repay the dues. The bank provided evidence of various loan agreements and the creation of a pledge over the shares. The bank asserted that it had the right to invoke the pledge under the Indian Contract Act, 1872, and that the transfer of shares was in compliance with the pledge agreement.

4. Compliance with the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA):
The petitioners contended that DCHL was registered as a sick company under SICA, and any modification in shareholding required prior permission from the Board for Industrial and Financial Reconstruction (BIFR). They argued that the transfer of shares without such permission was null and void. However, ICICI Bank countered that the BIFR had rejected the company's reference, and the matter was pending adjudication before the Delhi High Court.

5. Impact of Winding Up Proceedings on the Transfer of Shares:
The petitioners argued that the transfer of shares was void under section 536(2) of the Companies Act due to ongoing winding-up proceedings against DCHL. ICICI Bank, however, maintained that as a secured creditor, it was entitled to enforce the security and realize its legitimate dues, notwithstanding the winding-up petitions.

6. Developments During the Pendency of the Case, Including Corporate Insolvency Resolution Process (CIRP):
During the pendency of the case, the Corporate Insolvency Resolution Process (CIRP) was initiated against DCHL, and a resolution plan was approved. Consequently, the petitioners ceased to have any interest in DCHL, and the reliefs sought became infructuous. The tribunal concluded that there was no need to delve into the merits of the case as the petitioners' claims had become moot due to subsequent developments.

Conclusion:
The petition was dismissed on the grounds that the reliefs sought by the petitioners had become infructuous following the approval of the resolution plan for DCHL under the CIRP. The tribunal did not find it necessary to address the merits of the case due to the changes in circumstances.

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