2020 (10) TMI 118 - Tri - Companies Law

Oppression and mismanagement - illegal transfer of shares - purported breach of trust on the part of Respondents 2 to 8, who are the shareholders of the 1st Respondent Company, pertaining to transfer of 108075 shares to Petitioner No. 1 and 92634 to petitioner No. 2 from their respective shareholdings as the Petitioners have repaid the loan on behalf of the Respondent Nos. 2 to 8, consideration being transfer of the above shares to the petitioners. HELD THAT - The Respondents cannot benefit from their own wrong, and having taken the share certificates and duly filled forms, cannot now outrageously claim that the share transfer forms were not lodged with the Company by the Petitioners. As, share transfer was ratified during the Conciliatory Meeting, later the Settlement Agreement was taken on record and specifically mentioned in the minutes of the Board meeting, the Company can no longer contend that the issue pertaining to rectification of share register had not crossed the first stage of lodging of share transfer requests. The other contention that it was a private inter-party dispute or was merely amounts to an agreement to sell, is also too far-fetched and totally untenable. - Even in the absence of any proof, the petitioner cannot be shut out under Section 244 of the Companies Act, 2013 on mere statements of the respondents without any shred of evidence being produced to deny an opportunity to the petitioners to prosecute the company petition. In the light of the recorded facts and circumstances of this case, we, are of the view that this Tribunal is exercising its ample powers to waive the requisite shareholding percentage in order to maintain this petition even without filing a waiver application. The petitioners are considered as beneficial owners and has every right to protect their beneficial interest in such shares even before their name is entered in the share register. We have further gone through the list of citations submitted by the Respondents during the course of the hearing dated 10.03.2020. However, we consider none of the case sought to be relied on by the respondents are relevant in the present case. Therefore, we are of the view that the defences sought to be taken by the Respondents herein are untenable. This Bench is of the view that this is a fit case for considering the allegations of oppression and mismanagement as alleged by the Petitioners - Petition allowed.

Summary

Issues Involved:
1. Transfer of shares and breach of trust.
2. Non-maintenance of statutory records and meetings.
3. Settlement Agreement compliance.
4. Maintainability of the petition under Sections 241 and 244 of the Companies Act, 2013.
5. Beneficial ownership and rectification of the register of members.
6. Investigation into the accounts and affairs of the company.

Detailed Analysis:

1. Transfer of Shares and Breach of Trust:
The main issue revolves around the alleged breach of trust by Respondents 2 to 8, who failed to transfer shares to the Petitioners despite an agreement. The Petitioners had repaid a loan on behalf of these respondents, with the consideration being the transfer of shares. Despite multiple assurances and a conciliatory meeting on 12.09.2015, where the transfer was agreed upon, the shares were not transferred. The respondents handed over share certificates and transfer forms to the auditor but later denied the transfer.

2. Non-Maintenance of Statutory Records and Meetings:
The Petitioners highlighted that no Annual General Meetings or Board Meetings were conducted since 2015, and annual accounts were not finalized, violating the Companies Act. The Respondents were accused of removing the minute book from the registered office without notice to other directors.

3. Settlement Agreement Compliance:
A Settlement Agreement was entered on 09.12.2017, where Respondents 2, 4, 6, and 8 agreed to transfer 4.5% shares to the Petitioners and refund the balance amount by 31.03.2018. Despite this, the shares were not transferred, and the agreement was not honored, leading to further disputes.

4. Maintainability of the Petition under Sections 241 and 244 of the Companies Act, 2013:
The Respondents argued that the petition was not maintainable as the Petitioners did not meet the 10% shareholding threshold required under Section 244(1)(a). However, the Tribunal waived this requirement, considering the Petitioners as beneficial owners of more than 10% shares due to the payments made and the agreements recorded.

5. Beneficial Ownership and Rectification of the Register of Members:
The Tribunal recognized the Petitioners as beneficial owners of the shares, given the documented agreements and payments made. It was held that the Petitioners have the right to protect their beneficial interest in the shares even before their names are entered in the share register. The Tribunal directed the Respondents to transfer the shares and rectify the register of members.

6. Investigation into the Accounts and Affairs of the Company:
The Tribunal ordered an investigation into the accounts and affairs of the Respondent Company from 01.04.2015 to 31.03.2019 by an appointed Chartered Accountant firm. Additionally, the conduct of the Company’s auditor was to be investigated by the Institute of Chartered Accountants of India for possible collusion and falsification of records.

Order:
1. Transfer of Shares: Respondents 2 to 8 are directed to transfer specified shares to Petitioners 1 and 2 within 15 days.
2. Rectification of Register: The Respondent Company must complete the transfer and rectify the register of members within one month.
3. Investigation: An investigation into the company's accounts from 01.04.2015 to 31.03.2019 by K. Venkitachalam Aiyer & Co., Chartered Accountants, with a report due within two months.
4. Auditor Conduct: The Institute of Chartered Accountants of India to investigate the conduct of the company’s auditor for possible collusion.
5. Costs: Respondents 2 to 8 to pay ?25,000 each to the Petitioners within one month.

The order will take effect once the government lifts the lockdown. The petition is disposed of as allowed.