2021 (8) TMI 840 - Tri - Companies Law

Oppression and mismanagement - transfer of shares - termination of Share Purchase Agreement - Section 241 and 242 of the Companies Act, 2013 - HELD THAT - When it is found that the petitioner has not fulfilled the conditions precedent for purchase of the shares for which the share certificate was issued, and the SPA which was the basis for issuance of the said share certificate was terminated and the said termination is not challenged by the petitioner till date, and thereby the said share certificate itself becomes void ab-initio, the principle that share certificate itself is the proof of the title of shares, will not help it in any manner. The petitioner is not a shareholder, the various other allegations with regard to oppression and mismanagement, need not be addressed, in this petition - Petition dismissed.

Summary

Issues Involved:
1. Validity of the Share Purchase Agreement (SPA) and fulfillment of conditions precedent.
2. Validity of the share certificate issued to the petitioner.
3. Allegations of oppression and mismanagement.
4. Jurisdiction of the Tribunal under Sections 241 and 242 of the Companies Act, 2013.

Detailed Analysis:

1. Validity of the SPA and Fulfillment of Conditions Precedent:
The petitioner entered into a Share Purchase Agreement (SPA) on 27.05.2015 with the respondent No. 2 for the purchase of 33,333 equity shares in respondent No. 1. The SPA included conditions precedent, notably the reduction of a corporate guarantee valued at ?9 Crores. The petitioner argued that this reduction was not a condition precedent; however, the Tribunal found that the SPA explicitly stated the reduction as a condition precedent. The petitioner failed to fulfill this condition, and the respondent No. 2 terminated the SPA on 01.04.2016. The termination was not challenged by the petitioner, rendering the SPA null and void.

2. Validity of the Share Certificate Issued to the Petitioner:
The petitioner received a share certificate for 33,333 shares in respondent No. 1. The Tribunal held that the issuance of the share certificate was contingent on the fulfillment of the SPA's conditions precedent. Since the petitioner did not meet these conditions and did not challenge the termination of the SPA, the share certificate was deemed void ab initio. The Tribunal emphasized that the share certificate alone does not confer shareholder status if the underlying agreement is invalid.

3. Allegations of Oppression and Mismanagement:
The petitioner alleged acts of oppression and mismanagement by respondent No. 2. However, the Tribunal found that since the petitioner was not a valid shareholder due to the unfulfilled conditions of the SPA and the unchallenged termination, the petitioner could not claim oppression or mismanagement under Sections 241 and 242 of the Companies Act, 2013. The Tribunal did not address the specific allegations of oppression and mismanagement due to the lack of shareholder status.

4. Jurisdiction of the Tribunal under Sections 241 and 242 of the Companies Act, 2013:
The Tribunal examined whether the disputes raised by the petitioner fell within the scope of Sections 241 and 242. It concluded that the disputes were primarily contractual in nature, arising from the SPA and MOU, and did not constitute grounds for invoking the Tribunal's jurisdiction under these sections. The Tribunal dismissed the petition on the grounds that the petitioner was not a shareholder and the issues raised did not pertain to statutory oppression and mismanagement.

Conclusion:
The Tribunal dismissed the Company Petition (CP) as devoid of merit, holding that the petitioner failed to fulfill the conditions precedent of the SPA, rendering the share certificate void. Consequently, the petitioner was not a shareholder and could not seek relief under Sections 241 and 242 for oppression and mismanagement.