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2022 (8) TMI 72 - HC - Companies LawOppression and mismanagement - Transfer of shares - failure to constitute 1/10th of the total number of members of the Respondent no. 1 Company as on the date of filing of the Company Petition - Section 397/398 of Companies Act - HELD THAT - In DAYAGEN (P.) LTD. VERSUS RAJENDRA DORIAN PUNJ 2008 (7) TMI 569 - HIGH COURT OF DELHI , this Court considered the challenge to an order passed by the learned CLB wherein the learned CLB had refused to dismiss the Company Petition at a preliminary stage on the ground that the very issue of additional shares was in question in the Company Petition therein. This Court held that a petition can be dismissed at a preliminary stage only if the claim put forward by the applicant cannot be established even if all the allegations made in the Company Petition are accepted to be true. The test is whether, even if the facts pleaded by the Petitioner in his petition under Sections 397 and 399 of the Act are assumed to be true, the Company Petition filed by him can be held to be not maintainable - If an allotment of shares, increase in the issued share capital, or increase in the number of members is done with the sole aim of gaining control over the management of the Board/Company and to defeat the legitimate right of other shareholders, the Court can always set aside such an increase or allotment. The interpretation to be placed on section 41(2) vis-a-vis petitions filed seeking relief from oppression and mismanagement should be governed not strictly by the requirements of the sub-section, so long as in substance and effect the person complaining of acts of oppression and mismanagement has been recognised or treated as shareholder/member by the conduct of the company, and that in giving effect to the remedies against the grievance, considerations of equity and justice should be allowed to prevail. The Respondents merely produced the Register of Members before the learned CLB. It did not even file any application before the learned CLB challenging the maintainability of the Company Petition. The learned CLB placed reliance on the register of members so produced, without giving any opportunity to the Appellant to challenge the entries made therein. In fact, even a copy thereof was not supplied to the Appellant. Once it is accepted that the Appellant can also challenge the transfer of shareholding as being oppressive and as being intended only to defeat the right of the Appellant to maintain his petition under Section 397/398 of the Act, an opportunity should have been granted to the Appellant to peruse the register of members and, if so advised, challenge the same in accordance with law. The Company Petition, on the averments made in the Petition itself, could not have been thrown out at the threshold without granting such opportunity to the Appellant. The learned CLB has acted in haste in dismissing the Company Petition filed by the Appellant without affording an adequate opportunity to the Appellant to satisfy the learned CLB on the maintainability of the Company Petition, by amending the Company Petition, if so required. The Company Petition is restored back to its original number.
Issues Involved:
1. Eligibility to file the Company Petition under Section 397/398 of the Companies Act, 1956. 2. Validity of the consent letters annexed with the Company Petition. 3. Number of members in the Respondent company at the time of filing the Company Petition. 4. Opportunity to rebut the contents of the register of members. 5. Alleged fraudulent transfer of shares to defeat the Appellant's right to file the Company Petition. Detailed Analysis: 1. Eligibility to file the Company Petition under Section 397/398 of the Companies Act, 1956: The Appellant challenged the order of the Company Law Board (CLB) dismissing the Company Petition on the grounds that the Appellant and the Consenters did not constitute 1/10th of the total number of members of the Respondent company, as required under Section 399 of the Act. The Appellant argued that they collectively held 2.37% of the equity share capital and represented more than 1/10th of the total number of members based on the filings with the Registrar of Companies, which indicated approximately 36 shareholders. 2. Validity of the consent letters annexed with the Company Petition: The Respondent company objected to the validity of the consent letters, alleging they were taken before the draft of the Company Petition and reused from a previous petition. The CLB found no merit in this objection and rejected it. This finding was not contested by the Respondents before the High Court. 3. Number of members in the Respondent company at the time of filing the Company Petition: The CLB, after reviewing the original register of members, concluded that there were 87 members in the Respondent company as of 27.03.2015. Consequently, the Appellant's group, consisting of only six members, did not meet the 1/10th threshold required under Section 399 of the Act. The Appellant was criticized for not verifying the number of members closer to the filing date of the petition and relying on outdated information from Form SH-11 filed in 2014. 4. Opportunity to rebut the contents of the register of members: The Appellant contended that the CLB erred by dismissing the petition based on the register of members without providing an opportunity to challenge its contents or the alleged fraudulent transfer of shares. The High Court noted that the CLB should have given the Appellant a chance to rebut the register's contents and challenge any transfers made to increase the number of members and defeat the Appellant's right to file the petition. 5. Alleged fraudulent transfer of shares to defeat the Appellant's right to file the Company Petition: The Appellant argued that the transfers were fraudulent and intended to disqualify them from filing the petition. The High Court emphasized that if the Appellant had knowledge of such transfers, they could challenge them as oppressive. The Court cited precedents indicating that petitions should not be dismissed at a preliminary stage if the allegations, even if true, could establish the claim. The Court also highlighted that the CLB should have considered whether the transfers were made after the filing of the initial petition in January 2015 and if they showed any mala fide intent to defeat the Appellant's right. Conclusion: The High Court set aside the CLB's order dated 29.12.2015, restoring the Company Petition to its original number. The Court directed that the Appellant should be given an opportunity to challenge the register of members and any alleged fraudulent transfers. The Court did not express any opinion on the merits of the register or the transfers, leaving these issues open for consideration by the appropriate forum. There was no order as to costs.
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