2025 (1) TMI 489 - HC - Companies Law

Maintainability of appeal under Section 483 of the Companies Act, 1956 - transfer of Equity shares - fraudulent preferences or void transactions under Sections 531, 531-A, and 536 of the Companies Act, 1956 - HELD THAT - There are no hesitation in holding that the appeal filed by the appellant No.1 CRBCML, through appellant No.2 Mr. C.R. Bhansali is not maintainable in law. First things first, it is pertinent to mention that the learned Single Judge while passing the impugned order dated 25.07.2023 had delved into the issue of the maintainability of the objections that were being raised on behalf of the appellants - it is an undisputed position that the shares in questions were purchased by the applicants through the RBI-approved Stock brokers in the open market. Furthermore, it is a matter of fact that the Reserve Bank of India's (RBI) order dated April 9, 1997, directing CRBCML not to proceed with any sale, transfer, or charge on the property or assets without written consent, was not in the public domain, and the applicants had no notice of the directions passed by the Company Court. The applicants, in ignorance of such facts, apparently bought the shares from open market and paid the consideration thereof. It is not within the jurisdiction of the Company Court to investigate, at the behest of the appellants, the sale of shares by CRBCML, including the recipients or the consideration involved. Undoubtedly, the transfer of equity shares occurred during a period when such transfers were typically executed through the exchange of share certificates along with signed or blank transfer deeds. The sole requirements were a Contract Note in favour of the transferee, substantiated by the payment of the share amount to the Stock Broker. Conclusion - i) The present appeal by Appellant No. 1, CCL, and Appellant No. 2/Ex-Director, is not maintainable under Section 483 read with Sections 521 531-A of the Act. The objections raised by them to the clarification applications preferred by the applicants/transferees in the winding-up petition cannot be entertained in law. ii) Since the sale of shares took place prior to 09.04.1997, although the company (in liquidation) remained its de jure owner, the de facto legal right or title in the same passed on to the applicants in the ordinary course of business and thus was saved by Section 562 (2) of the Act. Appeal dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

Whether the appeals filed by the Ex-Management of CRB Capitals Markets Limited (CRBCML) and CRB Corporation Limited (CCL) are maintainable under Section 483 of the Companies Act, 1956.
Whether the applicants are entitled to have the shares transferred in their names, given the alleged restrictions imposed by the Reserve Bank of India (RBI) and the Company Court on the transfer of shares held by CRBCML.
Whether the transactions involving the transfer of shares constitute fraudulent preferences or void transactions under Sections 531, 531-A, and 536 of the Companies Act, 1956.
The jurisdiction of the Company Court to interfere with the registration of shares purchased in the open market during the winding-up proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Maintainability of Appeals

Relevant legal framework and precedents: Section 483 of the Companies Act, 1956 provides for appeals from orders made in the winding-up of a company. The judgment refers to precedents like Rishabh Agro Industries Limited v. PNB Capital Services Limited and Nitin Alloys Private Limited v. Rajendra Jain, which discuss the powers of ex-management during winding-up proceedings.
Court's interpretation and reasoning: The court held that the ex-management's power during winding-up is limited to rehabilitation or revival of the company and does not extend to challenging transactions involving bona fide purchasers of shares from the open market.
Key evidence and findings: The court noted that the ex-management had conceded in prior proceedings that no shares were sold after the RBI's directive dated April 9, 1997.
Application of law to facts: The court found that the ex-management lacked the locus standi to challenge the transfer of shares and that the appeals were not maintainable.
Treatment of competing arguments: The court dismissed the ex-management's arguments regarding the maintainability of the appeals, emphasizing the limited scope of their powers during winding-up.
Conclusions: The appeals filed by the ex-management were held to be not maintainable.

Issue 2: Entitlement to Transfer of Shares

Relevant legal framework and precedents: The judgment refers to Section 536(2) of the Companies Act, which deals with the avoidance of transfers after the commencement of winding-up, and relevant case law like H.L. Seth v. Wearwell Cycle Co. (India) Ltd.
Court's interpretation and reasoning: The court held that transactions bona fide entered into in the ordinary course of trade must be protected. The applicants purchased the shares in good faith from the open market.
Key evidence and findings: The applicants provided evidence of their purchase through contract notes and share transfer forms, which were not contested by the respondents.
Application of law to facts: The court found that the applicants were bona fide purchasers and entitled to have the shares transferred in their names.
Treatment of competing arguments: The court rejected the ex-management's objections, noting that the applicants had no notice of the RBI's directive or the Company Court's orders.
Conclusions: The applicants were entitled to the transfer of shares and all accretions from 1997 onwards.

Issue 3: Fraudulent Preferences and Void Transactions

Relevant legal framework and precedents: Sections 531 and 531-A of the Companies Act address fraudulent preferences and void transactions. The judgment discusses the applicability of these sections in the context of the winding-up proceedings.
Court's interpretation and reasoning: The court found that the transactions were conducted in the ordinary course of business and did not constitute fraudulent preferences.
Key evidence and findings: The applicants' transactions were completed before the RBI's directive, and there was no evidence of fraud or collusion.
Application of law to facts: The court held that the transactions were valid and not void under the relevant sections of the Companies Act.
Treatment of competing arguments: The court dismissed the ex-management's claims of fraudulent preference, emphasizing the bona fide nature of the transactions.
Conclusions: The transactions were not deemed fraudulent preferences or void.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The applicant cannot be concerned with whether AGV had purchased the shares from CRB Corporation or from anyone else. There is no dispute about the fact that the shares were initially held by CRBCML."
Core principles established: Bona fide transactions conducted in the ordinary course of business are protected during winding-up proceedings. The ex-management's powers are limited to rehabilitation or revival of the company.
Final determinations on each issue: The appeals were dismissed as not maintainable, and the applicants were entitled to the transfer of shares and all accretions from 1997 onwards.

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