2012 (4) TMI 234 - HC - Companies Law

Company Application for Confirmation/recognition of transfer to the applicant 3498 Equity Shares in the Respondent Company, made before order of winding up but after filing of petition for winding up of the Respondent Company - The appellant was appointed as Director of the company under liquidation at its EGM - the suit has been filed by Mr. A.V.K. Rao against the appellant and others in Ranga Reddy District Court Mr. A.V.K. Rao is the sole and absolute owner of 3498 equity shares of the company under liquidation and that the appellant is wrongfully in possession of the share certificates but the purported transfer shares is without consideration, and without execution of valid transfer deeds and without approval of transfer by Board of Directors and, therefore, invalid - The applicant seeks reliefs to commence the suit against the Liquidator and other parties before the Principal District Judge - Held that - There is a civil suit pending with regard to the transfer of shares. It is in these circumstances the Applicant cannot be granted any relief in this Company Application - The appeal is accordingly dismissed but with liberty to the appellant to make a fresh application under section 536(2) of the Companies Act, 1956 if and only if Suit No. OS 244 of 2009 is dismissed by the District Court, Ranga Reddy, Hyderabad. If the suit is decreed, there can be no question of the appellant making any fresh application.

Summary

Issues Involved:
1. Confirmation/recognition of transfer of shares under Section 536(2) of the Companies Act, 1956.
2. Delay and laches in filing the application under Section 536(2).
3. Disputed facts regarding the transfer of shares.
4. Legal principles governing the validation of share transfers during winding-up proceedings.

Detailed Analysis:

1. Confirmation/Recognition of Transfer of Shares Under Section 536(2) of the Companies Act, 1956:
The appeal was directed against the order of the Company Judge dismissing the appellant's application for confirmation/recognition of the transfer of 3498 equity shares in Elmot Engineering Company Private Limited (ECPL) (in liquidation). The appellant claimed that the shares were transferred before the winding-up order but after the filing of the winding-up petition. The appellant was appointed as Director of the company in an extraordinary general meeting held on 3 March 1990, where the shares were purportedly transferred to him.

2. Delay and Laches in Filing the Application Under Section 536(2):
The learned Company Judge dismissed the application on the grounds of delay, noting that the appellant approached the court after more than 18 years from the date of the alleged meeting. The appellant argued that no period of limitation is prescribed for filing an application under Section 536(2) and cited several decisions to support the contention that such an application may be filed at any time before the company is dissolved.

3. Disputed Facts Regarding the Transfer of Shares:
The application raised serious disputed questions of fact regarding the transfer of shares. The respondents contended that no valid transfer took place, and the share certificates were obtained by the appellant under dubious circumstances. The affidavit of Mr. C.V.K. Rao detailed that the appellant convinced him to go along with a scheme to show a back-dated transfer of shares to obtain finance, but no actual transfer occurred, and no consideration was paid. The dispute over the transfer of shares is also the subject of a pending suit in the Ranga Reddy District Court, Hyderabad.

4. Legal Principles Governing the Validation of Share Transfers During Winding-Up Proceedings:
The court considered various precedents to determine the scope of its powers under Section 536(2). The jurisdiction under this section is extant until the company is dissolved, and applications can be made at any time after the transfer of shares, which must have occurred after the presentation of the winding-up petition but before the winding-up order. The court emphasized that it would apply principles of equity and justice in exercising its discretion and noted that the object of the section is to prevent shareholders from defeating the winding-up by disposing of their liability in respect of their shares.

Judgment:
The court concluded that the application raised serious disputed questions of fact that could only be resolved through a full-fledged trial. The pending suit in the Ranga Reddy District Court centers around the same controversy, and the outcome of that suit would determine the validity of the alleged transfer. The court held that the application should not have been dismissed on the ground of limitation, but the appellant would need to explain any reasonable delay in making such an application.

The appeal was dismissed with liberty to the appellant to make a fresh application under Section 536(2) if the suit in the Ranga Reddy District Court is dismissed. If the suit is decreed, there would be no question of the appellant making any fresh application under Section 536(2).