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2016 (4) TMI 176 - HC - Companies LawMaintainability of petition before the Company Law Board under Section 111A of the Companies Act 1956 - amalgamation - Held that - Section 10F of the Act engulfs the requirement of the existence of the question of law arising from the decision of the CLB as an essential pre-condition for the maintainability of the appeal thereunder. Section 10F defines the parameters of inquisition by the appellate forum depending on the nature of the order impugned and the nature of the type of the order under scrutiny. When a question of law is neither raised nor considered by the appellate forum, it would not be a question arising out of its order notwithstanding that it may arise on the findings given. Only a question that has been raised before or decided by the Tribunal that could be held to arise out of this order. ( See Purnima Manthena & Anr. Vs. Renuka Datla & Ors. 2015 (11) TMI 133 - SUPREME COURT OF INDIA ). Therefore, this point is also a non-issue. The fact laid before the CLB was not an application simplicitor to hold an inquiry as it deems fit to find out whether there has been a contravention of any law for the time being in force and direct any company to rectify its register or record. The question that was required first to be established was whether - (a) The respondents 1 to 3 and 8 to 11 had any obligations to the erstwhile UWB ; (b) Whether the respondents have committed a breach of those obligations ; and if answer to these two issues are in the affirmative ; (c) Whether that would amount to contravention of law. Therefore, though it is open to the appellant to take such legal recourse, they may be advised. Adopting action under Section 111A of the Companies Act, 1956 is not an option. Thus in view, the appellant has not made out any case to show that the respondents 1 to 3 & 8 to 11 have contravened any law. Even if take the case of the petitioners at face value that the respondents 1 to 3 & 8 to 11 have breached the Articles of Agreement, still in view, that cannot be contravention of any law.In fact, the Company Law Board while signing off, made it clear that dismissal of the petition would not bar the appellant from availing any other remedy as may be available in law. Section 111A(3) does not cover a situation of transfer of shares in violation of a private agreement.
Issues Involved:
1. Maintainability of the petition under Section 111A of the Companies Act, 1956. 2. Allegation of breach of Articles of Agreement by respondents. 3. Interpretation of Section 111A of the Companies Act, 1956. 4. Applicability of judgments cited by the appellant. Detailed Analysis: 1. Maintainability of the Petition under Section 111A of the Companies Act, 1956: The primary issue in this case was whether the petition filed before the Company Law Board (CLB) under Section 111A of the Companies Act, 1956, was maintainable. The appellant argued that the transfer and pledge of shares by the respondents were in violation of the Articles of Agreement and sought rectification of the register of members. However, the CLB dismissed the petition on the grounds of non-maintainability, and the appellant challenged this order. 2. Allegation of Breach of Articles of Agreement by Respondents: The appellant claimed that the respondents, who were part of the Makharia group, had breached the Articles of Agreement by transferring and pledging shares without offering them to the nominees of the erstwhile United Western Bank (UWB). According to the appellant, these actions violated the pre-emption rights stipulated in the agreement. 3. Interpretation of Section 111A of the Companies Act, 1956: The relevant sub-sections of Section 111A were analyzed to determine their applicability to the case. Sub-section 2 of Section 111A states that shares of a company shall be freely transferable, and if a company refuses to register the transfer without sufficient cause, the transferee may appeal to the CLB. Sub-section 3 allows the CLB to rectify the register if the transfer of shares is in contravention of any law. The court noted that the appellant's case did not involve refusal to register the transfer of shares but rather alleged breaches of contractual obligations, which do not fall under the grounds specified in Section 111A(3). 4. Applicability of Judgments Cited by the Appellant: The appellant relied on several judgments to support their case, including: - Karamsad Investments Ltd. Vs. Nile Ltd. & Ors.: The court held that sub-section 2 and sub-section 3 of Section 111A should be read together, and violation of contractual obligations could be considered under "any other law." However, the court found this judgment inapplicable as it pertained to different circumstances. - Bajaj Auto Ltd. Vs. Western Maharashtra Development Corporation Ltd.: This judgment held that consensual agreements regarding share transfer do not impinge on free transferability under Section 111A. The court found this judgment irrelevant to the present case. - Holdings Limited Vs. Shyam Madanmohan Ruia & ors.: This case dealt with free transferability of shares and right of pre-emption, which the court found inapplicable to the current facts. - V.B.Rangaraj Vs. V.B.Gopalakrishnan: The Supreme Court held that shares are freely transferable unless restricted by the Articles of Association. The court noted that the CLB did not dismiss the petition based on this judgment but merely stated its proposition. Conclusion: The court concluded that the appellant had not made a case for contravention of any law by the respondents. Even if the respondents breached the Articles of Agreement, it would not amount to a violation of any law. The court upheld the CLB's decision, stating that Section 111A(3) does not cover situations involving transfer of shares in violation of a private agreement. The appeal was dismissed with no order as to costs.
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