2017 (8) TMI 673 - HC - Companies Law

Transfer of Preference Shares - corporate debt restructuring - Held that - Having perused the materials on record, it is observed that the appellant s side could not show from the records that the assignment deed, which contained a list of securities, contained those RCCP and CCP (i.e. preference shares). The learned CLB has also arrived at the same finding. The appellant s side has also not been able to successfully demonstrate that the said 30,00,000 (thirty lakh shares) were pledged as security for the loan availed from the ICICI. Unless it is satisfactorily shown that the said shares formed a part of security, only then the plea of the appellant that the said shares was a part of corporate debt restructuring i.e. CDR can be entertained, and not otherwise. There is no infirmity in the opinion of the learned CLB that the respondent No.1 had exit from the CDR way back in 2006 by assigning the debt to the Standard Chartered Bank and thereafter, it was no t concerned with the CDR. Therefore, having retained the 30,00,000 (thirty lakh) preference shares, the ICICI was within its right to sell the same to the respondent No.1. This court does not find any infirmity in the sale. There is no material on record to show that the 30,00,000 (thirty lakh) preference shares (RCCP and CCP) were not subscribed by ICICI and that those preference shares were offered as security for the loan. Therefore, if the shares had been purchased for value in the first place, either as a source of finance or by any other means of finance, there is no provision in the Companies Act, 1956 or in the Contract Act, 1872 to prohibit the owner of such shares to deal with the same and/or to sell it. Therefore, the inevitable conclusion of this Court is that the validity of the sale of those 30,00,000 (thirty lakh) Preference shares (i.e. RCCP and CCP) is not impeachable on the basis of materials on record. Moreover, this court cannot be influenced by the value in which the said preference s hares were sold because in a sale transaction, only the contracting parties may at all be the one aggrieved and it was certainly not open to the appellant to challenge the sale on account of low value.

Summary

Issues Involved:
1. Validity of the transfer of 30,00,000 Preference Shares from ICICI to Respondent No. 1.
2. Whether the preference shares were part of the Corporate Debt Restructuring (CDR) package.
3. Legality of the refusal by the appellant to register the transfer of shares.
4. Impact of the cancellation of preference shares by the appellant on the transfer request.
5. Jurisdiction and authority of the Company Law Board (CLB) to direct the registration of share transfer.

Detailed Analysis:

1. Validity of the Transfer of 30,00,000 Preference Shares:
The appellant contended that ICICI had no right to transfer the 30,00,000 Redeemable Cumulative Convertible Preference Shares (RCCP) and Cumulative Convertible Preference Shares (CCP) to Respondent No. 1 after assigning the loan to Standard Chartered Bank. The court noted that there was no clause in the loan agreement or the Subscription Agreements linking the preference shares to the loan package. The court found no evidence that the shares were pledged as security for the loan. Therefore, ICICI retained the right to sell the shares to Respondent No. 1, and the sale was deemed valid.

2. Whether the Preference Shares were Part of the CDR Package:
The appellant argued that the preference shares were part of the CDR package and should have been waived along with the accrued interest. The court observed that the CDR proposal did not include the preference shares, and the appellant failed to demonstrate that the shares were part of the security for the loan. The court concluded that the shares were not part of the CDR package, and ICICI's sale of the shares was lawful.

3. Legality of the Refusal by the Appellant to Register the Transfer of Shares:
The appellant refused to register the transfer of shares to Respondent No. 1, leading to a petition before the CLB. The court held that the refusal was without sufficient cause, as the shares were freely transferable and there was no restriction on their transfer. The CLB's direction to register the transfer was upheld.

4. Impact of the Cancellation of Preference Shares by the Appellant:
The appellant canceled all preference shares, including those issued to ICICI, by a special resolution and sought court approval for the cancellation. The court allowed the cancellation, but Respondent No. 1 was not notified in time to object. The court noted that the shares existed in the appellant's books and were reflected in its annual accounts before cancellation. The court found that the cancellation did not affect Respondent No. 1's right to have the shares transferred.

5. Jurisdiction and Authority of the CLB to Direct the Registration of Share Transfer:
The appellant challenged the CLB's authority to direct the registration of the share transfer. The court affirmed that the CLB had the jurisdiction under Section 111A of the Companies Act, 1956, to address grievances related to the refusal of share transfer. The court found no infirmity in the CLB's order directing the registration of the transfer.

Conclusion:
The court dismissed the appeal, upholding the CLB's order directing the appellant to register the transfer of 30,00,000 preference shares to Respondent No. 1. The court found no legal or factual basis to challenge the validity of the share transfer or the CLB's jurisdiction. The interim stay on the CLB's order was vacated, and the parties were left to bear their own costs.