2017 (9) TMI 1200 - Tri - Companies Law

Seeking rectification in Register of Members of 1st Respondent Company - transfer of shares - complaining oppression and mismanagement in the conduct of affairs of 1st Respondent Company - Held that - In the case on hand, Petitioners together with Mahendrabhai Patel were having only 10% shareholding in the Company, and the Respondents and Vithalbhai Patel were having 90% shares in the Company. The origin of the Company is from a Partnership Firm. It appears that strict procedural law has not been followed. It cannot be said that Petitioners have no knowledge of transfer of shares. Petitioners did not give any reason for not questioning the transfer of shares and not applying for rectification of Register of Members till 2015. The Company is running a Hotel. It is doing business. Three years after the transfer of shares, the shareholders are disputing the transfer of shares on the ground that there is no transfer deed especially when the shares are transferred to a person who is no more. Certainly, there is acquiescence, waiver or estoppel on the part of the Petitioners. The transfer of shares also gives certain rights to the Transferee of shares in these three years in the business of the Company. From the pleadings of the Petitioners and from the Balance Sheet of Hotel Satyaketu Pvt. Ltd., it appears that it has taken a loan from one Hotel Oasis in which the Petitioners are also shareholders. It appears that unsecured loans have also not been paid by the 1st Respondent Company to the Petitioners and therefore that made the Petitioners to raise the dispute regarding the transfer of their shares in favour of Vithalbhai Patel. Therefore, there is also delay and laches on the part of the Petitioners which certainly, in the facts and circumstances of the case, amounts to acquiescence, waiver or estoppel. Thusthe Petitioners are not entitled to the relief for rectification of Register of Members of 1st Respondent Company. Once the Petitioners are not entitled to the relief of rectification of Register of members, they are not entitled to file the Petition alleging oppression or mismanagement. Moreover, a perusal of the Petition shows that no specific allegation of oppression or mismanagement is made except alleging wrong Annual Returns have been filed and wrong Compliance Certificate has been obtained.

Issues Involved:
1. Conversion of partnership firm to a company and shareholding structure.
2. Alleged promise to appoint petitioners as directors.
3. Alleged unauthorized transfer of shares.
4. Petitioners' eligibility to file the petition.
5. Respondents' defense regarding transfer of shares.
6. Jurisdiction and applicable legal provisions.
7. Evidence and validity of share transfers.
8. Delay and laches in raising the dispute.
9. Allegations of oppression and mismanagement.

Issue-wise Detailed Analysis:

1. Conversion of partnership firm to a company and shareholding structure:
Hotel Satyaketu Pvt. Ltd. was converted from a partnership firm to a company under the Companies Act, 1956, on 16th September 2002. The authorized share capital was ?4,00,00,000 divided into 40,00,000 equity shares of ?10 each, with a paid-up share capital of ?10,00,000 divided into 1,00,000 equity shares of ?10 each. The main object of the company is to run hotels and restaurants.

2. Alleged promise to appoint petitioners as directors:
Petitioners, who were partners in the original partnership firm and shareholders in the company, claimed they were promised positions on the Board of Directors after the hotel commenced operations. However, the respondents denied this promise and refused to appoint the petitioners as directors or repay their invested funds.

3. Alleged unauthorized transfer of shares:
Petitioners discovered that their shares were transferred without following due procedure, claiming they never offered their shares for sale, executed transfer forms, or received payment. The shares were shown as transferred in the Annual Return dated 29.9.2012, including shares of late Mahendrabhai Patel, who died in 2008, allegedly transferred in 2011-2012.

4. Petitioners' eligibility to file the petition:
Petitioners argued they were entitled to file the petition as they held more than 10% of the paid-up share capital. Respondents countered that petitioners did not pay any subscription towards 2% of the capital and were admitted as subscribers only to fulfill the minimum member criteria, not intended to be part of the management.

5. Respondents' defense regarding transfer of shares:
Respondents claimed the transfer of shares was effected based on instruments received from late Vithalbhai Patel, who had the share certificates and transfer deeds. They argued the petitioners had no right to interfere in the company's affairs after transferring their shares and that the petitioners' delay in raising the issue indicated acquiescence.

6. Jurisdiction and applicable legal provisions:
The petition initially cited sections 111, 111A, 397, 398, and 402 of the Companies Act, 1956, later amended to section 58 of the Companies Act, 2013. The tribunal determined the petition was for rectification of the Register of Members under section 59, not section 58, and was filed within the three-year limitation period.

7. Evidence and validity of share transfers:
Petitioners failed to produce share certificates to substantiate their claim of not transferring shares. The tribunal noted the absence of share certificates weakened their case, and the inspection of company records showed the transfer of shares to late Vithalbhai Patel was recorded. The tribunal found no evidence of fraud or coercion in obtaining transfer forms.

8. Delay and laches in raising the dispute:
The transfer of shares took place on 27.2.2012, but petitioners raised the issue only on 6.8.2014. The tribunal found no sufficient reasons for the delay and concluded that the petitioners had knowledge of the transfer, indicating acquiescence, waiver, or estoppel.

9. Allegations of oppression and mismanagement:
The tribunal found no specific allegations of oppression or mismanagement beyond the claim of wrongful share transfers. The petitioners' failure to substantiate their claims led to the dismissal of the petition.

Conclusion:
The tribunal dismissed the petition, finding the petitioners failed to prove their claims regarding the unauthorized transfer of shares and the alleged acts of oppression and mismanagement. The application TP 93-A (CA 74/2015) was closed with no order as to costs.

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