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2018 (10) TMI 338 - Tri - Companies LawRectification of Register of members - when there is transfer of shares it has to be seen whether such transfers have been made in accordance with the Articles of Association or not? - Held that - In the case on hand the Investment Agreement which is incorporated in the Articles of Association gives a right of election to ask for conversion of CCDs into equity shares when an event of default occurred as per the terms of Investment Agreement dated 25.06.2015. Such election has been made by the Petitioner. Therefore, the conversion of CCDs into equity shares is not in derogation of Articles of Association or the terms of Investment Agreement. In that view of the matter only it is concluded that there is a sufficient cause for mentioning the names of the Petitioners as shareholders of Respondent No. 2 Company on account of conversion. Here in case on hand the manner in which the Petitioner kept quite till 20.03.2018 in respect of election for conversion of CCDs into equity shares and several issues that crop up in this petition and the fact that the Petitioner filed the Petition u/s.7 of the IB Code against Respondent No.4 herein would go to show that this Petition is not a mere petition seeking rectification of entries in the register of members but it has got other collateral purposes namely, triggering Corporate Insolvency Resolution Process in respect of Respondent No.4. Therefore, this Tribunal is of the considered view that such contentious issues cannot be decided while exercising jurisdiction u/s.59 of the Companies Act.
Issues Involved:
1. Jurisdiction of the Tribunal under Section 59 of the Companies Act, 2013. 2. Validity of the conversion of Compulsory Convertible Debentures (CCDs) into equity shares. 3. Entitlement for rectification of the register of members. Issue-wise Detailed Analysis: 1. Jurisdiction of the Tribunal under Section 59 of the Companies Act, 2013: The Tribunal examined whether it had jurisdiction to grant the reliefs sought under Section 59 of the Companies Act, 2013. Section 59 pertains to the rectification of the register of members if a person's name is entered or omitted without sufficient cause. The Tribunal noted that its jurisdiction under Section 59 is summary in nature and does not extend to adjudicating complex and contentious issues that require a detailed trial. The Tribunal referred to the Supreme Court's decision in Ammonia Supplies Corpn. (P) Ltd. v. Modern Plastic Containers (P.) Ltd., which clarified that Section 59 is not intended to resolve disputes involving complex factual questions. 2. Validity of the conversion of Compulsory Convertible Debentures (CCDs) into equity shares: The Tribunal reviewed the Investment Agreement dated 25.06.2015, which included the terms for converting CCDs into equity shares. The Articles of Association of Respondent No.2 incorporated these terms, particularly Articles 65.8 and 77.4. The Tribunal noted that the petitioner had initially elected to convert the CCDs into equity shares, as evidenced by their letter dated 05.09.2017. The Board of Directors of Respondent No.2 subsequently passed a resolution on 26.03.2018 to convert the CCDs into equity shares. The Tribunal found that the conversion was in accordance with the Investment Agreement and Articles of Association. The petitioner’s later attempt to retract its election was not supported by any provision in the Articles of Association or the Investment Agreement. The Tribunal concluded that the conversion was valid and not ultra vires. 3. Entitlement for rectification of the register of members: The Tribunal considered whether the petitioner was entitled to rectification of the register of members. The petitioner argued that the conversion was in violation of the Articles of Association and the Investment Agreement. However, the Tribunal found that the conversion process initiated by the petitioner and the subsequent actions taken by Respondent No.2 were in line with the agreed terms. The Tribunal emphasized that the challenge to the Board Resolution dated 26.03.2018, which authorized the conversion, was beyond the scope of Section 59. The Tribunal concluded that there was sufficient cause for entering the petitioner's name in the register of members due to the valid conversion of CCDs into equity shares. Conclusion: The Tribunal dismissed the petition, stating that it lacked jurisdiction under Section 59 to address the complex and contentious issues raised. It suggested that the petitioner could seek relief under Section 241 of the Companies Act or through arbitration as provided in the Investment Agreement. The Tribunal affirmed that the conversion of CCDs into equity shares was valid and in accordance with the Articles of Association and the Investment Agreement, and thus, the petitioner was not entitled to rectification of the register of members.
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