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2020 (10) TMI 693 - Tri - Companies LawRectification of the Register of Members of the Respondent Company - restraint on Respondent Company from holding the Annual General Meeting or Extraordinary General meeting - Section 59(1) of the Companies Act, 2013 - Whether the Company by exercising paramount lien can sell off the shares of a shareholder for recovering the dues? - HELD THAT - The Respondent Company in the instant petition will fall under the category of unpaid seller who can exercise the above rights only. Nothing more. It is settled law as decided by the Hon'ble Supreme Court of India in its judgement in TRIVENI SHANKAR SAXENA VERSUS STATE OF U.P. AND OTHERS 1991 (12) TMI 285 - SUPREME COURT a lien is only a right to retain which is rightfully and continuously in possession belonging to another until the claims are satisfied. It can be acquired either by contract or by operation of law. It is the right of retention of goods - in the absence of delineated process to exercise paramount lien, the Respondent Company can exercise lien to the extent of retention of goods; in this case shares which can be extendable payable to the shareholder - the submissions made by the Respondent Company cannot be agreed upon. Whether the action of 1st Respondent Company is backed up by any contractual agreement to recover the 'rental dues' by auctioning the shares? - HELD THAT - In the absence of a written agreement a documentary evidence to support their action, the very action of the Respondent's company was without any basis. Any of the unilateral action by one party, will not bind the others and will be set aside. Further the contention that the shops are under benami holding and not conforming to the Income Tax Act is not supported by any valid notice from income Tax authorities or any credible report to support this argument. Even if we go by submissions of learned PCS for respondents, we have not come across any steps taken by the respondent company to regularise the position in respect of the shops which are the property of respondent Company. During the arguments the bench asked to the PCS representing the company whether the company has taken any steps to get the shop vacated by the occupants for their rental arrears. The respondents submitted that they have not taken any action in this regard. Whether due process is followed by the Company in auctioning and allotting the shares to a 3rd party? - HELD THAT - The Articles of Association of the company is silent about the process to be followed to ensure paramount lien. However, in the Respondent Company, the lien was exercised for recovery of rental dues by auction the shares. Here the Respondents exercised right to lien to recover the arrears of rent from the shareholder who has not agreed to execute rental/lease agreement - In the instant petition, the Respondent auctioned the shares without the consent of shareholders and without original shre certificate and transfer form in their possession. The earlier action appears to the illegal and not as per the Companies Act 2013 - answered in negative. The company has no right to auction and allot the shares to the third parties ignoring the right of fully paid up shareholders. The rental dues claimed by the respondent company is not supported by rental/lease agreement which is agreed by shareholder - Petitioner is declared as the legitimate equity share holder under Folio No. 41 - application disposed off.
Issues Involved:
1. Whether the Company by exercising paramount lien can sell off the shares of a shareholder for recovering the dues. 2. Whether the action of the Respondent Company is backed up by any contractual agreement to recover the 'rental dues' by auctioning the shares. 3. Whether due process is followed by the Company in auctioning and allotting the shares to a third party. Detailed Analysis: Issue 1: Paramount Lien and Sale of Shares The Tribunal examined whether the Respondent Company could sell the shares of a shareholder to recover dues by exercising a paramount lien. The Articles of Association of the Respondent Company, specifically Clause 6(1), states that Regulation 9 of Table A of the 1956 Act shall not apply, which means Clause 9 of Table F is not applicable to the Respondent Company. Clause 6(2)(b) of the Articles of Association allows the Company to exercise a paramount lien for recovery of dues, extendable to dividends payable by the Company. However, the Articles do not prescribe the process for recovery of such dues. The Tribunal found that the Respondent Company could only exercise a lien to retain possession of shares, not to sell them unilaterally without the shareholder’s consent. This interpretation aligns with the Sale of Goods Act, 1930, which defines shares as "movable property" and grants the unpaid seller rights similar to a lien but does not extend to the sale of goods without consent. Issue 2: Contractual Agreement for Recovering Dues The Tribunal found no evidence of any agreement showing that the shops occupied by the Petitioner were leased by the Respondent Company. The Respondent Company was collecting service charges without a written lease agreement. The Tribunal noted that any unilateral action by one party, without a contractual agreement, would not bind the other party and would be set aside. The Tribunal also dismissed the Respondent’s argument regarding benami holdings and non-compliance with the Income Tax Act as unsupported by valid notice or credible report. Issue 3: Due Process in Auctioning Shares The Articles of Association of the Respondent Company are silent about the process to ensure paramount lien. The Tribunal found that the Respondent Company auctioned the shares without the shareholder’s consent and without possessing the original share certificate and transfer form. This action was deemed illegal and not in compliance with the Companies Act, 2013. The Tribunal referenced the judgment of the Hon'ble High Court of Delhi in Jagatjit Distilling & Allied Industries Ltd V. Bharath Nidhi Ltd, which emphasized that a lien does not confer the power of sale, distinguishing it from a pledge. Conclusion and Order: The Tribunal concluded that the Petitioner had a strong case and passed the following orders: 1. The Petitioner is declared as the legitimate equity shareholder under Folio No. 41. 2. The Register of Members of the Respondent Company must be rectified by re-entering the Petitioner’s 50 equity shares and restoring the total shareholding as it existed prior to 08.02.2019. 3. The Respondent Company is restrained from conducting any tender for the sale of the Petitioner’s 50 shares or effecting any transfer without the Petitioner’s express consent until the share register is rectified. 4. The Respondent Company must file the rectified Register of Members with the Registrar of Companies within one month. 5. The Respondent Company is directed to pay Rs. 25,000/- to the Petitioner towards costs and damages. This comprehensive analysis ensures that all relevant issues and legal terminologies are preserved while providing a thorough understanding of the judgment.
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