2021 (4) TMI 67 - HC - Companies Law

Transfer of shares - Winding up of company or not - appellant contended that in the absence of requirements contemplated under Section 397 of the Companies Act, 1956, the Company Law Board has committed an error in passing such an order (for transfer of shares) in view of the fact that there was no circumstances established for winding up of the company - HELD THAT - This Court is of the opinion that when the provisions of the Statute contemplate certain requirements and ingredients then such requirements are to be established by the parties who approached the Court and in the absence of any proof to that effect, relief cannot be granted merely on the ground that there was a dispute existing between the parties. Mere dispute is insufficient to pass an order to transfer the shares. The dispute must result in winding up of the Company and such a situation must be beyond any pale of doubt - In the present case, none of the requirements were adjudicated nor any finding was given by the Company Law Board. Thus, this Court has no hesitation in arriving a conclusion that the order passed by the Company Law Board is not in consonance with the provisions of Section 397 of the Companies Act, 1956, and further opposed to the principles laid down by the Apex Court in the case of Hanuman Prasad Bagri and Others v. Bagrees cereals Pvt. Ltd and others 2001 (3) TMI 931 - SUPREME COURT . The Apex Court in an unequivocal terms in the case of Hanuman Prasad Bagri and Others v. Bagrees cereals Pvt. Ltd and others 2001 (3) TMI 931 - SUPREME COURT held that attention is to be made only with reference to the aspect that the winding up of the Company would unfairly prejudice the members of the company who have a grievance and are the applicants before the court and that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the Company should be wound up. However, no such circumstances are raised by the parties nor the Company was considered by the Company Law Board in the present case. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Challenge to the order passed by the Company Law Board in C.P.No. 01 of 2001 under Sections 397(2) and 398 of the Companies Act, 1956.

Analysis:
1. The Company Law Board passed an order directing the transfer of shares in a company petition filed by the respondents. The order provided an option for the petitioners to get shares transferred by a specified date.

2. The appellant argued that the Company Law Board erred in passing the order under Section 397 of the Companies Act, 1956, without concrete findings for winding up the company. The absence of circumstances justifying winding up precluded the Board from issuing a transfer direction.

3. The findings of the Company Law Board highlighted a historical partnership between the parties, the formation of a company, and the subsequent allocation of shares. The Board noted a tacit profit-sharing arrangement among the partners, emphasizing quasi-partnership principles and legitimate expectations.

4. The Court determined that without established circumstances warranting winding up, the Company Law Board exceeded its authority under Section 397 by ordering share transfers. The judgment referenced the Needle Industries case, emphasizing the necessity of proving just and equitable grounds for winding up a company.

5. Referring to the Hanuman Prasad Bagri case, the Court reiterated the requirement to establish just and equitable grounds for winding up a company. Failure to meet this standard precludes granting relief. The absence of such grounds in the present case rendered the Board's order erroneous.

6. The Court concluded that the Company Law Board's order did not align with Section 397 of the Companies Act, 1956, and contradicted established legal principles. Consequently, the order dated 12.02.2002 in C.P.No. 01 of 2001 was set aside, allowing the appeal without costs. The connected application was closed as a result.