2024 (9) TMI 570 - SC - Companies Law

Valid transfer of shares or not - Seeking rectification of the Register of Members of M/s. Lexus Technologies Pvt. Ltd., Vijayawada, Andhra Pradesh, respondent No.1, by entering their names therein under Sections 59 and 88 of the Act of 2013 - seeking to initiate action against Mantena Narasa Raju, Appa Rao Mukkamala and Suresh Anne, respondent Nos. 2,3 and 4, for oppression and mismanagement, apart from criminal proceedings under Sections 447 and 448 of the Act of 2013 for committing fraud. HELD THAT - In the present case, proper verification of the assertions made by the parties was a sine qua non. The Acting President of the NCLT, by failing to carry out the said exercise, failed to discharge the mandate of law. Exercise of power under Section 59 of the Act of 2013 is to be undertaken in right earnest by examining the material, evidence, and the facts on record. This has not been done. Rather, a narrow view was taken without calling upon respondent No. 2 to prove the veracity of the contrary story put forth by him, despite receiving monies from the appellants. The facts, material, and evidence had to be examined in the context of the underlying facts, which would have included the receipt of monies, the signatures on the transfer deeds, etc. Needless to state, questions of fact must be decided on the principle of preponderance of probabilities, giving due weight to the specific facts, as found, so as to draw the conclusion that a reasonable person, acquainted with the relevant field, would draw on the basis of the same facts. Neither the Acting President of the NCLT nor the NCLAT examined, with any seriousness, the issues raised before them to come to a cogent conclusion as to whether the disputes raised by the respondents were mere moonshine. In Ammonia Supplies Corporation (P) Ltd. 1998 (9) TMI 427 - SUPREME COURT , this Court held to that effect in the context of Section 155 of the Companies Act, 1956. Thereafter, in Aadesh Kaur (supra) also, this Court affirmed that if, on facts, an open-and-shut case of fraud is made out in favour of the person seeking rectification, the National Company Law Tribunal would be entitled to exercise such power under Section 59 of the Act of 2013. Therefore, verification of this aspect was essential but the NCLT failed to discharge this mandate. Another crucial fact that needs to be noted is that the interim order passed on 27.06.2019 by the Member (Judicial) of the NCLT had indicated, in clear terms, the issues that arose for consideration and the inquiry required to determine the same. However, ignoring the said interim order, the Acting President of the NCLT chose to summarily dismiss the petition, without considering the material already placed on record and without further evidence being adduced. The documents that were referred to and attached to the Company Petition and the appellants rejoinder were glossed over or were completely ignored - Neither the NCLT nor the NCLAT chose to labour over the actual issues for consideration by looking at the documentary evidence already placed on record or by calling for further evidence in that regard. The judgment in Company Petition and the judgment in Company Appeal are set aside - Appeal allowed.

Issues Involved:
1. Whether the petition was filed within the limitation period.
2. Whether the purported transfer of shares was in accordance with the Companies Act and the Articles of Association.
3. Whether the amount purportedly paid should be treated as consideration for the shares.
4. Whether the share certificates purportedly issued to the appellants were genuine.
5. Whether any relief could be granted to the appellants or whether the petition was maintainable.

Issue-wise Detailed Analysis:

1. Limitation Period
The Acting President of the NCLT summarily concluded that the filing of the petition by the appellants was an afterthought and, therefore, the question of limitation did not arise as the petition was not filed within the limitation period of three years. This approach was contrary to the observation of the Member (Judicial) of the NCLT in the interim order, which stated that limitation, being a mixed question of law and fact, required a full examination.

2. Transfer of Shares
The Acting President rejected the appellants' case, claiming no documents existed to show the transfer of shares and that the existing shareholders were given an opportunity to buy the shares. This conclusion ignored the material on record, such as emails, transfer forms, and share certificates, which supported the appellants' case. The genuineness of these documents required verification, which was not done.

3. Consideration for Shares
The Acting President observed that there was no covering letter or correspondence to support the claim that the amount transferred into the account of respondent No.2 was for the purchase of shares. He noted the discrepancy in the sale consideration amount and concluded that the monies transferred into the account of respondent No.2 were not for the purchase of shares. This conclusion was reached without proper verification of respondent No.2's claims.

4. Authenticity of Share Certificates
The Acting President opined that the appearance of the share certificates was dubious and concluded that they were not genuine and were fabricated. This conclusion was reached without considering the evidence, including the original share certificates produced by the appellants. The NCLT failed to examine the material and evidence properly.

5. Relief and Maintainability
The Acting President concluded that the appellants had failed to prove their case and had not realized their rights as shareholders. He observed that the transaction between the parties was different and did not involve the company, entangling the company in the dispute for no reason. The case was held to be fraudulent and devoid of fact and law, leading to its dismissal with costs of Rs. 5,00,000/-.

Conclusion:
The Supreme Court set aside the judgments of the NCLT and NCLAT, restoring the Company Petition to the file of the National Company Law Tribunal, Amaravati Bench, for fresh consideration on merits and in accordance with law. The NCLT was requested to prioritize and expedite the disposal of the petition. The Supreme Court emphasized the need for proper verification of assertions and evidence, which was not done by the NCLT and NCLAT.

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