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TMI Blog2012 (4) TMI 234X X X X Extracts X X X X X X X X Extracts X X X X ..... ted any relief in this Company Application - The appeal is accordingly dismissed but with liberty to the appellant to make a fresh application under section 536(2) of the Companies Act, 1956 if and only if Suit No. OS 244 of 2009 is dismissed by the District Court, Ranga Reddy, Hyderabad. If the suit is decreed, there can be no question of the appellant making any fresh application. - 752 of 2011 - - - Dated:- 22-2-2012 - Mohit s. Shah, SMT. ROSHAN DALVI, JJ. Zal Andhyarujina for the Appellant. L.T. Satelkar, Shyam Mehta, Vaibhav Warerkar and Ms. Kirti Munshi for the Respondent. JUDGMENT Mohit S. Shah, C.J . This appeal is directed against the order dated 13 October 2011 of the learned Company Judge of this Court dismissing the appellant's application under section 536(2) of the Companies Act, 1956 (hereinafter referred to as the 'Act'). The application was for confirmation/recognition of transfer of 3498 equity shares of Rs.100/- each fully paid up in Elmot Engineering Company Private Limited (ECPL) (in liquidation) (hereinafter referred to as the company in liquidation. The prayer in the company application was for the following relief:- "( a ) Confir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omobiles Ltd. for recovery of dues from the company on 20 June 1988. The consent terms were filed in the winding up petition on 29 March 1989 to pay in all Rs. 1,63,000/- in monthly instalments of Rs.15,000/- but since not even one instalment was paid till February 1990, this Court passed order dated 22 March 1990 for winding up of the company under liquidation. Thus, all efforts made by Mr. C.V.K. Rao and his group to revive the company under liquidation failed. The appellant's further case is that the appellant was not aware about the winding up proceedings but because of the grave financial problems, Mr. C.V.K. Rao decided to introduce the appellant to accept the responsibility of revival of the Elmot Group of Companies. It is stated that Mr. C.V.K. Rao is a son of the only sister of the paternal grandfather of the appellant. Upon the appellant's election as a director of the board of the company under liquidation after removal of three directors of M/s. VM Finance Leasing Company, Mr. C.V.K. Rao was to file the necessary forms regarding appellant's election as director of the company in question. The appellant's further case is that by letter dated 1 October 1990, the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the other relatives are trustees of other ten trusts. The date of vesting of the trusts' shares was 10 November 1995. It is further defence of Mr. A.V.K. Rao that when he alongwith M/s. Elmot Alternators Private Limited filed Company Application No.212 of 2008 for recalling the winding up order dated 22 March 1990, during pendency of the said application, the appellant herein intervened, contending that he is the owner of 3498 equity shares of the company under liquidation. That claim was disputed by Mr. A.V.K. Rao. Mr. C.V.K. Rao also filed affidavit dated 6 December 2008 in the said company application explaining the facts. In view of the said claim made by the appellant in the said company application in the year 2008, the suit has been filed by Mr. A.V.K. Rao against the appellant and others in Ranga Reddy District Court at L.B.. Nagar, Hyderabad being Suit No.224 of 2009 for a declaration that Mr. A.V.K. Rao is the sole and absolute owner of 3498 equity shares of the company under liquidation and that the appellant is wrongfully in possession of the share certificates pertaining to those shares, but the purported transfer of 3498 shares is without consideration, without exec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istrict Court at L.B. Nagar, Hyderabad. The learned Company Judge allowed the application granting permission under section 446 of the Act and passed the following order:- "1. By consent, the Company Application is placed on board and heard finally. 2. The applicant seeks reliefs to commence the suit against the Liquidator and other parties before the Principal District Judge, Ranga Reddy District at L.B. Nagar. Essentially, the reliefs are claimed not against the official liquidator, but against the persons shown on the record of the company as the holders of the shares in respect of the suit which is proposed to be filed. The civil application is made absolute in terms of prayer clause (a). 3. Mr. Munshi, the learned Advocate for the applicant, states that no reliefs will be claimed against the Official Liquidator per se, except consequential directions in the event of the applicant succeeding in respect of his claim to the said shares. The Official Liquidator therefore, will be a formal party to the suit and will submit to the orders of the Court. However, all the papers and proceedings shall always be served upon the Official Liquidator. Liberty to the Official Liqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer of shares. It is in these circumstances that I am of the opinion that the Applicant cannot be granted any relief in this Company Application. 42. Once the above view is taken, there is no necessity of referring to all decisions that have been brought to my notice. I am proceeding on the basis that the transfer of shares is a matter which can be dealt with and is covered by section 536(2) of the Companies Act, 1956 and same principles which apply with regard to the dispositions of property would apply and govern the transfer of shares or alteration in the status of the members. However, finding that the claim is belated, there being unexplained and erroneous delay in raising it, so also, it being highly disputed, that it will not be possible to grant any relief on this application. If the claim was not belated as referred to above, possibly all other aspects could have been gone into and then a view in favour of the Applicant on other aspects could have been taken. However, finding that the parties are involved in litigation in relation to the very transaction and that it is not a case of admitted transfer of shares on the own showing and going by own version of the Applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l possession of the properties of the company under liquidation having 10 acres of land with nearly 1,33,700 sq.ft. of built up area. The Rao group came up with the application on the pretext of revival after 18 years of winding up order and that too only after the Official Liquidator initiated action to take possession of the property of the company under liquidation. The Rao group deliberately did not file the statement of affairs and statutory records of the company under liquidation. ( v ) The appellant is a senior citizen and a very senior member of The Institute of Chartered Accountants of India and transfer of 3498 shares (more than 50% share holding) in the company was the main consideration for the appellant to give up his career on 3 March 1990 and take directorship of the company under liquidation. The appellant without prejudice is willing to contribute 50% of additional equity as and when required through his family members/nominees, which shall be held in an Escrow Account till Interveners also make matching 50% contribution that may be envisaged for revival of the company in liquidation as per the scheme of revival appraised by any investment banker/financial inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is only one meeting on 3 March 1990 prior to the order of liquidation dated 22 March 1990 then all the more the appellant's version raises serious arguable issues on facts and law. ( c ) The suit with the same controversy as the subject matter is pending before the District Court at Hyderabad. 13. Mr. Munshi, learned counsel for respondent Nos.4 and 5 (Mr. C.V.K. Rao and Mrs. R.K. Rao) adopted the submissions of the learned counsel for respondent No.3 Mr. A.V.K. Rao and has submitted that the conduct of the appellant makes it clear that in the facts of this case, the prayer should not be granted. Our attention was also invited to the affidavit dated 9 December 2009 of Mr. C.V.K. Rao in the present company application explaining the circumstances under which the appellant had obtained the share certificates from Mr. C.V.K. Rao. 14. Mr. C.V.K. Rao (Respondent No.4 herein) has given the following version in para 8 of the affidavit dated 9 December 2009 about the events relating to the appellant's claim of ownership over the 3498 shares in the company in liquidation:- "8. I say that the Applicant (Rathnam PV) was unable to revive EAPL inspite of my whole hearted suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficates pertaining to the 4,505 equity shares held in the Company by the 17 trusts, which I refused to do. To get over this deadlock, the Applicant, in his own handwriting, wrote out transfers of all the shares belonging to the said trusts to my son, despite the fact that my son was a minor in the year 1990 , and made me sign on the back of each of the 4,505 trust shares. The Applicant's contention was that M/s. Alcon Engineering was not aware that my son was a minor in 1990. Despite this, I insisted that I would only part with share certificates evidencing ownership of 3498 trust shares, and that too because I trusted him implicitly and I wished to support him all the way in the revival of EAPL. The Applicant then further implored me to sign on the back of the share certificates to be given to him (evidencing ownership of 3,498 shares) once again, presumably to record a transfer of these shares in his name. I say that I was still hesitant to go through with this scheme, but the Applicant convinced me to go alongwith it, pointing out that his possession of these share certificates was harmless for the following reasons; (a) None of the trust shares could be transferred to anyone, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies for which limited purpose of Agreements dated 19th August, 1999 and 9th April, 2000 were signed by me, these transactions were treated as dead transactions. Consequently, these 3498 shares were never treated as shares belonging to the Applicant, as the limited purpose for which I had so acknowledged the same had also failed. I did not take any action against the Applicant as the Company was in liquidation. From this point onwards, the Applicant made all out attempts to marginalize me and remove me from my own Companies. I was eventually forced to seek the help of my son in the year 2002, after he had decided to return to India. I reiterate that there was no board meeting of the Company held on the 3rd March, 1990, as alleged by the Applicant, nor was there any transfer of 3,498 equity shares of the Company to the Applicant. I say that neither the Applicant nor his wife was ever appointed as a director of the Company at any time. The acknowledgment of the Applicant's shareholding in the Company made by me in the said Agreements was solely for the purposes of the transaction for raising funds on such terms as represented by the Applicant. I repeatedly requested the Appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt otherwise orders, be void." After considering the aforesaid provision, the Allahabad High Court held as under:- "Dr. Asthna on behalf of Seth Bir Chand, argues that the proper construction to be put on the section is that every transfer of shares without the previous sanction of the Court is void. I do not think that the section can bear this construction. If the legislature had meant that a transfer of shares without previous sanction should be void, it was perfectly easy for the legislature so to enact. In my opinion, the plain reading of the section means that it is within the jurisdiction of the Court at any time after the transfer of the shares to order that the transaction is a good transaction and shall stand. The words "every transfer of shares .... shall, unless the Court otherwise orders, be void," clearly allude to a transfer of shares which has actually taken place. In my opinion this reading is in accordance not only with law, but with common sense and justice. Complete discretion has been left, and property left, to the Court to do whatever it may think just in a matter of this sort. Such an order however although it would be discretionary would not ordinarily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22. On an analysis of the above decisions, the following principles emerge:- ( i ) The jurisdiction of the Court under section 536(2) is extant till such time the company is dissolved. ( ii ) The application, if any, under section 536(2) may be made at 'any time after the transfer of shares', which transfer must have taken place after presentation of the winding up petition, but before passing of the winding up order. ( iii ) That such an application is in the form of application against the Official Liquidator but in fact is against the company. ( iv ) That the Court will apply the principles of equity and justice in exercising its discretion. ( v ) That the Court will bear in mind the object of the section is to prevent a share holder from defeating the winding up by disposing off his liability in respect of his shares. 23. The learned counsel for the appellant also invited our attention to the decision of the Apex Court in Pankaj Mehra's case ( supra ). The Supreme Court has held that the word "void" need not automatically indicate that any disposition should be ab initio void . The legal implication of the word "void" need not necessarily be a stage of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of winding up and thereafter, so far as dispositions are concerned and then observed as under:- "The court can exercise the jurisdiction under Section 536(2) of the Companies Act, 1956, of giving directions validating proposed transactions pending a petition for winding up but before the winding up order is made for the obvious reason that unless these transactions are saved from the consequence which may ensue, if at all, on an order of winding up being made, the company might find it difficult to keep itself going and its business might be paralysed. The purpose underlying the investment of the power in court is for the benefit and the interest of the company so as to ensure that a company which is made the subject of a winding up petition may nevertheless obtain the money necessary for carrying out its business and so as to avoid its business being paralysed. If that is the purpose and object of the section, it would hardly be proper and just to stultify the power and restrict its operation since otherwise it is bound to be counterproductive in the sense that the very purpose of keeping the company as a going concern so as to ensure the interest of the shareholders a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant's possession of these share certificates was harmless for the following reasons : ( a ) None of the trust shares could be transferred to anyone, as his son is the sole beneficiary of these trusts; ( b ) the trustees of the 14 trusts which owned the 3498 shares whose certificates were to be handed over to the appellant were not parties to this transaction; ( c ) no transfer forms were signed and no valuable consideration was ever paid; and ( d ) the first transfer was executed in the name of his son. 27. In short, it is the case of respondent No.4 in the affidavit in reply that there was no board meeting of the company held on 3 March 1990 as alleged by the applicant (appellant) nor was there any transfer of 3498 equity shares of the company in liquidation by the appellant before the Company Court passed the order of winding up on 22 March 1990. 28. Having regard to the aforesaid stand of the respondents as set out in para 8 of the reply affidavit of respondent No.4, it appears that according to the defence of respondent Nos.3 to 5, the alleged transfer of shares took place after Elmot Engineering Co. Pvt. Ltd. (that is the company in question) was o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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