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TMI Blog2012 (6) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed that process of rehabilitation under Section 391 of the Act does not offer any compromise or arrangement to the creditors and members of the company. However, no such claim has been filed by them so far. The respondent No.2 and 3 (hereinafter referred to as the propounder of the scheme) had moved application under Section 536 (2) of the Act read with Rule 9 of the Companies (Court) Rules, 1959 seeking validation of purchase of shares after the winding up order dated 18.5.1987. In this application, the case set up by the propounder was that a Share Purchase Agreement/MoU/Deeds of Arrangement dated 10.3.2006 was executed between the original share holders and propounders which is a composite agreement for purchase of shares and for settlement of liabilities of company in liquidation. According to the propounders, vide this agreement, they had purchased 223600 number of shares out of 3,50,000 equity shares of the company which represents 63.89% of equity. According to them, respondent No.2 holds 17650 (50.19%) shares whereas respondent No.3 holds 47950 (13.70%) shares of the company. In the application filed under Section 536(2) of the Act, it was further averred by the propou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Companies Act, 1956: 1. The Court has an absolute discretion to validate a transaction. 2. This discretion is controlled only by the general principles which apply to every kind of judicial discretion. 3. The Court must have regard to all the surrounding circumstances and if from all the surrounding circumstances it comes to the conclusion that the transaction should not be void, it is within the power of the Court under Sec. 536(2) to say that the transaction is not void. 4. If it be found that the transaction was for the benefit of and in the interests of the company or for keeping the company going or keeping things going generally, it ought to be confirmed." 3. The company Court also took note of following discussion in Sidhur Mills Co. Ltd., In re [1987] 1 Comp. L.J. 71 (Guj.) by the Gujarat High Court in the following manner: "12. It is trite position in law that the commencement of winding-up proceedings relates back to the presentation of the petition (see: section 441 of Companies Act, 1956). It should be recalled that the winding-up petition in which the order was made was company petition No.9 of 1979 which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) In case of winding up proceedings of a company whose equity shares are listed on a recognized stock exchange, the rights, if any, of the shareholders of such company shall be in accordance with the laws applicable to those proceedings." 5. On that basis, the opinion is formed that SEBI Takeover Regulations, 1997 would have no application to the present transfer of shares. On the basis of the aforesaid principles, the company Court examined the facts of the case at hand. It observed that since company was in liquidation for last 27 years, there was no question of its shares being listed on any recognized stock exchange on the date when the alleged sale agreement/MoU/deed of arrangement were executed. It was more so when trading at Delhi Stock Exchange has been suspended for last nearly ten years. As per the Company Judge, the appellant who were initially promoters and the family members of company in liquidation had entered into the said MoU, etc. with the propounders in the year 2005-06, i.e., at a time when liabilities were far in excess of the assets of the company and secured creditors were making efforts to recover their debts from personal properties of the initial promo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er reason has been brushed aside observing that in that event there should have been the agreement set aside through Court and unless they do so it is not permissible to go behind the agreement and ignored as void documents. It is so held by the Supreme Court in the case of Subodh Kumar Gupta v. Shrikant Gupta [1993] 4 SCC 1 in the following manner: "On the averments in the plaint taken at their face value the case set up by the plaintiff is that after his father left Mandsaur his two brothers joined hands, manipulated the accounts and siphoned away the funds belonging to the partnership firm. The entire dispute is in relation to what happened at Mandsaur. Secondly, it must also be remembered that even according to the plaintiff after his father returned to Mandsaur there was some talk of settlement of the dispute and consequently an agreement was executed on 26th November, 1992 at Bhilai by which the partnership was dissolved and it was agreed that the liabilities would be settled within one month. Now this agreement was executed outside the territorial jurisdiction of the Chandigarh Court. Unless this agreement is set aside there is no question of the Chandigarh Court entertaini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip Register could not be ordered except on production of instrument of transfer. Further Section 108 of the Act required previous approval of the Central Government as the proposed acquisition by respondent nos. 2 & 3 exceeded 25% of the paid equity share capital by the company. Judgments of the Supreme Court in the case of Mannalal Khetan v. Kedar Nath Khetan [1977] 2 SCC 424 was pressed into service wherein the Court held as under: "16. The provision contained in Section 108 of the Act states that "a company shall not register a transfer of shares...unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee has been delivered to the company along with the certificate relating to the shares or debentures or if no such certificate is in existence along with the letter of allotment of the shares." There are two provisos to section 108 of the Act. We are not concerned with the first proviso in these appeals. The second proviso states that nothing in this section shall prejudice any power of the company to register as shareholder or debenture holder any person to whom the right to any shares in, or debentur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mandatory. The High Court erred in holding that the provisions are directory." 9. It was submitted that this view has been reiterated by the Supreme Court in the case of Smt. Claude-Lila Parulekar v. Sakal Papers (P.) Ltd. [2005] 59 SCL 414. 10. It was, thus, submitted that the provisions contained in Section 108 were held to be made mandatory and their requirement could not be dispensed with. 11. It was also argued that once the appellants had revoked/cancelled the Mou/Agreement, etc. on the ground that it was void under Section 536(2) of the Act, after such revocation, it was not permissible for the propounders to file any such application. 12. Another submission was that the appellants as contributors were contemplating filing of scheme as there was no scheme for them before the Court. It was submitted that in the impugned judgment, equality principle was violated as contributors could not be differentiated. Findings of the learned Company Judge were also challenged and it was submitted that the transaction was not bona fide. It was submitted that the mala fide of the propounders were clearly spelt out by pointing out that the propounders had colluded with Mr. R.N. Gupta and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of shares and that the transaction was not complete and thus, could not be validated by the Company Judge. He has referred to Palmer's Company Law, 24th Edition (1937), para 4029 which state "where the winding up is compulsory or under supervision, transfers of shares during the winding up are avoided unless sanctioned by the court and the court will not, if a transfer is incomplete by reason of want of registration at the commencement of the winding up, put the buyer on the register. This observation has been based on the cases, namely, Emerson's Case, L.R. [1866] 1 Ch. App 433, re.: ONWARD Building Society (supra) Sullivan v. Henderson [1972] 116 Sj 969 and also Nelson Mitchell v. City of Glasgow Bank, 1879 6R H.L 66. It may be that if the transaction of transfer of shares is not complete the Company Judge may in its discretion refuse to entertain any claim for transfer of shares. But in the present case the parties had completed the transaction of transfer of shares when he share certificates and the transfer forms were duly handed over to the respondent by the appellant and his associates and full consideration which was agreed upon had been obtained by the transferors from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt to recover their dues from the personal properties of the initial promoters, i.e., R.N. Gupta and family. Faced with such a situation, these original promoters, i.e., the appellants had voluntarily entered into these agreements/arrangements with the propounders. It appears that not only they wanted to avoid the eminent thrust of recovery of their personal assets, but salvaged whatever they can recover in the bargain. 17. Vide these agreements/arrangements, the appellants not only agreed to transfer their shares for valuable consideration, but accepted that consideration as well by executing proper receipts. There is no dispute about the receipt of the amounts as well. So much so, CA Nos.376-379/2006 and 593/2006 were filed by some of these appellants, viz., R.N. Gupta, Puneet Gupta, Akhilesh Gupta, etc. In these applications, they sought permission from the Company Judge to convey their shares in the company in liquidation to the propounders. In these applications, specific averments were made that they had consented to sell their shares on a consideration of agreed percentage of the face value of the shares and had received such consideration and the specific amount was mentio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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