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TMI Blog2020 (7) TMI 560X X X X Extracts X X X X X X X X Extracts X X X X ..... hare capital of Rs. 20,00,000 divided into 20,000 equity shares of Rs. 100 each. The paid-up capital of the company is Rs. 3,90,000 divided into 3900 equity shares of Rs. 100 each. The object of the company as per the memorandum of association is to carry on the business of acquiring land by purchase, lease or otherwise and constructing structures such as shopping complexes, hotel complexes or housing complexes and let out, lease or sell. The registered office of the respondent-company is situated at Palarivattom, Cochin, Ernakulam-682 025. 3. The applicants had filed the above said petition under section 59(1) of the Companies Act, 2013 for seeking an interim relief to restrain the respondent-company from holding the annual general meeting or extra-ordinary general meeting along with the main relief, i. e., rectification of the register of members of the respondent-company. The averments made by the applicant's counsel are as follows : 4. Counsel for the applicants submitted that the applicants are the legal heirs, i. e., the wife, daughter and son, respectively, of the late Antony Joy, the original shareholder holding 100 shares of Rs. 100 each under Folio No. 50. The firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Kerala Buildings (Lease and Rent Control) Act, 1965 wherein the legal remedies in the event of non-payment of rent by a tenant to the landlord specifically are provided to the exclusion of usually available other remedies. By issuing the aforesaid letter, dated February 8, 2019 the first respondent-company has taken law in its hands and the action which made the vesting of shares of the applicants in the respondent-company. The vesting of shares of the applicants in the respondent-company, by exercising lien on fully paid-up shares is clearly ultra vires the provisions of the Act since lien cannot be exercised on fully paid up shares. As per article 6(3), the company's lien shall extend to dividend only. No procedure has been mentioned in the articles for exercising lien and the first respondent-company through the second respondent issued illegal tender for sale notice of 1650 fully paid-up shares including the applicants' 100 shares. 6. Counsel for the applicants submitted that the first respondent-company have no power or legal right to issue new shares to third parties. The company has no right to issue new duplicate share certificate in the place of original shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benami holding. It is stated that the board has taken the legal advice and informed all stakeholders that they have to regularize their possession of shops by registration of sale deed or alternatively enter into a rental agreement with the company till such time they are ready for registration of sale deed. 9. Counsel for the respondents further submitted that the applicants were misquotes the provisions of Table A relating to forfeiture of shares with the present subject matter of the application. The provisions of the Kerala Buildings (Lease and Rent Building) Act, 1965 is not applicable as the applicants have not signed any rental agreement with the company. The company is empowered under article 6(2) of the articles of association to exercise paramount lien on the shares of the respondent-company. The power of lien on dues to the company by the shareholder as per article 6(2)(b) is the first step to recover the dues and it is only natural that the subject shares are vested for the purpose of recovery of dues which are within the powers of the board. 10. Counsel for the respondents stated that the petitioner is aware of the circumstances of the subject matter as the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fecting the transfer of shares, the procedures contemplated under clause 7(1) to (j) including share valuation for the purpose of finding out the fair value shares has to be made. The valuation of shares, to find out the fair value, has to be found out by the auditor of the company and in case of any dispute, such dispute has to be settled by recourse to the Indian Arbitration Act, 1940. Further submitted that in the absence of the procedure contemplated under clause 7 of the articles of association and in violation of section 56 of the Act, no transfer of shares can be effected and if such transfer of shares is effected by the respondent-company, such transfer of shares is null and void. 14. Counsel for the applicants further submitted that the annual general meeting for the year 2018-2019 will have to be conducted afresh in accordance with section 26 of the Companies Act, 2013. It is submitted that the first respondent and the second respondent admitted that service charge only collected from time to time and no rent was collected, therefore, the Kerala Building (Lease and Rent Control) Act, 1956 is not applicable in the present case. According to section 107 of the Transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Table F is applicable. Therefore, the first respondent-company auctioned the shares of the petitioner to recover dues in exercise of the paramount lien. 20. The plain reading of clause 10 of the model articles of association in Table F shows that it flows from clause 9 as given in Table F. But the articles of association of the respondent-company tell us that clause 9 as mentioned in Table A of the earlier Act is not applicable. Therefore, clauses 10, 11, 12 which flow from clause 9 of the model articles of association also are not applicable to the first respondent-company. We therefore, are not willing to go with the argument submitted by the learned practising company secretary in this regard. 21. In the light of the above findings, the only option left to the respondent-company is to exercise lien which was detailed in the Sale of Goods Act, 1930 duly understanding the nature of instrument which was auctioned, i. e., shares in this case. Section 2(7) of the Sale of Goods Act, 1930 defines "goods" which is as under : "2(7). Definitions.-'Goods' means every kind of 'movable property' other than actionable claims and money ; and includes stock and shares, gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xercise lien to the extent of retention of goods ; in this case shares which can be extendable payable to the shareholder. 26. We therefore, are not agreeable with the submissions made by the respondent-company in this regard. We firmly believe that they have no right to unilaterally sell the shares which are in the possession of the share-holder, without the consent. 27. As regards point No. (ii) we have not come across any agreement showing that shops under occupation of the applicants are given on lease to them by the respondent-company. As averred by counsel for the respondent-company, the company was collecting service charges from the shops as no agreement was in place. In the absence of a written agreement a documentary evidence to support their action, the very action of the respondent-company was without any basis. Any 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 the Income-tax authorities or any credible report to support this argument. Even if we go by the submissions of the learned practisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of our above findings, we came to the conclusion that the applicant has a strong case and accordingly pass the following order : I. The applicants are declared as the legitimate equity shareholders under Folio No. 50. II. We hereby direct the rectification of the register of members of the respondent-company by re-entering the total number of 100 equity shares belonging to the late husband of the first applicant and late father of the second applicant and third applicant in the share register of the company and further ordering to restore the total shareholding of the applicants as it existed prior to February 8, 2019 forthwith. III. The respondent-company is restrained from conducting tender for sale of 100 shares from allotting or effecting transfer of any shares belonging to the late husband of the first applicant and late father of the second applicant and third applicant without the express consent of the applicants herein as legal heirs to any members or non-members till rectification of the share register. IV. The respondent-company is directed to file the register of members after carrying out the rectifications as per this order, with the Registrar of Companies wi ..... 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