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TMI Blog2024 (9) TMI 570X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital of the company was ₹1,10,96,230/-, divided into 11,09,623 equity shares of ₹10 each. The company is in the business of software development and ancillary activities and it acquired land at Chinnakakani Village in Guntur District in January, 2002, for establishing its infrastructure. On 09.03.2004, Mantena Narasa Raju, respondent No.2, had entered into a share purchase agreement with one C. Suresh, shareholder of the company, and acquired 10,51,933 equity shares, representing 94.8% of the equity share capital of the company. Thereafter, Mantena Narasa Raju and Appa Rao Mukkamala, respondent Nos. 2 and 3, were appointed as Directors of the Company on 02.03.2004. Suresh Anne, respondent No.4, became a Director of the company on 30.09.2004. While so, on 18.04.2015, the appellants acquired the equity shares held by Mantena Narasa Raju, respondent No.2, i.e., 10,51,933 equity shares, by executing Securities Transfer Deeds in Form No. SH-4. Chalasani Udaya Shankar, appellant No.1, acquired 3,51,933 equity shares, representing 31.72% of the shareholding, while Sripathi Sreevana Reddy, appellant No.2, and Yalamanchilli Manjusha, appellant No.3, acquired 3,50,000 equity shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allege oppression and mismanagement as they were not members of the company and were, in fact, seeking rectification of the Register of Members in that regard. The transfer of shares, as claimed by the appellants, was denied and, in consequence, their locus to maintain the company petition was challenged. Issue of limitation was also raised as the appellants claim was that they had acquired the shares on 18.04.2015 but the company petition was filed only on 09.11.2018, i.e., after the lapse of over three years. The company alleged that it had received emails from respondent Nos. 3 and 4 stating that the appellants had forged their signatures on the purported share certificates and the company asserted that the NCLT would have no jurisdiction to adjudicate such allegations of fraud and only the competent civil court could decide the same. 6. A reply was also filed by Mantena Narasa Raju, respondent No.2, contesting the interim reliefs sought. While reiterating the contentions of the company in its counter, he disputed the appellants ownership of the shares. He asserted that he never sold any shares to the appellants and that they were complete strangers to him. He claimed that he ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed letter dated 29.12.2014 (Annexure A-1) to the Board of Directors of the company expressing his intention to sell his shareholding therein. A Board Meeting was held on 24.01.2015 to consider his request and it was found that there was no buyer within the existing shareholders who was willing to purchase the shares of respondent No. 2. This was stated to have been communicated to respondent No.2 leaving it open to him to make his own arrangement for sale of his shares to outsiders. It was in these circumstances that the appellants purchased the shares of respondent No.2. By e-mail dated 20.04.2015 (Annexure A-4), respondent No.3 sought the approval of the other shareholders for sale of these shares in favour of the appellants. A meeting was held on 27.04.2015 in this regard and share certificates were also issued on the said date to the appellants. These share certificates were signed by respondent Nos. 3 and 4 as Directors of the company. It was noted that respondent No. 2 had contested this claim, by asserting that respondent Nos. 3 and 4 were not even in India on the said date and that the share certificates were fabricated. Various discrepancies were pointed out by him in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conflicting materials produced by both sides and at that stage, it could not be decided whether the signatures in the share certificates did not belong to respondent Nos. 3 and 4 and the issue required to be thoroughly examined at the time of final hearing. 9. Dealing with the issue of limitation, the NCLT observed that the case of the appellants was that they came to know of their names being excluded only after the company filed financial accounts and statements for the years 2014-15, 2015-16 and 2016-17, and the petition was filed within three years from the date of such knowledge. Opining that limitation was a mixed question of fact and law, the NCLT stated that it needed to be examined at the final hearing stage, after the parties filed all their documents. The NCLT also rejected the contention of the respondents that it had no jurisdiction to try the petition as it involved issues of fraud, etc. The NCLT, therefore, observed that an interim order restraining the company and respondent Nos. 2 to 4 from either disposing of or creating encumbrances over the assets of the company would not affect either of the parties, pending disposal of the main petition, and accordingly grant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cryptic approach in para 9.2 was not in keeping with the observation of the Member (Judicial) of the NCLT in the interim order that limitation, being a mixed question of law and fact, required to be examined fully. 13. On point No.2, the Acting President rejected the case of the appellants, by way of brief para 9.3, completely ignoring the points set out by the Member (Judicial) in the interim order and the material placed on record, such as the share transfer forms, share certificates and emails/ correspondence, which supported the case of the appellants. His categorical finding that not a single document existed between the parties to show that there was a transfer of shares and not a single document was filed to show that the existing shareholders were given an opportunity to buy the shares was clearly contrary to the material available on record, viz., the emails, transfer forms, share certificates, etc. No doubt, the genuineness of these documents required to be verified but without even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w Appellate Tribunal, Chennai Bench (NCLAT), by way of Company Appeal (AT) (CH) No. 44 of 2021. They also filed I.A. No. 548 of 2021 therein for interim relief pending its disposal. However, the NCLAT dismissed their appeal and I.A. by judgment dated 10.04.2023. Speaking for the Bench, the Member (Technical) referred to the facts of the case; the contentions of the parties; the points for consideration set out by the NCLT and its findings thereon. Thereafter, the relevant provisions of the Act of 2013 were extracted at length and again, reference was made to the contentions of both sides. Having done so, the NCLAT curiously concluded that L. Ramesh had remitted through his known persons the sum of 14,66,39,400/- ₹ into the bank account of respondent No. 2. The NCLAT then strangely observed as follows: First of all, the money has not been transferred by the 'Appellants' in favour of the 'Respondents'. Secondly, as admitted in the averments as well as recorded clearly in the 'impugned order' that, Mr. Lingamaneni Ramesh gave Rs. 14,67,41,557/- and took back Rs. 9 Crores from the 'Respondents' as such prima-facie this does not seem to be a clear t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are allowed and the said documents are taken on record. IA No. 72990 of 2024 is also allowed at the sole risk and peril of the appellants, permitting deletion of the name of respondent No. 6 from the array of parties. 20. While ordering notice in these appeals on 01.09.2023, this Court raised certain questions, which the appellants were required to answer. The questions read as follows: 1. Why, after acquiring the shares, the appellants did not come on the Board of Directors? 2. Why the appellants did not attend or call upon the Directors to hold the Annual General Meeting(s)? 3. Why the appellants did not take steps as the annual accounts were not audited and submitted to them and with the Registrar of Companies. The appellants were directed to file an affidavit dealing with the aforesaid aspects. Pursuant thereto, Affidavit of Compliance dated 08.12.2023 was filed by the appellants. Therein, apropos the first query as to why the appellants did not come onto the Board of Directors after acquiring the shares, they stated that they had purchased the shares for investment purpose and hence, initially, they did not take interest in the affairs of the company. They further stated tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts were not audited and submitted to them or with the Registrar of Companies, the appellants stated that, as they were informed that there was a police case against the Auditor of the company, they could not take any steps to get the accounts audited and submitted to them. They further stated that due to the fiduciary relationship between respondents 2 to 4 and the appellants, they never suspected that the respondents were not holding Annual General Meetings and were mis-managing the affairs of the company. Further, the Directors are stated to have promised that the issue would be settled and that the Annual Returns would be updated with the Registrar of Companies and that the investors names would be updated. However, despite such assurances by the Directors, the appellants deemed it prudent to inspect the records of the company by accessing its master data on the MCA portal in 2017 and were shocked to find that the affairs of the company were being run contrary to law, as a result of which the name of the company was struck off by the Registrar of Companies. The appellants also came to know that their shareholding was not reflected in the Register of Members and they according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usive jurisdiction under Section 155, the jurisdiction of the civil court is impliedly barred. But for what is not covered as aforesaid, the civil court would have jurisdiction. Noting that the jurisdiction of the Court under Section 155 is summary in nature, it was held that it would be appropriate for the Court to see for itself whether any document alleged to be forged is said to be so, only to exclude the jurisdiction of the Court or it is genuinely so. As the High Court, exercising jurisdiction under Section 155 of the Companies Act, 1956, had not examined the case in this light, this Court remanded the matter to the High Court for decision afresh. The observations in paragraph 26 of the judgment are of relevance in this regard and are extracted below: 26. The proviso gave discretion to the court to direct an issue of law to be tried, if raised. By this deletion, submission is that the Company Court now itself has to decide any question relating to the rectification of the Register including the law and not to send one to the civil court. There could be no doubt any question raised within the peripheral field of rectification, it is the court under Section 155 alone which woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lien to rectification , such matter may not be within the exclusive jurisdiction of the Company Court. 27. In Adesh Kaur vs. Eicher Motors Limited and others (2018) 7 SCC 709 , this Court found, on facts, that it was an open-and-shut case of fraud, in which the appellant who had applied for rectification had been the victim, and held that the appellate tribunal was not correct in relegating the appellant to the civil court on the ground that a criminal complaint and a SEBI investigation were pending and in holding that it was not proper for the National Company Law Tribunal to exercise power to rectify the Register under Section 59 of the Companies Act, 2013. 28. In Shashi Prakash Khemka (Dead) through legal representatives and another vs. NEPC MICON (Now NEPC India Limited) and others ( 2019 ) 18 SCC 569 , this Court again had occasion to deal with exercise of power under Section 111-A of the Companies Act, 1956. The Company Law Board s view had been reversed by the Madras High Court in appeal, whereby the appellants were relegated to the remedy of a civil suit in relation to the issue raised qua the transfer of shares. This Court took note of the earlier judgment in Ammonia Suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rutiny and examination of a transaction allegedly conducted in violation of the Regulations has to be processed through the rules and remedies provided in the Regulations themselves. This Court emphasized that when Constitutional Courts are called upon to interpret provisions affecting exercise of powers and jurisdiction by regulatory bodies, it is the duty of the Court to ensure that transactions falling within the province of the regulators are necessarily subjected to their scrutiny and regulation. It was pointed out that this would ensure that the regulatory body charged with the duty to protect the consumers has real-time control over the sector, thereby realizing the purpose of its constitution. It was, therefore, held that the purpose of these regulations could not be short-circuited by making an application to the Company Court under Section 111-A of the Act of 1956, on the ground that the provision bestowed jurisdiction parallel to the SEBI. It is in this context that this Court, in IFB Agro Industries Limited (supra), examined Sections 155 and 111-A of the Act of 1956 and Section 59 of the Act of 2013. The judgment heavily relied upon and extensively quoted from the earli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conflict between these two decisions. The jurisdiction of the civil court or for that matter, any other forum, would be barred only when the subject matter of the dispute squarely falls within the domain and jurisdiction of the court/forum constituted under the provisions of the Act of 1956/Act of 2013. When and where the Act of 1956/Act of 2013 does not confer such exclusive jurisdiction on the court/forum constituted thereunder or the dispute falls outside the realm of that particular provision of the Act of 1956/Act of 2013, the jurisdiction of the civil court would not be completely barred ( See Dhulabhai vs. State of Madhya Pradesh and another (1968) 3 SCR 662 ). Notably, the edict in Ammonia Supplies Corporation (P) Ltd. (supra) was also to this effect and it was followed and affirmed in the decisions that followed thereafter. In Adesh Kaur (supra), this Court observed that if, on facts, an open-and-shut case of fraud is made out and the person seeking rectification was the victim, the National Company Law Tribunal would be entitled to exercise such power under Section 59 of the Act of 2013. This Court rejected the contention that, as criminal proceedings had been initiated, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms, 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. Compounding the error of the Acting President of the NCLT, the NCLAT did not even get the facts right. Production of the original share certificates by the appellants and their argument, relying on Section 46 of the Act of 2013, that the signatures thereon by two Directors was sufficient in the eye of law, was totally lost sight of by the NCLAT. Further, the NCLAT blindly accepted the story put forth by respondent No. 2 to such an extent that it totally overlooked the fact that it was the appellants who had paid ₹14,66,39,400/- to respondent No. 2. 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 ev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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