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2020 (12) TMI 419 - Tri - Insolvency and BankruptcyCancellation of shares - Petitioners have contended that the cancellation of shares were done without obtaining consent and without giving opportunity to the petitioners to place their arguments as against such cancellation and such a reduction of share capital did not have the approval of the Hon'ble High Court of Madras as the provisions of Section 100 of the Companies Act, 1956 were not followed - HELD THAT:- FIPB and RBI have categorically stated that there has been no violation in the acquisition of shares as there was no infusion of foreign exchange for the purchase of the same and also in view of the fact that the shares were held on non-repatriation basis. The adjudicating authority of FEMA has also categorically stated that the onus to adhere to the provisions of rules and regulations of FEMA while issuing shares of the amalgamated company to non-resident shareholders, laid on the company issuing such shares and not on the individual shareholders and therefore it has been stated that the adjudicating authority does not order for the confiscation of 3,32,640 shares/securities of Kumudam Publications Private Limited allotted to Noticee No. 3 (Shri A. Jawahar Palaniappan). After imposing penalties as above, the adjudicating authority also dropped the Charge of Regulation 5(1) of FEM (transfer or issue of security by a person resident outside India) Regulation 2000 r/w clause (b) of sub-section (3) of Section 6 & Section 47 of FEMA, 1999 against all the three noticees. All these orders of the adjudicating authority, FIPB and RBI have held that there has been no violation on the part of the 1st petitioner and the adjudicating authority has not confiscated the shares issued to the 1st petitioner. However, AA has imposed penalties under Section 13, Sub-Section 1 of the FEMA for violation of Regulations. The respondents have stated that the adjudicating authority did not order for the confiscation of shares as it has already been cancelled/nullified by the respondents and therefore nothing is left to be confiscated. Such interpretation is somewhat inconsistent with the findings of the adjudicating authority that the responsibility to adhere to the provisions of rules and regulations of FEMA laid on the company issuing such shares and not on the individual share holders. Such an interpretation, as contended by the respondents, would deprive the property rights of the 1st petitioner and in such an eventuality, the adjudicating authority would have ordered for the amount which has been kept in the escrow account to be paid to the 1st petitioner on a non-repatriation basis. It is hereby declared that the Form-32 filed by R2 with RoC, Chennai regarding the intimation of cessation of petitioners as directors of the R1 Company with effect from 02.01.2012 is invalid and non-est in law. It is seen that even though the board of the R1 Company was functioning, there had been no Extraordinary General Meeting/AGM from 2010 to the present day. Hence the petitioners who are the majority shareholders could not express or participate in the affairs of the company in any effective manner. As directed in paragraphs 17 & 23 of the Order of this Tribunal, the Register of Members of R1 company has to be rectified to restore 3,32,440 shares of ₹ 100/- each in the name of the 1st petitioner. Since it has been held by this Tribunal that the removal of the petitioners as board of directors is also invalid, it is considered that the continuation of the clauses 31(a), 32 and 39(b) are totally against the interest of the majority shareholders and hence it is ordered that the above mentioned clauses may be deleted and the Articles of Association thus stand amended of the R1 company. This Tribunal holds that the resolutions passed by the Board Meeting held on 28.09.2011 of the respondents without the presence of the petitioners is invalid and hence the cancellation of 3,32,400 equity shares of ₹ 100/- each held by the 1st Petitioner has been held as illegal, invalid and non-est in law. In the same analogy, subsequent cancellation of 200 shares of the 1st Petitioner is held to be invalid and illegal - his Tribunal holds that the resolutions passed by the Board Meeting held on 28.09.2011 of the respondents without the presence of the petitioners is invalid and hence the cancellation of 3,32,400 equity shares of ₹ 100/- each held by the 1st Petitioner has been held as illegal, invalid and non-est in law. In the same analogy, subsequent cancellation of 200 shares of the 1st Petitioner is held to be invalid and illegal. Petition allowed.
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