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2015 (8) TMI 189 - BOMBAY HIGH COURT

2015 (8) TMI 189 - BOMBAY HIGH COURT - TMI - Fraudulent transfer of shares – Non-compliance of provisions – Held that:- transfer of 536 shares was made purportedly as part of family arrangement, Annual Report of Respondent company of 2003-2004 reflects this transfer and shows names of all transferees –Appellants had to show that such alleged transfer was not only oppressive act but that it was just and equitable to wind up company on account of such act – Appellants failed to make out any such c .....

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s claim of having 46.71% shareholders – Held that:- Whether or not Appellants hold over 46% shareholding in Respondent company, was matter of serious dispute between parties – If 536 shares of Respondent company was treated as correctly transferred, total shareholding of Appellants comes to about 26.46% – Therefore direction that adequate representation should be given to Appellants was clearly impermissible and cannot be sustained – Cross-objections allowed – Impugned order giving adequate repr .....

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petition of the Appellants under Sections 397 and 398 of the Companies Act, 1956 ( the Act ). 2. The Appellants between them claim to hold about 46.71% share of the first Respondent company. The first Respondent company is claimed to be in the nature of a quasi-partnership. The grievance of the Appellants in the petition is this: The predecessor of Appellant Nos.3 to 7, late Shankarrao Mahadeo Bidkar, was a member of the first Respondent company during his lifetime, holding 671 shares in the com .....

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3-2004 that the Board of Directors had transferred 536 out of 671 shares held by the late the Shankarrao on 25 March 2003 to Respondent Nos.6 to 9. It is the case of the Appellants that a scrutiny of the share transfer forms used for the purported share transfers made it apparent that the share transfer forms contained several interpolations; thumb impressions of the late Shankarrao obtained on the forms were forged; the transfer forms used were beyond their validity periods; the stamp duty paid .....

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art of the Respondents to oust the Appellants from the management of the first Respondent company. It is submitted that after the demise of Shankarrao, all his legal heirs demanded outstanding amounts in the account of late Shankarrao, but this was not done. No proper notices of Annual General Meetings were given to the Appellants and no AGMs were properly convened. The Appellants have also made reference to certain statements of the auditors about acceptance of deposits from public and noncompl .....

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various reliefs in the petition. They inter alia seek cancellation of the transfers registered on 25 March 2003 in respect of 536 shares of late Shankarrao and rectification of the register by restoring the name of Shankarrao in the first instance and then by registering the names of Appellant Nos.3 to 7 as legal heirs of late Shankarrao. They also seek reliefs for cancellation of decisions taken in AGMs and board meetings of the first Respondent company including decisions for appointment of R .....

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d obtained by forged documents could not be adjudicated upon by the CLB. The CLB also found that the Appellants had failed to make out a case of harsh, burdensome and wrongful conduct on the part of the Respondents and mere procedural defects / irregularities in the transfer of shares could not be held oppressive to the Appellants. The CLB also found no merit in the alleged procedural defects and irregularities pointed out in the holding of AGMs as well as appointment of directors. The CLB rejec .....

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here was no case for grant of any reliefs. (This observation was later on substituted by an observation that the first Respondent was undoubtedly a quasipartnership, on the application of the Respondents.) The CLB, however, held that keeping in view the facts and circumstances of the company, which was a family company in the nature of a quasipartnership, wherein the petitioners held more than 46% shares (even this observation was amended to the effect that the Appellants claimed to be holding m .....

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ed that the Respondents have submitted all particulars showing the transfers and issue of shares to various outsiders and third parties from time to time as well as several changes in the composition of the management of the first Respondent company, which clearly negates the case of quasipartnership. It is submitted that none of the principles of quasipartnership as discussed in the case of Synchron Machine Tools Pvt. Ltd. vs. U.M. Suresh Rao 1994(079)-COMPCAS-0868-KAR are made out in the prese .....

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thers Respondent Nos. 6 to 9; there is a board resolution as of 25 March 2003 duly recorded in the Minute Book maintained by the first Respondent company accepting such transfer and providing for its registration; the transfer is recorded in the original share certificates; the Annual Report of the first Respondent company of the year 20032004 reflects this transfer and shows the names of all the transferees; and finally, the AGM of the first Respondent company immediately following such transfe .....

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as an impossible or perverse conclusion. 6. Learned Counsel for the Appellants submitted that the registration of the subject transfer of shares was in contravention of Section 108 of the Act. This was a petition under Section 397 of the Act alleging acts of oppression on the part of the Respondents and not a rectification application under Section 111. It is not sufficient for the Appellants to simply make out a case of an irregular, or even an illegal, transfer by reason of noncompliance with .....

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n and performed without the knowledge of the late Shankarrao, which would be a matter for a civil court to decide, mere noncompliance with Section 108 in such a case cannot be a ground to set aside a transfer of shares in a petition under Sections 397 and 398 of the Act, and that too much after the death of Shankarrao and about four years after the purported transfer. The Appellants had to show that it was not only an oppressive act but that it was just and equitable to wind up the company on ac .....

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is undoubtedly so. But the point is that a case of oppression and mismanagement must still be made out for grating of such relief. It is not simply sufficient to make out a case only for rectification under Section 111 for claiming such relief under Sections 397 and 398. In Mannalal Khetan vs. Kedar Nath Khetan AIR 1977 Supreme Court 536, the Supreme Court held the provisions of Section 108 to be mandatory. That case again has no bearing on the present controversy, which is specifically raised .....

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takes effect in a case which is not otherwise provided for under the Articles. It opens with the words "Except as herein provided". Article 10, which immediately precedes this Article, provides that notwithstanding the restrictions contained in the Articles, shares may be transfered by a member to another member or a person in any of the enumerated relationships with the transferor member. It is an admitted position that the transferees of these 536 shares are brothers of the late Shan .....

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f the present case. As discussed above, the transfers in the present case cannot be said to be in contravention of the Articles. 8. No submissions were advanced by learned Counsel for the Appellants on mismanagement under Section 398 of the Act. 9. In that view of the matter, there is no merit in the Company Appeal. 10. As far as the Respondents' cross-objections in the appeal are concerned, the same are on the footing that the CLB has directed the Respondents to give an adequate representat .....

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Appellants, which is a matter in dispute between the parties; and that the directions for adequate representation is, at any rate, vague and cannot be implemented. The averments that the Respondent company is in the nature of a quasi-partnership are contained in paragraph 5.5 of the original Company Petition. It is the case of the Appellants that the first Respondent company was registered on 26 February 1975 and it took over the business of a partnership firm of Sanjay Founders upon its incorpo .....

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thereafter the paid up capital was increased by allotting shares to close friends of the promoters from time to time upto 1978. It is submitted that the share capital of the Respondent company has remained constant since 1978. It is submitted that all these facts go to show that Respondent No.1 was really in the nature of a quasi-partnership. As against this, the Respondents, in their reply, dispute these averments. It is submitted by the Respondents that at the very first board meeting held th .....

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rd of directors. The Respondents have submitted the particulars of these allotments and changes. There is no serious controversy between the parties on these facts. Thus, the emerging scenario is that immediately after incorporation of the first Respondent company, two new members, who had nothing to do with the erstwhile partnership of Sanjay Founders, were admitted to the membership of the company. The two, thus, held 40% shares in the first Respondent company. So also, four more members were .....

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y. There is nothing to show that the company was formed or continued after its formation on the basis of any personal relationship involving mutual confidence between the shareholders or that there was any agreement or understanding between the shareholders about participation in the conduct of the business of the Respondent company. There is also nothing in the Articles to indicate that there were any restrictions on the transfer of shares, so as to ensure the continuation of the element of mut .....

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ained between the shareholders. The board of directors of the first Respondent company was changed from time to time and new persons, who had nothing to do with the family of the original subscribers, were made directors. In the light of these facts, which are all borne out by the record of the case and do not admit of any serious controversy, the characteristics of a quasipartnership are not to be found with respect to the Respondent company. The manner in which the CLB has proceeded to deal wi .....

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tence "The Respondent No.1 company is undoubtedly a quasipartnership......." The conclusion of the CLB, thus, in respect of the quasipartnership nature of the company does not bear scrutiny and cannot be sustained. The conclusion is clearly contrary to the record of the case and is arrived at by completely disregarding the admitted record of the case. 11. The directions concerning maintenance of adequate representation of the Appellants on the board of directors are also based on the e .....

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were to be given adequate representation on the board of directors of Respondent No.1, but in the corrected order as of 15 November 2010, the CLB simply substituted the sentence "However, keeping in view ........wherein the Petitioners hold 46% shares...." by the sentence "However, keeping in view …... wherein the Petitioners claim to hold more than 46% shares ....". Such substitution and order based thereon are clearly impermissible. Whether or not the Appellants hol .....

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