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Shakti Insulated Wires Pvt. Ltd. & Others Versus Great View Properties Pvt. Ltd. & Others

2016 (3) TMI 122 - BOMBAY HIGH COURT

Transfer of shares - Transfer of assets and liabilities between a transferor and transferee company in the case of amalgamation - whether transfer of assets in the case of a scheme of amalgamation between transferor and transferee companies is a voluntary transfer and not an involuntary transfer by operation of law? - Held that:- A proper reading of the Articles seems to be that any transfer of shares occasioned by a scheme of amalgamation sanctioned by the court is not a transfer of shares with .....

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regoing Articles. Such transmission merely requires production of evidence that the claimant sustains the character in respect of which he proposes to act under Article 39 or has the requisite title. In other words, all entitlements to shares other than by virtue of transfers in pursuance of Articles 21 to 38 are covered by Article 39 and must abide by it.

Even if its case be covered under the transmission clause of Article 39, it can be registered as a member in respect of the shares .....

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the auditors of the company within the meaning of Article 25.

Accordingly, whilst the findings of CLB in the impugned order are not disturbed, the operative order passed by CLB is modified by substituting Clause 'C' of para 21 of the impugned order by the following clause

“C The Appellant company at its option shall either register the first Respondent as a shareholder in its register of members or allow the first Respondent to sell 1980 shares held by the first Respondent .....

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enior Advocate with Mitesh Naik I/b. Dhru & Co For the Respondent : Mr. Astad Randheria with Ms. Sujata More I/b. Desai Desai Carrimjee & Mulla JUDGMENT The company appeal impugns an order of the Company Law Board, Mumbai Bench ( CLB ) allowing the petition of the first Respondent, under Section 111 of the Companies Act, 1956 ( Act ), declaring it to be the owner of 1980 shares of the Petitioner company and directing the latter to rectify the register of members accordingly. 2. The facts .....

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tion on the ground that the transfer of shares was in breach of the relevant Articles of Association providing for a right of pre-emption. This rejection was challenged by the first Respondent before the CLB under Section 111 of the Act. The CLB allowed the petition and directed rectification of the register. 3. Learned Counsel for the Appellants submits that the CLB has erred in law by treating the transfer of shares under the scheme of amalgamation as a case of transmission by operation of law .....

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he Appellant provide for transfer and transmission of shares. Article 22 restricts transfers of shares except after exhaustion of rights of pre-emption provided in Articles 23 to 38 which follow. Article 39 provides for a 'transmission clause', where a person becomes entitled to shares other than by transfer in accordance with the foregoing Articles. In case of a transmission, the Articles providing for rights of pre-emption do not apply. The controversy between the parties really involv .....

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res in the Company shall be transferred unless and until the rights of Pre-emption hereinafter conferred shall have been exhausted. (23) Except where the transfer is made pursuant to article 29 or Article 38 hereto, the person proposing to transfer any share (hereinafter called the Proposing Transferor ) shall give notice in writing (hereinafter called a Transfer Notice ) to the Company, that he desires to transfer the same. Such notice shall specify the sum he fixes as the fair value and shall .....

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te notice in respect of each. A transfer Notice shall not be revocable except with the sanction of the Directors. (24) If the Company shall within the space of 28 days after being served with a Transfer Notice find a Purchasing Member and shall give notice thereof to the Proposing Transferor he shall be bound upon payment of the fair value in accordance with Article 25 thereof, to transfer the share to the Purchasing Member.. (27) If the Company shall not within the space of 28 days after being .....

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ther, sister, nephew, niece, cousin, wife or husband of such member and any share of a deceased member may be transferred by his executors or administrators or other legal representatives to any child or other issue, son-in-law, daughter-in law, father, mother, brother, sister, nephew, niece, cousin, widow or widower of such deceased member (to whom such deceased member may have specifically bequeathed the same) and shares standing in the name of the trustees of the will of a deceased member may .....

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uch member, and the Company shall not be bound to recognise such executors, administrators or holder of succession certificate unless such executors, administrators or holder of succession certificate shall have first obtained Probate or Letters of Administration or a Succession Certificate, as the case may be, from a duly constituted Court in India. The relevant Article providing for transmission is quoted below : (39) Subject to the provisions of Article 38 any person becoming entitled to shar .....

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o transfer hereinbefore contained, transfer such shares. This clause is hereinafter referred to as The Transmission Clause. 6. The main plank of the Appellant's case is that transfer of assets in the case of a scheme of amalgamation between transferor and transferee companies is a voluntary transfer and not an involuntary transfer by operation of law. Learned Counsel for the Appellant relies on the judgment of the supreme Court in the case of General Radio & Appliances Co.Ltd. vs. M.H. K .....

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mpany in effect purchases is the transferor company or its undertaking for a specified sum which is ordinarily paid in the form of allotment of shares of the transferee company to the shareholders of the transferor company. The valuation is based on the net of the transferor company's assets and liabilities. This aspect would have an important bearing on the question which we are considering, as I have explained below. 7. If one has regard to the Articles of the Appellant, Articles 21 to 38 .....

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or person approved by the Board of Directors, who is willing to purchase the shares at the price or at the option of the purchasing member at a fair value to be determined by the auditors of the company in accordance with Article 25. That is the purport of Article 23. If the company is served with a transfer notice, as provided in Article 24, it has to find a purchasing member and give a notice thereof to the proposing transferor within the space of 28 days. In case of any difference between th .....

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appointed any one Director or Secretary of the company as his agent to execute the transfer to the purchasing member and upon execution of such transfer, the company shall hold purchase monies in trust for the proposing transferor. In such a case the name of the purchasing member has to be entered in the register as the holder of the shares. Under Article 27, if the company fails to find a purchasing member and give notice within the space of 28 days, the proposing transferor shall, at any time .....

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of the scheme of amalgamation, is not of shares at any particular value. Secondly, the transfer occurs upon or subject to the court sanctioning the scheme of amalgamation. In a given case, the Court may not sanction a scheme, in which case there would be no question of transfer of any shares. In the premises, whenever a scheme is proposed it would be absurd to expept the transferor company to actually give a notice of transfer within the meaning of Article 23 and then subject itself to transfer .....

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play, that is to say, the company not finding within 28 days of the transfer notice a purchasing member or giving a notice in accordance with Article 24. Even then the transfer must be at a price not below the fair value determined by the auditors of the company. This again is unfeasible and unwarranted within the framework of a scheme of amalgamation. A proper reading of the Articles seems to be that any transfer of shares occasioned by a scheme of amalgamation sanctioned by the court is not a .....

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n by transfer in accordance with the foregoing Articles. Such transmission merely requires production of evidence that the claimant sustains the character in respect of which he proposes to act under Article 39 or has the requisite title. In other words, all entitlements to shares other than by virtue of transfers in pursuance of Articles 21 to 38 are covered by Article 39 and must abide by it. 8. The CLB is, accordingly, perfectly justified in coming to the conclusion that the transfer of share .....

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