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2017 (4) TMI 829 - NATIONAL COMPANY LAW TRIBUNAL NEW DELHI

2017 (4) TMI 829 - NATIONAL COMPANY LAW TRIBUNAL, NEW DELHI - TMI - Oppression and mismanagement - Disassociation from the activities concerning South Asian Human Rights Documentation Centre (SAHRDC) seeked by one of the founder trustee of a Trust - Held that:- In relation to the transfer of 5001 equity shares of the petitioner by the respondents we hold that the said transfers are fraudulent and sham and declare it to be illegal and void and that the mere entry in the annual returns or share re .....

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ting the name of the second respondent as well as to whom he had transferred the impugned shares subsequently within a period of 30 days from the receipt of the order. The 1st respondent company is further directed to return the letter of allotment as well as issue the necessary share certificates in the name of the petitioner for the 5001 equity shares held by the petitioner and in case of its non traceability issue duplicate share certificates upon the petitioner applying for the same within t .....

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d expressed his intent categorically to dissociate himself from the affairs of the 1st respondent company as well from other entities associated with SAHRDC Trust including IA-SAHRDC. Further serious allegations have been levelled against both its Indian and International arms and that the funds of the international trust are being laundered through the 1st respondent company and the same is siphoned off by the 4th respondent for his own personal benefit. Against such a back drop it may not be p .....

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her jointly or severally for valuable consideration as on 01.04.2007 at a fair value to be computed based on the financial statements of the 1st respondent company to be evaluated by an Independent Chartered Accountant - Mr. Alok Bajaj. The professional fee of the Independent Chartered Accountant appointed for the purpose of valuation shall be paid by respondents 2 to 4. The Chartered Accountant appointed for the purpose of valuation shall complete the exercise within a week from the date of rec .....

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f advancing education and general awareness of human rights particularly in the region of South Asia, have themselves been unfortunately at each other once they incorporated a company for commercial purposes, as facts will demonstrate, and they are before us that too after several rounds of litigation before other judicial forums including the erstwhile Company Law Board, and in the circumstances a brief resume of facts will be in order to better appreciate the dispute on hand:- The petitioner a .....

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ties, the 1st respondent company seems to have been incorporated on 28th day of November 1998 as a private limited company with an authorised share capital of ₹ 50,00,000/- divided into 5,00,000 equity shares of ₹ 10/- each and the capital subscribed therein seems to have been 2 shares of ₹ 10/- each, one by the petitioner and the other by the 4th respondent. Both of them, it is seen have been named as the first directors of the 1st respondent company not liable for retirement .....

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qual proportion i.e ₹ 50,000/- each and consequent to the increase in the paid up share capital, the petitioner came to hold 5001 equity shares and the 4th respondent came to hold the other 5001 equity shares aggregating in all to 10,002 equity shares of ₹ 10/- each. Till 2003 everything seems to have been hunky dory between the petitioner and the 4th respondent, and the association between them, according to the petitioner, really began to wane when the petitioner was made to travel .....

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ell wishers he grew suspicious about the activities of respondent No. 4 and wanted to disassociate himself from the activities concerning South Asian Human Rights Documentation Centre (SAHRDC) and to this effect had sent a written communication dated 11.03.2003 to the President of South Asian Human Rights Documentation Centre based at Geneva as well as to the 4th respondent based in India and the relevant portion of which detailed at page 62 Annexure P-5 of the typed set filed by the petitioner, .....

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Trust called Asian Centre for Human Rights and more inclined towards it, rather than the 1st respondent company. Even though the petitioner claims that he sought for documents relating to his shareholding as well as about the activities of the 1st respondent company and also about the repayments of amounts given as loan to the 1st respondent company from the 4th respondent, no written correspondences have been furnished to establish the same. In the meanwhile, probably taking umbrage in relatio .....

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Tribunal. While so, commencing from the year 2005 onwards, a spate of criminal complaints and litigations seems to have been unleashed against each other by the 4th respondent and the petitioner. The attack of the 4th respondent against the petitioner seems to have been two fold, namely one from the part and on behalf of the 1st respondent company, he being in control of the affairs of the 1st respondent and the other front being for and on behalf of the Trust in the capacity of a trustee, thro .....

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Board (CLB) in C.P. No. 67 of 2007 seeking in nutshell the reliefs to the effect that the transfer of his 50% shareholding (5001 shares) in R-1 to R-2 was illegal and the consequential transfer of 2500 shares by R-2 to R-3 (R-2's wife) was also illegal, and hence his prayers for declaring the transfer null and void, to direct restoration of his shares and further order for the rectification of the register of members of the company; to direct removal of R-2 and R-3 from the Board of Director .....

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company along with the 4th respondent entering into an amicable settlement as evidenced by Annexure P-7 of the petitioner's typed set, the other litigations seems to have been festering along without any settlement between the parties in sight. In relation to the Trust as well as the criminal cases which are pending before other judicial forums, as such we are not concerned as it is beyond the pale of our jurisdiction. However the fate of C.P. No. 67 of 2007 concerns us, as it was earlier be .....

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n aggrieved by the said order of the CLB dated 26.11.2007, seems to have preferred an appeal before the then appellate court, being the Hon'ble High Court of Delhi in Company Appeal No. CO.A (SB) 4/2008 and based on consent of the parties as well as the ratio laid down in Charanjit Khanna and ors. Vs. Khanna Paper Mills Ltd and Ors decided on 20th April 2011 reported in 164 Company Cases 315 Delhi passed the following order dated 08.11.2011 while disposing of the above noted appeal which is .....

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nsel for appellant states that the appellant would file a fresh composite petition within a period of four weeks. Both the learned counsel request the Court that the aforesaid order should be without prejudice to their rights and contentions and they should be given liberty to raise all issues before the Company Law Board. With the aforesaid liberty, present appeal and pending application are disposed of. Needless to say, the Company Law Board shall decide the matter without being influenced by .....

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The present petition has been filed on 12.12.2011 as is evident from the endorsement made by the Registry and has been pending disposal ever since and subsequent to the constitution of this Tribunal on and from 01.06.2016 the same has been transferred to us and we are proceeding to dispose of this company petition taking into consideration the provisions of Section 434 read with Section 465 of the Companies Act, 2013 and notification issued by the Central Government in G.O. No. 1341 dated 01.05 .....

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o oppression and mismanagement have been sought by the petitioner in the company petition, we are of the considered view that even in a composite petition like the one before us, it is incumbent on the part of the Tribunal to first go into the question of the shareholding of the petitioner at the time of filing of the petition to maintain a petition for oppression and mismanagement and in case the petitioner prima facie fails in the said test, then this Tribunal will be required to go into the c .....

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ainst oppression and mismanagement. However, the de rigueur of 1956 Act, it must be noted in relation to the maintainability of a petition based on the required percentages or numbers or proportion of shareholders for oppression and mismanagement has been left now to judicial discretion for deciding the maintainability of a petition even without the requisite numbers, provided an application for waiver is filed under Section 241 read with Section 244 of the Companies Act, 2013 in a given case an .....

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threshold of shareholding and necessarily a composite petition was required to be filed also invoking Section 111 of the 1956 Act for rectification of register of members, whereas under the 2013 Act in the true sense of judicial pronouncements of the several courts including the Hon'ble Supreme Court in a catena of decisions in relation to erstwhile provisions of Sections 397 to 408 of 1956 Act, Sections 241 to 244 of the 2013 Act, has now been made as a complete code by itself by legislativ .....

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ts, however, supported by individual affidavits sworn to by each of the respondents, i.e:- (a) In the year 2003 itself the petitioner had voluntarily resigned from directorship and had also voluntarily transferred his shares in entirety in the 1st respondent company for consideration; (b) Since the share transfers have been disclosed in Annual Returns of 2002- 2003 of the 1st respondent company filed with the ROC and these filings being in public domain and therefore the petitioner being in the .....

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copy right violation; (f) The petition is an abuse of process of law based on false and baseless allegations and deserved to be dismissed; (g) That prima facie no case has been made out for maintaining a petition for oppression and mismanagement either in law or on facts; (h) That in relation to the earlier petition filed in C.P.67 of 2007 in relation to oppression and mismanagement the petitioner by way of an application for amendment of the prayers had given up all the prayers sought therein s .....

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espondent Nos. 2 & 3 from the Board of Directors of the company. and hence in the said circumstances the petitioner is precluded from raising any plea in relation to any other reliefs as sought to be raise herein From the records available with the Tribunal it is seen that the parties have been allowed to file rejoinder as well as sur-rejoinder and in addition the 2nd respondent, being the alleged purchaser of shares of the petitioner for valuable consideration, had also been specifically di .....

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ce documents on record of the year 2008 and 2014 in relation to certain criminal complaint filed and transcription of cross examination of the petitioner done in 2014. The respondents vehemently objected to the same and as such we are also not inclined to take into consideration the said application and the documents furnished there under on 15.09.2016 at this belated stage when arguments have concluded and the company petition is reserved for orders and particularly when the documents annexed w .....

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Board of the 1st respondent company. However, it is pertinent to note that both the parties have not filed the letter of resignation in order to ascertain the actual date of resignation. While the petitioner contends that he had resigned from directorship on 11.03.2003 in terms of the letter sent to IA-SAHRDC, the relevant extract of which had been given in paragraph supra, the respondents aver that the resignation took effect as on 19th September 2003, even though the respondents have chosen n .....

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nt of transfer of his shareholdings to anybody, leave alone the 2nd respondent, and that he came to know that he was not a shareholder of the 1st respondent company by virtue of inspection of the Annual Return for the year 2004-05 carried out in November/December 2006 and that in relation to the illegal and fraudulent transfer of his shares, he came to know about the same only upon perusal of the Annual Returns of the year 2002-03 in February 2007 and that the said transfer of shares had been ma .....

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he counter are to the following effect and are material for the adjudication on this point:- "The Petitioner transferred his shares voluntarily to Mr. Vittal Rao, i.e., Respondent No. 2 herein and received a consideration of ₹ 50, 000/- in cash. It is submitted that the transfer of the shares had been done properly by the Respondent No. 1 and recorded in the books in the ordinary course of business. Being a private limited closely held company with two shareholders, the Respondent Com .....

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ons in paragraph 6.28 relating to the fraudulent and illegal transfer of shares of the petitioner it is averred as follows:- "That the contents of corresponding para are wrong and denied. It is submitted that the Petitioner had voluntarily transferred his shareholding in the Respondent No. 1 to Mr. Vittal Rao, the Respondent No. 2. It is denied that there has been any falsification of the records or that the same has not been done with the sole intention and purpose of defrauding the petiti .....

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valid transfer of shares by the petitioner has failed to substantiate the same with the production of share transfer forms and the specified share certificates/letter of allotment in question and rather had tried to take shelter under the provisions of Section 163 of the Companies Act, 1956 and the Companies (Preservation and Disposal of Records) Rules, 1966 to contend that the transfer of shares had been done properly by the Respondent No. 1 and recorded in the ordinary course of business and t .....

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ent to prove the transfer of shares in the absence of share transfer forms and share certificates or letter of allotment. However, the above contention of the respondents may not be correct in view of the wordings used in Section 164 of the Companies Act, 1956 (now Section 95 under 2013 Act) to the effect that registers, returns and documents shall be only prima facie evidence and hence subject to rebuttal, and therefore, cannot be treated as conclusive evidence as held in the matter of ChotooSu .....

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Jaykunvari M.Shah vs. M/s. Gill & Co. Pvt. Ltd vide order delivered on 20th day of May 2010 (2010) 158 company cases 346 (CLB) while dealing with the petition filed under Section 111(4) of the 1956 Act seeking for rectification of register of members claiming that other than the name of original holder of shares, certain other persons have also been included thereby making the said shares as joint holding, the CLB had unequivocally held that the burden of proof lies more on the Respondent No .....

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aid entries are under challenge, we are of the view that the respondents have not, for the following reasons:- (a) Prima facie, the Annual Returns on which they seek to rely, in the absence of other mandatory records to establish the transfer of 5001 equity shares of the petitioner to the 2nd respondent, is in itself not conclusive about the actual date of transfer, as in the Annual Returns, despite being a column present, they have failed to give the actual date of transfer and hence no credenc .....

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ed by the respondents to demonstrate conclusiveness of the alleged share transfer, which forces us to draw an adverse inference against the respondents about the transfer of shares of the petitioner as claimed by them; (c) Even though the transferee (namely the 2nd respondent herein) happens to have signed along with other respondents and verified the reply statement including the averments of voluntary transfer by the petitioner to the 2nd respondent for valuable consideration of ₹ 50,000 .....

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the payment of consideration of the alleged ₹ 50,0007- even though it is claimed that the same had been paid in cash. However, no valid receipt has been produced obviously thereby the transfer, even if any as claimed by the respondents, being hit by Section 25 of the Contract Act particularly in the absence of any written agreement on the part of the petitioner. The onus of proving that the shares have been indeed transferred by the petitioner for valuable consideration is on the responde .....

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affairs as well being aware of the incidents of forming such an entity they cannot merely wish away as if they do not have any concern other than the commercial interest. Once they incorporate a company they consciously subject themselves to the rigours of the statute as well as the documents they have subscribed to or signed and they are bound to follow it in letter and spirit. In fact the responsibility becomes all the more onerous when they become part of the management and are required to co .....

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me as held by the Hon'ble Supreme Court in Mannalal Khetan v. Kedarnath Khetan AIR 1977 SC 536 vitiates the transaction of transfer of shares. The decision of CLB in Rashmi Seth v. Tillsoil Farms (P.) Ltd. [1995] 82 Comp. Cas. 409 is also to the same effect. Further lack of consideration in relation to transfer of shares like any other contract between parties, in the absence of a written agreement makes the transaction void under section 25 of the Indian Contract Act, 1872 as held in John T .....

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en place by the respondents in the year 2003 looking from any angle and as a consequence the subsequent transfers if any effected by the second respondent of the shares of the petitioner to perpetuate the illegality also fails. The next question we are required to determine is with respect to the point of limitation, laches and delay. The applicability of the law of limitation to a petition under Section 111 of the Companies Act, 1956 is no more res integra in view of the decision of the Hon' .....

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urt for reliefs within the specified time limit prescribed. However, in case of fraudulent or sham transaction, as in the present instance, more particularly so when there is no definitive date of the transfer of shares being flouted by the respondents, can the respondents be allowed to keep away the petitioner from seeking the reliefs. The annual returns filed by the respondents for year 2002-03 is sought to be relied on as prima facie evidence as already seen, for the purpose of proving the sh .....

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egal and fraudulent transfers, after perusing the annual returns based on inspection. The respondents have not been able to rebut through any documentary evidence other than claiming that since the annual returns have been regularly filed it should be imputed that the petitioner had the knowledge of the transaction of share transfer in 2003 itself and hence should have come within the prescribed period which he had failed to do. We are unable to purchase the argument of the respondents for the s .....

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petition has been filed within the period of limitation and hence maintainable. Further it is also pertinent to note that the petition being a composite petition and the wrongful deprival of shares of the petitioner being a continuous wrong, under similar circumstances the CLB in Mohan Mahavirprashad Shah v. Indian Silk Mfg.Co. (P) Ltd (2016) 131 CLA 42 (CLB) has held that the question of limitation will not hold ground and must be decided against the respondents. In addition it is evident from .....

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to this day which single act alone entitles him to relief in relation to Section 397 of the Companies Act, 1956 and in the scenario of the petitioner holding 50% of the share capital of the company who had been excluded there is a justifiable ground for winding up the company and it is not necessary to look into further allegations of the petitioner, as the financial statements produced by the respondents under the directions of the Tribunal clearly demonstrates that the 1st respondent company .....

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are register of the transfer of shares in the absence of documentation and no consideration been passed is not binding on the petitioner and we hold that the 2nd respondent as well as the others to whom he is alleged to have transferred upon collusion subsequently are to be considered only as bare trustees on behalf of the petitioner and the 1st respondent company is hereby directed to rectify its register of members by registering the transfer of impugned shares in the name of the petitioner an .....

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thin the prescribed statutory period as mandated under law without insistence of any further document. In relation to the reliefs for oppression and mismanagement as we have already held the acts of the respondents in depriving the petitioner of his shareholding amounts to oppression, we intend to mould the reliefs keeping in mind the facts and circumstances of the case as well as the interest of the company. The petitioner as is evident from Annexure A-5 of the petition even in the year 2003 ha .....

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