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TMI Blog2018 (10) TMI 1018X X X X Extracts X X X X X X X X Extracts X X X X ..... der dated 17th June, 2016. The matter was remitted back to the NCLT and now NCLT has by the Impugned Order allowed the Company Petition which had been filed under Sections 111, 397, 398, 402 and 406 of the Companies Act, 1956 ('old Act', in short). Aggrieved by the Impugned Order, the present Appeal is filed by the 3 Appellants (Original Respondents 2, 3 and 4). The Respondent No.2 in this Appeal "M/s. Meezan Realtors Private Ltd." (hereafter referred as Company) is the Company relating to which the petition was filed. 2. We will refer to the parties in the manner in which they were arrayed before the NCLT. Pleadings of Petitioner (Respondent No.1) 3. Respondent No.1 - original Petitioner went to the Company Law Board ('CLB' in short)/NCLT with the Company Petition claiming in short that the Respondent Company was incorporated on 25th August, 2003 with authorized share capital of Rs. 1 lakh divided into 1,000 equity shares of Rs. 100/- each. He is the subscriber to the Memorandum of Association. He holds 500 shares of Rs. 100/- each which is equivalent to 50% of the share capital. The other subscriber was Salahuddin Nalakath. (see Articles of Association at Page 105 of the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (hereafter referred as - said Thangal), it was resolved to entrust the entire control of all the businesses of Meezan Group with Respondent No.4. Petitioner claimed that the said Affidavit also mentioned regarding purported Board Meeting dated 27th April resolving to transfer entire share of Petitioner to Respondent No.4. Petitioner claimed that said Thangal was unrelated person of the Company and could not have chaired the Board Meeting and Petitioner claimed that by purported Resolution by imaginary entity, power of management of the Company cannot be dealt with and are not binding on the Company. The petition then referred to further contents of the said Affidavit whereby Respondent No.4 sought to substitute himself in place of the Petitioner, in that litigation. Petitioner claimed that Respondent No.4 was doing this with intention to usurp the management and to highjack the property of the Company and to misappropriate revenues. Petitioner pleaded in para - 6(a)(viii) of the Petition:- "viii. The Petitioner submits that he had not consented to the purported transfer of shares as alleged to have been made on the 27th April 2011 and he was merely coerced by the 4th Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 in collusion with Respondent Nos.3 and 4, fraudulently without knowledge of Petitioner clandestinely and illegally transferred shares of the Petitioner to the 3rd Respondent. The impugned filings were done by Respondent No.2 on 12.09.2011. Petitioner claimed that Respondent No.4 fraudulently acquired shareholding of the Petitioner. The prayers of the petition read as under:- "1) Declare that the acts set out and complained of herein are acts of mismanagement and are oppressive to the Petitioner. 2) Set aside the transfers purported to have been made to the 4th Respondent by the Petitioner and the 2nd Respondent and the subsequent transfers made by the 4th Respondent to the 2nd and the 3rd Respondent and thereby direct rectification of register of members. 3) Declare as void all the documents that have been filed under the digital signature of the 2nd Respondent. 4) To declare that the removal of Petitioner from the post of managing director as invalid and null and void. 5) Direct that action be taken against Respondents 2 to 4, pursuant to provisions of Section 628 of the Companies Act, 1956. 6) To examine the conduct of the 2nd and 4th Respondents in terms of Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing his leadership and not Chairmanship. It was pleaded that said Thangal did not chair the meeting. 4.2 We reproduce para - 19 of the counter which reads as under: "19. Further, when the petitioner was the Managing Director, the first respondent company had collected Rs. 2,24,10,000/- (Rupees two crore twenty-four lakh and ten thousand only) as Share Application money from prospective investors, but did not allot the shares or even increase the authorised capital of the first respondent company. When the investors came to know about the mala fide intent of the petitioner (who was also the Managing Director of Meezan Jewellers Limited, a company under the same management) they raised a great hue and cry, which attracted mass attention and adverse media coverage. Considering the restive nature of the community at large, the management of the Meezan Group of companies held a General Meeting of the first respondent company, as also of the other companies of the group, on 27.04.2011. Since the matter had attracted mass concern, the Board thought it fit to invite Panakkadu Hameed Ali Thangal, a great persona and spiritual leader, to the meeting. He, however, did not act as Chairman o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per Article 29 of Articles of Association and his Office stood vacated and thus according to the Respondents, they were not required to give any Notice to the Petitioner about the meetings. According to them, it was the acts of Petitioner which created fear and restiveness and the first Respondent company had to move swiftly to restore credibility and confidence in the Board, which is what was done. They claimed that all the meetings held by the Respondents had the required quorum. According to them, the Company Petition deserved to be rejected. The Case of Appellants in Civil Suit 5. Co-ercion is claimed and hence we re-produced parts of pleadings as above. Before proceeding further, looking to the fact that the Petitioner is claiming coercion in taking his signature on transfer forms, looking to the admitted fact of Respondent No.4 filing affidavit in OS 82/2005, a copy of which had been filed at Page - 166 of the Appeal, it would be appropriate to reproduce para - 3 of that Affidavit to know as to the stand Respondents took in that suit regarding the incident date 27.04.2011. Para - 3 of that Affidavit (page - 167) is as under:- "3. In order to save the properties of Meez ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that on 04.8.2010, there was a compromise entered into between the plaintiff and defendant in the above suit through mediators, in which it was agreed that the plaint schedule properties are to be partitioned between the parties without paying any consideration to each other. The terms of the compromise which was executed in white paper and signed by all the parties and witnesses are herewith produced." [Emphasis supplied] 5.1 The above Affidavit filed by Original Respondent No.4 (Appellant No.3) claimed a General Body Meeting of "Meezan Group" and taking of decision to entrust all powers with him of entities mentioned including the present Company. Thus it is claimed "Meezan Group" (admittedly not a legal person) was holding meeting even with regard to present Company. On 27.04.2011, Meeting of Board of Directors is claimed with presence of an outsider and transfer of shares to Respondent No.4 becoming MD on 27.04.2011 itself was claimed. Observations of High Court 6. When earlier order of CLB was carried in Appeal to the Hon'ble High Court of Kerala, The Hon'ble High Court had looked into the pleadings referred above and the case which was put up before the Hon'ble High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Company Petition. The question as to the locus standi of the appellant to maintain the Company Petition requires fresh consideration with reference to the original minutes of the meetings of the Board of Directors of the 1st respondent Company and other statutory records." [Emphasis supplied] 6.2 For such reasons, the earlier Order of CLB questioning locus standi of Petitioner, came to be set aside and the matter was sent back to NCLT. The observations of Hon'ble High Court put question marks to the Minutes on unnumbered pages and that too in Note Book to show Minutes to allege transfer of shares by Petitioner to Respondent No.4. Observation in Impugned Judgement and Order 7. NCLT on remand, gave opportunities to parties and heard both the parties and in para - 8 of the Impugned Order, stated that the main question involved was whether or not purported transfer of shares by the Petitioner is in accordance with the provisions of the Companies Act and the Articles of Association of the Company. In paragraphs - 9 and 10 of the Impugned Order, NCLT observed:- "9. Findings on this issue will certainly have bearing on the locus standi of the Petitioner to file the Petition b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company. The Directors appointed or elected shall take the qualification shares within two months from the date of their appointment." 10. Thus, this act of Respondent No.4, in connivance with the great man, clearly amounts to coercion and undue influence because it is nowhere mentioned that the Petitioner offered to sell his share to 4th Respondent with or without consideration. There was no properly constituted Board of the 1st Respondent company, to give the required approval to the transfer of the shares held by the Petitioner in 1st Respondent company. Thus, the act of removing the Petitioner from the position of the Managing Director to Director, and transfer of his shares to Respondent No.4 and appointment of 4th Respondent as Managing Director of the 1st Respondent Company is contrary to law and the Articles of Association of the 1st Respondent Company." [Emphasis supplied] 8. NCLT then referred to Articles 15 to 18 of the Articles of Association and highlighted Article 16 which provided that no member shall be entitled to transfer his shares in the Company except with the previous sanction of the Board of Directors. NCLT held that if such Article is kept in view, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Company. According to the learned counsel, the Petitioner had transferred off all his shareholdings and he could not have maintained Petition. The learned counsel submitted that there were no sufficient pleadings to spell out coercion and thus NCLT wrongly held that the share transfer forms were signed by way of coercion. Arguments of Respondent No.1 (Original Petitioner) 10. Against this, the learned PCS for Respondent No.1 - original Petitioner submitted that the Petitioner was running the Company and he was the MD. The Company had only 500 shares issued which were issued to the Petitioner. Respondent No.2 was Director but he had not been issued any shares. The shares allotted to Salahuddin were not paid for by him and thus Salahuddin did not hold the shares and although Salahuddin earlier was made Director, he was discontinued. Pleadings regarding this fact are not in dispute. Even regarding Respondent No.2, the argument of the learned PCS is that Respondent No.2 was made Additional Director on 29.08.2003. Thereafter, no General Body Meeting took place and thus Respondent No.2 also must be said to have been discontinued. The argument is that in the circumstances, Res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Managing Director of the Company till the disputes arose. It is not in dispute that Salahuddin did not pay for the shares allotted to him and thus was discontinued at the initial stage itself. It is not in dispute that on Salahuddin vacating office in 2003, Respondent No.2 - Abdusalam was admitted as Director on 29th August, 2003. Although the Respondents pleaded that the unsubscribed 500 shares meant for Salahuddin were transferred to Respondent No.2 on 05.11.2003 and tried to show the Minutes of Board of Directors dated 05.11.2003, the same has been disputed by the original Petitioner and Respondents have not brought material to show that indeed Respondent No.2 was issued unsubscribed 500 equity shares of Salahuddin in 2003. The subsequent conduct of Respondents also shows them taking shifting stands. 14. Undisputedly on 27.04.2011, the original Petitioner was the person who was managing the affairs of the Respondent Company. This is crucial date on which date Petitioner claims that he was coerced to sign share transfer forms while the Respondents claim that as the Petitioner had mismanaged the company, there was unrest and thus the Petitioner had executed the share transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such presentation.]" 16. If the above provision is perused, it is quite clear that the Respondent Company could not have acted upon these forms to accept the transfer of shares as the forms were not stamped and used in the time specified by above provisions. 17. Respondents claim that on 27.04.2011 itself, there was a Board Meeting for which they rely on Annexure A4 - Page 199. It is not the case of Respondents that any Notice had been issued for this Meeting dated 27.04.2011. Admittedly, on 27.04.2011, the original Petitioner was still the shareholder and Managing Director even as per the Respondents. The transfer of shares as per the case of Respondents themselves has been recorded only in meeting of 15.05.2011. Thus the original Petitioner was admittedly given no Notice of this meeting dated 27.04.2011. The original Petitioner is not even shown as participant in this meeting although the Respondents went on to claim that there was no coercion on the original Petitioner for executing the share transfer forms on 27.04.2011. If this Annexure - A4 minutes dated 27.04.2011 is seen, the Respondents appear to have picked up Salahuddin who had to give up his connections with the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the Articles of Association. But then this was a fact always known and still the Respondents conveniently picked up Salahuddin Nalakath to show holding of earlier meetings and then simply removed him. We have already referred to observations made by the Hon'ble the High Court when the matter had earlier gone to the High Court where the Hon'ble High Court had questioned the so called minutes written on Classmate Notebooks and requirements to comply Section 194 and 195 of the old Act regarding maintaining of the minutes. Hon'ble High Court had also observed that documents produced did not show that the Board of Directors had granted prior approval/sanction for the transfer of the shares. In the background of such context, the Respondents appear to have brought forth such minutes and included in one of the minutes (dated 15.05.2011) that on 27.04.2011, Petitioner handed over share transfer forms in favour of Respondent No.4 and it was not possible to get previous approval and hence, the shares were being transferred on that day. Thus an explanation appears to have been put by the Respondents in the Minutes. And then, all these Minutes are in contrast to the case put up in Civi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings themselves (including what the Respondents have claimed), disclosed that the Petitioner was coerced to sign the transfer forms. Had it been a normal execution of forms, there would not have been so many questionable acts on record. The Respondents themselves in the case put up in the Civil Court and in the pleadings in NCLT demonstrated, what they call, that there was "restive nature of the community at large" and that "Subsequently on 27.4.2011 another meeting of board of directors was convened under the leadership of Janab Panakkadu Hameed Ali Shihad Thangal, in which it was resolved that all the entire control of all the business of Meezan Group shall be conferred on the petitioner." i.e. Respondent No.4 in his affidavit in the Civil Court. The pleadings as well as the Affidavit in Civil Court does show that there was an atmosphere created and a pressure built to coerce the original Petitioner to sign the share transfer forms. It is not the case of Respondents that Petitioner transferred the shares for any consideration. There is no good reason for him to simply give up his control as Managing Director. There is substance in the claim of Petitioner that due to valuable prop ..... X X X X Extracts X X X X X X X X Extracts X X X X
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