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TMI Blog2019 (7) TMI 1468X X X X Extracts X X X X X X X X Extracts X X X X ..... No.1 Company. We will refer to the parties as arrayed in the Company Petition. THE COMPANY PETITION 2. The Appellants/Original Petitioners in the Company Petition gave particulars as to how due to business relations with OBO Germany, the Respondent No.1 Company came to be incorporated on 27th December, 2006. Earlier it was in the name of "Cape Electric India Pvt. Ltd."(CEIPL) in which the Appellants were 100% shareholders and later on MOU dated 14th September, 2007 (Page 183) was executed whereby OBO Germany explored possibility of becoming shareholder in CEIPL. The Company Petition gave particulars as to how Respondent No.2 - OBO Germany invested and the Agreements which took place. Particulars are given as to how and why the various documents and Agreements were executed between the parties and the share capital was increased. It is stated that on 26th July, 2008, CEIPL name was changed to "OBO Bettermann India Private Limited"- Respondent No.1 and a fresh Certificate of Incorporation was issued by MCA. It appears that over the course of time, OBO Germany-Respondent No.2 became initially 76% and then shareholder of 99.64% shareholding and the Appellants were rendered holding 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 10 each illegally effected from 2nd petitioner to the 2nd Respondent. 3. Direct the 1st respondent Company to rectify its Register of Members and Share Transfer Register consequent to the setting aside the transfer of 1,68,000 equity shares of Rs. 10 each from the 1st Petitioner to 2nd respondent and 72,000 equity shares of Rs. 10 each from 2nd Petitioner to 2nd respondent and restore the name of the Petitioners as shareholders in the Register of members of the 1st respondent Company. 4. Declare the Share Subscription Agreement and put and Call Option Agreement both dated 20.10.2013 as null and void and to restore the shareholding pattern prior to 04.07.2014 in the ratio of 76% : 24%. 5. Direct the 1st Respondent to pay the bonus of Euro 30,000 for the Financial year 2016. 6. Direct the 1st Respondent to pay the salary and bonus of Euro 1,00,000 for the remainder of terms of appointment i.e., up to December 31, 2017. 7. Direct the 1st Respondent to pay additional amount of Euro 1,00,000 in terms of clause 2.5 of the Separation Agreement dated 07.06.2016. 8. Direct the 2nd respondent to sell its entire shareholdings to the Petitioners at Rs. 5 per equity share or s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equity shares and gave particulars of the division. This Maintainability Application made reference to the further loan from Respondent No.2 and execution of second MOU dated 01.08.2013 and the execution of "Subsequent Transaction Documents" like - i. Share Subscription Agreement dated 20.10.2013 ii. Put and Call Option Agreement dated 20.10.2013 iii. Termination Agreement terminating Shareholders Agreement Revised "Employment Agreement" Dated 20.10.2013 was also executed. On 4.7.2014 share capital was increased to Sixty Seven Crores Fifty lakhs and Respondent No. 2 held 99.64% shares. (b) The Maintainability Application in Para - 16 claimed as to the efforts which were made by Respondent No.2 to buy out the Petitioners in accordance with Put and Call Option Agreement and the Notices issued in February and May of 2016. Respondent No.2 claimed in the Application that the Petitioners were demanding high value which was unreasonable and that they ignored the attempts of Respondent No.2 to enforce its rights as per the "Put and Call Option Agreement". Respondent No.2 claimed that at such point of time, the Petitioner and Respondent Company and Respondent No.2 executed "Separat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers of the Respondent 1 company and hence the petition is liable to be dismissed." NCLT in short referred to other disputes also and recorded findings and disposed off the Interim Applications and Company Petition. 8. We have gone through the Company Petition. Copy of the same is at Annexure A-2 (Page 91). The petition traced the history since 11th May, 2005 when Copy of License Agreement was executed between the Respondent No.2 and M/s Cape Electric Corporation a proprietorship of the original petitioner No.1 till 7th June, 2016 when Separation Agreement was got executed from the petitioner No.1. Petitioners claimed that on allurement by Respondent No.2 the said Separation Agreement was got executed and when attempts at Put and Call option did not succeed, the original Respondents resorted to Section 236 of the Act and cancelled the shares of the original petitioners rendering them zero holding from what was their initial company with 100% shares which petitioners had. The Company Petition and its annexures showed the original petitioners questioning the separation agreement dated 7.6.2016 (Page 500) and relied on notice sent by original Petitioner No.1 on 9.6.2017 (Page 448) thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es relating to Put and Call Option and then original Respondents resorting to Section 236 and purporting to forcibly purchasing the minority shareholding acts took place. These acts have been questioned by the Company Petition. Section 244(1)(a) of the Act makes it clear that for Right to apply under Section 241 amongst the criterion, one of the criteria is that the Members of the company not less than one-tenth of the total number of its members should file the application under Section 241 making grievances of oppression and mismanagement. When there were only three members and two of them (petitioners) filed the Company Petition claiming that they have been wrongly and oppressively deprived of their shares, and were subjected to other oppressive acts as stated, they had the number of Members required and it was a dispute to be decided whether or not they have lost whole of their shareholding and NCLT could not have simply accepted whatever the respondents claimed (and which was disputed by the petitioner) that they have duly complied and enforced Section 236 of the Act. Thus we set aside the findings of NCLT that the appellants-original petitioners did not hold any shareholding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble rights were transferred to Respondent No.1 company. The Company Petition Para 1(A) states that name of Respondent No.1 was on 26.07.2008 changed from Cape Electric India Pvt Ltd to present "M/s OBO Bettermann India Pvt Ltd." 13. It appears that after such initial bonhomie relationship as reflecting in the earlier agreements 2007-2008, on 1.8.2013 a Second MOU was executed between original petitioners and original respondents (which this time includes Respondent No.1 company) that Respondent No.2 will get funds so as to ensures that it holds approximately 99% of the shareholding and the necessary documents were to be executed. New arrangements were contemplated. Later, on 20th October, 2013 a "Share Purchase Agreement" (Page 308), "Put and Call Option Agreement" (Page 329) came to be executed between these 4 parties and the third document was "Employment Agreement" (Page 349) dated 20.10.2013 which was between the Original Respondent No.1 and Petitioner No.1 ensuring term of Managing Director for Original Petitioner No.1 from 1.1.2013 till 31.12.2017 (Page 356) and providing for compensation in the form of salary, bonus etc (Page 365). Then suddenly on 7.6.2016 there is a "Sepa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mations". According to the counsel Sections 230 to 240 of this Chapter are all dealing with amalgamations, arrangements or compromises and Section 236 needs to be read in this context. It has been argued that Section 236 could not be applied to the facts of the present matter where there was neither a compromise nor an arrangement or amalgamation as contemplated in Chapter XV. It is argued that this is a new Section which has been notified and it in the nature of squeezing out the minority shareholders by forcibly taking over their shares which type of provisions can be seen in the English Law but were not applied under the Companies Act, 1956. Earlier Section 395-A Companies Amendment Bill, 2003 was framed but the same was never enforced. The argument is that against the fundamental right to have and hold property and not to be forcibly deprived of the same, the present Section has element of forcibly taking away the shares and thus this provisions has to be strictly construed and applied. The counsel submitted that the provision did not apply to the present company which is a private limited company and where there was no such contingency of merger, compromise or amalgamation and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th such acquirer, becoming registered holder of ninety per cent. or more of the issued equity share capital of a company, or in the event of any person or group of persons becoming ninety per cent majority or holding ninety per cent. of the issued equity share capital of a company, by virtue of an amalgamation, share exchange, conversion of securities or for any other reason, such acquirer, person or group of persons, as the case may be, shall notify the company of their intention to buy the remaining equity shares. (2) The acquirer, person or group of persons under sub-section (1) shall offer to the minority shareholders of the company for buying the equity shares held by such shareholders at a price determined on the basis of valuation by a registered valuer in accordance with such rules as may be prescribed. (3) Without prejudice to the provisions of sub-sections (1) and (2), the minority shareholders of the company may offer to the majority shareholders to purchase the minority equity shareholding of the company at the price determined in accordance with such rules as may be prescribed under sub-section (2). (4) The majority shareholders shall deposit an amount equal to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact or likelihood of transfer taking place on the basis of such negotiation, understanding or agreement, the majority shareholders shall share the additional compensation so received by them with such minority shareholders on a pro rata basis. Explanation.-For the purposes of this section, the expressions "acquirer" and "person acting in concert" shall have the meanings respectively assigned to them in clause (b) and clause (e) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. (9) When a shareholder or the majority equity shareholder fails to acquire full purchase of the shares of the minority equity shareholders, then, the provisions of this section shall continue to apply to the residual minority equity shareholders, even though,- (a) the shares of the company of the residual minority equity shareholder had been delisted; and (b) the period of one year or the period specified in the regulations made by the Securities and Exchange Board under the Securities and Exchange Board of India Act, 1992(15 of 1992), had elapsed. 19. Before analysing Section 236 we refer to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e remaining equity shares 21. The meaning of expression "acquirer" or "a person acting in concert" with such acquirer as referred in sub-section (1) has been explained by Explanation after sub-section (8) to mean as stated in the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. Under Securities & Exchange Board of India Act, 1992, the SEBI has various powers and functions under Section 11 (2)(h). One of its functions is to regulate substantial acquisition of shares and take overs of companies. For this purpose the Regulations of 1997 as referred in explanation of Section 236 dealt with acquisition of shares and take overs. The said regulations have now been repealed and the operating provisions are Securities & Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. The word "acquirer" and "person acting in concert" are dealt with under these Regulations and have specified meaning in the context of listed companies. 22. Thus the first event with regarding sub-section (1) of Section 236 is in the context of the "acquirer" and the "persons acting in concert" as defined in provisions of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 232 deals with merger and amalgamation of the companies, where application is made to the Tribunal under Section 230 for sanctioning of a compromise or an arrangement proposed between a company and any such persons as are mentioned in that section. Scheme of merger and amalgamation of companies is dealt with. Notwithstanding provisions of Section 230 and 232, under Section 233 there could be a scheme of merger or amalgamation entered into between two or more small companies or between a holding company or its wholly-owned subsidiary company or such other class or classes of companies as may be prescribed. Section 234 deals with merger or amalgamation of companies with foreign companies. This section provides that a foreign company, may "with the prior approval of the Reserve Bank of India" merge into a Company registered under this Act. The Section makes provisions to protect the shareholders (To recall-we have here Respondent No.2, a foreign company which having taken over more than 99% shareholding in Respondent No.1-an Indian company is now throwing out the Indian shareholders which in effect must be held to amount to back door merger or amalgamation by foreign company wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a company. That event too must be, by virtue of amalgamation, share exchange, conversion of securities or for any other reasons. No such "event" has taken place in the set of facts which we have. Here there is a gradual entry of Respondent No.2 in Respondent No.1 and there are a set of agreements to which even the Respondent No.1 is a party and which were to be honoured and in the event of dispute the affected had the option to move arbitration. There could not be a one sided takeover by Respondent No.2 who had by way of agreements got 99% shares in Respondent No.1 and thus was akin to Respondent No.1. Thus Section 236 of the Act was inapplicable to the facts of the matter. Invoking of Section 236 27. Further, even if it was to be said and held that Section 236 of the Act is applicable, question is if it was duly and legally invoked. After having considered the inapplicability of Section 236 even if in the alternative, if we proceed to look into the invoking the same also, we find fault with the steps taken by the Respondents. Sub-section (2) of Section 236 which we have reproduced above clearly provides that the offer to the minority shareholders of the company for buying th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f original petitioners, i.e. their shares. 28. Sub-Section (2) of Section 236 requires that there should be "valuation by a registered valuer in accordance with such rules as may be prescribed". If Section 236 of the Act has to survive, it has to be insisted upon that the valuation must necessarily be by registered valuer and that too in accordance with the rules prescribed. The Legislature appears to have been conscious and careful while using these words because it has made a special Chapter relating to Registered Valuer. Chapter XVII has only one Section which is Section 247 which reads as under:- "247. Valuation by registered valuers- (1) Where a valuation is required to be made in respect of any property, stocks, shares, debentures, securities or goodwill or any other assets (hereinafter referred to as the assets) or net worth of a company or its liabilities under the provision of this Act, it shall be valued by a person having such qualifications and experience, registered as a valuer and being a member of an organization recognized, in such manner, on such terms and conditions as may be prescribed and appointed by the audit committee or in its absence by the Board of Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aintainable at the behest of original petitioners who were inter alia challenging the manner of take over of their shares and who constituted 2/3rd of the members of the company and were perfectly competent to maintain the company petition. 30. For such reasons we hold that the notices given by the respondents under Section 236 and their subsequent act of cancelling the shares of the original petitioners were illegal and stand set aside. Such acts of Respondent constituted oppression of minority shareholders-the petitioner. Cursory Findings on other issues 31. It does not appear from the record that the respondents had filed any detailed response to the company petition or that Petitioners got opportunity to file rejoinder. It does not appear that the company petition as such was taken up and argued for final hearing. When the respondents moved application questioning maintainability, there may have been, as before us, reference to the other aspects of the matter but that would require proper pleadings, evidence and hearing. If the impugned order is perused which, considering the volume of the matter, is only a short order, there are findings recorded by NCLT which hardly have r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere was restriction to induction in the Articles of Association. Even Respondents do not appear to have been given opportunity on this count. 34. In our view looking to the stage at which the matter was argued and impugned order passed, there were and are disputes raised in the proceedings which require pleadings to be completed by parties, evidence and arguments to legally decide the same. While deciding maintainability, cursory recording of findings regarding other aspects of the matter without proper reasoning and support of evidence is inappropriate and the impugned order as a whole would require to be set aside and the matter deserves to be remitted back to the Learned NCLT to decide the other issues raised in the matter. As we are not deciding other issues raised in the matter, we are not burdening this judgement with rulings referred to by Respondents to claim that Appellants are trying to enforce contractual rights. NCLT needs to decide the other issues in the matter. FINAL ORDER 35. For the above reasons, we set aside the impugned order. We hold that Appellants could maintain the Company Petition under Section 241, 242 of the Act. We further hold that in the facts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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