TMI Blog2020 (7) TMI 560X X X X Extracts X X X X X X X X Extracts X X X X ..... cation, the respondent auctioned the shares without the consent of shareholders and without the original share certificate and transfer form in their possession. The earlier action appears to be illegal and not as per the Companies Act, 2013. As such the answer to the third point is also negative The company has no right to auction and allot the shares to third parties ignoring the right of fully paid-up shareholders. The rental dues claimed by the respondent-company are not supported by a rental/ lease agreement which is agreed by the shareholder - the applicants are declared as the legitimate equity shareholders under Folio No. 50. It is hereby directed that the rectification of the register of members of the respondent-company by re-entering the total number of 100 equity shares belonging to the late husband of the first applicant and late father of the second applicant and third applicant in the share register of the company and further ordering to restore the total shareholding of the applicants as it existed prior to February 8, 2019 forthwith. - C. A. No. 35/KOB/2019 - - - Dated:- 5-3-2020 - Ashok Kumar Borah (Judicial Member) And Veera Brahma Rao Arekapudi (Techni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for transmission of shares in favour of her on April 27, 2018. On the company's requisition dated May 15, 2018, the first applicant had submitted necessary documents along with consent from the second applicant and third applicant for transmission of shares of the late Antony Joy vide letter dated June 26, 2018. But till today no transmission has been effected by the first respondent-company despite a reminder dated November 12, 2018. On June 28, 2019, the first respondent-company issued letter to all shareholders through the second respondent stating that out of the total 3900 equity shares of ₹ 100 each, 1650 equity shares constituting 34.61 per cent. stands vested in the company on account of rental arrears and the same is offered for sale. The board of directors have fixed July 8, 2019, as the last date for receiving the tender at the registered office and the board will meet thereafter at the earliest to finalise the sale/transfer. The company has 32 shareholders out of which the names of 12 share-holders are illegally struck off from the register of members and their shareholdings thereby omitted by the company from its share register. 5. Counsel for the applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the applicants can take appropriate action against acts of fraud under section 447 of the Act, 2013. Counsel for the applicants stated that the applicants undertakes to take out advertisement of the hearing of the petition 14 days prior to the date of hearing as provided in and required by rule 35 read with rule 70 of the National Company Law Tribunal Rules, 2016. The averments made by the respondent's counsel are as follows : 7. Counsel for the respondents submitted that as per section 59(1) if the name of any person is, without sufficient cause, entered in the register of members of a company or after having been entered in the register, is without sufficient cause omitted therefrom or if a default is made or unnecessary delay takes places in entering in the register, the fact of any person having become or ceased to be a member, the person entitled to get relief under section 59(1) from this Bench. The applicants are in default of arrears of rent for shop Nos. 13 and 44 which are in her possession. The applicants were asked to pay arrears of rent by a letter dated January 23, 2019 and the company had warned that her shares will have first and paramount lien under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter was put into effect. There is no fraud in the procedure adopted by the company as alleged by the applicants as the sale was affected after due deliberations in a board meeting in the interest of the company. 11. Counsel for the respondents further submitted that the shares are already disposed of and transferred to another person on payment of the tender amount. The respondents have acted within the powers given by the articles of association read with the Companies Act and the vesting of shares and subsequent disposal of the subject shares was done in good faith for recovery of rent dues in the interest of the company. Therefore, it is submitted that the company application should be dismissed with exemplary cost to the respondents. Rejoinder submitted by counsel for the applicants : 12. Counsel for the applicants submitted that the original share certificate is still with the applicants and the applicants have not executed any share transfer instrument for the purpose of transferring of shares to any third parties. The alleged share transfer of the shares belonging to the applicants was effected by the company in total violation of section 56(1). It is alleged that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the provisions of the Income-tax Act, 1961 as alleged by the respondent. The Benami Property Transactions Act, 2016 is not attracted in the present case as alleged by the first and second respondents. Hence, pleaded to grant the prayers as mentioned in the application. Findings : 16. In order to arrive at a decision in the matter, we have framed the following issues : (i) Whether the company by exercising paramount lien can sell off the shares of a shareholder for recovering the dues ? (ii) Whether the action of the first respondent-company is backed up by any contractual agreement to recover the rental dues by auctioning the shares ? (iii) Whether due process is followed by the company in auctioning and allotting the shares to a third party ? 17. As regards point No. (i) : To arrive at a definitive conclusion as regards issue (i) we have gone through the articles of association of the first respondent-company and the model articles of association given in Schedule I, Table F of the Companies Act, 2013. The respondent submitted that Table F is the replica of Table A in the earlier Companies Act, 1956. As per clause 6(1) of the articles of association of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder : 44. Nature of shares or debentures.-The shares or debentures or other interest of any member in a company shall be 'movable property' transferable in the manner provided by the articles of the company. The above two definitions show that shares are movable property and covered under the definition of goods under the Sale of Goods Act, 1930. 23. This above finding leads us to another question, what are the rights of the holder of the lien ? The Sale of Goods Act, 1930 defines Unpaid seller's rights , which is akin to the issue in the present application. 46. Unpaid seller's rights.-(1) Subject to the provisions of this Act and of any law for the time being in force, notwithstanding that the property in the goods may have passed to the buyer, the unpaid seller of goods, as such, has by implication of law- (a) a lien on the goods for the price while he is in possession of them ; (b) in case of the insolvency of the buyer a right of stopping the goods in transit after he has parted with the possession of them ; (c) a right of resale as limited by this Act. (2) Where the property in goods has not passed to the buyer, the unpaid s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company secretary representing the company whether the company has taken any steps to get the shop vacated by the occupants for their rental arrears. The respondents submitted that they have not taken any action in this regard. 28. As regards point No. (iii) the articles of association of the company are silent about the process to be followed to ensure paramount lien. However, in the respondent-company, the lien was exercised for recovery of rental dues by auction the shares. Here the respondents exercised the right to lien to recover the arrears of rent from the shareholder who has not agreed to execute a rental/lease agreement. In this context we examined another judgment of the hon'ble High Court of Delhi in Jagatjit Distilling and Allied Industries Ltd v. Bharath Nidhi Ltd., ILR 1978 Delhi 526 : Emphasised the difference between a lien and a pledge--in the former, there is no power of sale or disposition of the goods, whereas in the latter case there is power to sell on default. A lien is merely a personal right of retention. One who has a lien has only a right of detaining the res until the money owning is paid : a lien disappears if possession is lost, and there ..... 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