TMI Blog2020 (10) TMI 641X X X X Extracts X X X X X X X X Extracts X X X X ..... ndable payable to the shareholder - thus, they have no right to unilaterally sell the shares which are in possession of the shareholder, without the consent. Whether the action of 1st Respondent Company is backed up by any contractual agreement to recover the 'rental dues' by auctioning the shares? - HELD THAT:- We have not come across any agreement showing that shops under occupation of the Petitioner is given on lease to them by the Respondent Company. As averred by the counsel for the Respondent company, company was collecting service charges from the shops as no agreement was in place. In the absence of a written agreement a documentary evidence to support their action, the very action of the Respondent's company was without any basis. Any of the unilateral action by one party, will not bind the others and will be set aside - During the arguments the bench asked to the PCS 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. Whether due process is followed by the Company in auctioning and allotting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u Foustine (hereinafter called as 'Petitioner') under Section 59(1) of the Companies Act, 2013 against M/s Vyapar Mandir Palarivattom Pvt. Ltd (hereinafter called as 1st 'Respondent')(CIN:U70101KL1986PTC004619), Mr.Kaniyamparambil Madhavan Babu ( hereinafter called as 2nd 'Respondent') and The Registrar of Companies (hereinafter called as 3rd 'Respondent'). 2. The 1st Respondent Company was incorporated as a Private Limited company on 04th December, 1986 under the provisions of the Companies Act, 1956 with an authorized share capital of ₹ 20,00,000/- divided into 20,000 equity shares of ₹ 100/- each. The paid-up capital of the company is ₹ 3,90,000/- divided into 3900 equity shares of ₹ 100/- each. The object of the Company as per the Memorandum of Association is to carry on the business of acquiring land by purchase, lease or otherwise and constructing structures such as shopping complexes, hotel complexes or housing complexes and let out, lease or sell. The Registered Office of the respondent Company is situated at Palarivattom, Cochin, Ernakulam 682 025. 3. The Petitioner had filed the above said petition under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specifically provided to the exclusion of usually available other remedies. By issuing the aforesaid letter, dated 08.02.2019 the 1st respondent company has taken law in its hands and the action which made the vesting of shares of the Petitioner in the Respondent Company. The vesting of shares of the Petitioner in the Respondent Company, by exercising lien on fully paid up shares is clearly ultra vires the provisions of the Act since lien cannot be exercised on fully paid up shares. As per Article 6(3), the company's lien shall extend to dividend only. No procedure has been mentioned in the Articles for exercising lien and the 1st respondent company through 2nd respondent issued illegal tender for sale notice of 1650 fully paid up shares including petitioner's 100 shares. 6. The Counsel for the Petitioner submitted that the 1st Respondent Company have no power or legal right to issue new shares to third parties. The Company has no right to issue new duplicate share certificate in the place of original share certificate held and kept by the Petitioner in her custody. If the Company ventures to issues duplicate share certificate while, the original ones are in the custody ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enter into rental agreement with the company till such time they are ready for registration of sale deed. 9. The Counsel for the Respondent further submitted that the petitioner mis quotes the provisions of Table A relating to forfeiture of shares with the present subject matter of the Petition. The provisions of the Kerala Buildings (lease and Rent Building) Act, 1965 is not applicable as the Petitioner has not signed any Rental Agreement with the company. The Company is empowered under the Article 6(2) of the Articles of Association to exercise paramount lien on the shares of the Respondent Company. The power of lien on dues to the company by the shareholder as per Article 6(2)(b) is the first step to recover the dues and it is only natural that subject shares are vested for the purpose of recovery of dues which are within the powers of the Board. 10. The Counsel for the Respondent stated that the Petitioner is aware of the circumstances of the subject matter as the relevant issue of transfer of shops either through sale deed or through Rental Agreement was topics of discussion among the shareholders for the past 3 years on account of change in the circumstances on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fair value, has to be found out by the auditor of the Company and in case of any dispute, such dispute has to be settled by recourse to the Indian Arbitration Act, 1940. Further submitted that in the absence of the procedure contemplated under clause 7 of the Articles of Association and in violation of Section 56 of the Act, no transfer of shares can be affected and if such transfer of shares is effected by the Respondent Company, such transfer of shares is null and void. 13. The Counsel for the Petitioner further submitted that the Annual General Meeting for the year 2018-2019 will have to be conducted afresh in accordance with Section 26 of the Companies Act, 2013. It is submitted that the 1st Respondent and the 2nd Respondent admitted that service charge only collected from time to time and no rent was collected, therefore, the Kerala Building (Lease and Rent Control) Act, 1956 is not applicable in the present case. According to Section 107 of the Transfer of Property Act, 1882 the lessor cannot make any claim for rental arrears in the absence of a registered instrument. The Company does not have any document to show even trace of an Agreement of Lease, much less a Registere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent Company stating the reasons for terminating the lease by recourse to Section 106(1) of the Transfer of Property Act, 1882. Hence, the said claim is liable to be allowed in full as deemed to have been admitted by the Respondents on the ground that what is not denied is deemed to have been admitted by the Respondents. Findings: 18. 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 1st 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 3rd party? 19. As regard to point No. (i): To arrive at a definitive conclusion as regard to the Issue (i) we have gone through the Articles of Association of 1st 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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 shows that shares are movable property and covered under the definition of goods under the Sale of Goods Act, 1930. 25. 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 petition. Section 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 re-sale as limited by this Act. (2) Where the property in goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies, a right of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars. The respondents submitted that they have not taken any action in this regard. 30. As regard to point No. (iii)The Articles of Association of the company is 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 right to lien to recover the arrears of rent from the shareholder who has not agreed to execute rental/lease agreement. In this context we examined another judgement of Hon'ble High Court of Delhi Jagatjit Distilling Allied Industries Ltd V. Bharath Nidhi Ltd ILR (1978) 1Delhi 526, (60) Emphasized 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 detaming the res until the money owning is paid: a lien disappears if possession is lost, and there is no right of sale. Sale on default is an incident of pledge. A pledge is assignable. A lien cannot be taken in execution, as the lien is merely a personal ..... 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