TMI Blog2021 (4) TMI 1061X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction are baseless and untenable, and same are liable to be rejected and thus, those allegations/contentions are hereby rejected. The Petitioners are admittedly aggrieved by the deletion of their names as Members in the Company, as early as on 21.02.2008, however, the Petitioners chose to file the present petition only on 03.08.2012 before the then Company Law Board (CLB), Chennai Bench, after lapse of more than four years on the pretext that they are aware of it only in the year 2012, and the grounds raised on behalf Petitioners are un-tenable and baseless. Therefore, the contention of the Petitioners that the petition is within limitation is not at all tenable and liable to be rejected - Since, the Tribunal held that the Petitioners ceased to be Members of the Company as early as on 21.02.2008 and the Petition under Sections 397/398 of Companies Act, 1956 are not maintainable. Therefore, the allegations with regard to acts of oppression and mismanagement do not arise. Petition dismissed. - C. P. No. 68/2012 and C.A. No. 01/2013 in T.P. No. 39/2016 - - - Dated:- 4-3-2021 - Rajeswara Rao Vittanala, Member (J) And Ashutosh Chandra, Member (T) For the Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f paid-up and subscribed capital of Respondent No. 1 Company. (3) The Respondents Nos. 2 to 5 are the Directors of the R1 Company. R5 is also a shareholder of the Company. The Respondent No. 6 is the son of the Respondent No. 5 and he is also a shareholder of the Company. (4) The R1 Company is a closely held private company and is a sister concern of Prakash Roadlines Private Limited, the Flagship Company. Prakash Roadlines was started in 1962 by the families of the Petitioner No. 1 and R5 (by Mr. Om Prakash Narang, R5's father, Mr. Munshilal Manchanda, father of Petitioner No. 1 and Mr. Suraj Prakash Manchanda brother of Mr. Munishilal Manchandaand Mr. Shanti Lai Narang, the uncle of Mr. Munshilal Manchanda) and their close family ties and strong relationship of trust dates back to those days. Since their level of trust had grown and they had also been successful in working together and in helping to expand the business of Prakash Roadlines, the Petitioner No. 1 and R5 decided to expand the business along with their cousins and Prakash Leasing Private Limited was incorporated. (5) The R5 fully understanding the amount of trust reposed on him by the Petitioner No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the Petitioner No. 1 daughter, was happy to leave the R5 and his family at the helm of affairs of the R1 Company was concerned. They trusted the R5 too much to expect him to make use of the Petitioner No. 1 illness and transfer the stake of the Petitioners to himself. (7) In addition to the initial transfer of 3000 shares of the Petitioner No. 1, it also came to light that the R5 had transferred the remaining 290 shares belonging to the Petitioner No. 1, 10 shares of Petitioner No. 2 and 200 shares belonging to the Petitioner No. 3, to himself. It was only in March 2012 the Petitioners realise that the R5 had made use of the Petitioner No. 1 illness to transfer the shares of the Petitioners, in the R1 Company and this realisation occurred as a result of certain documents filed by the R5 in another litigation OSA No. 51 of 2006 before the Hon'ble High Court of Karnataka, relating to the single share owned by the Mr. S.M. Kannappa. On 01.03.2012 in OSA 51 of 2006 the R5 produced the original share certificates that had been issued to Sri. M.L. Manchanda (the father of the Petitioner No. 1) and in the same share certificates there has endorsement indicating the Petitioner N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years, and thus allegedly prevented him approaching the Hon'ble Board promptly after his name came to be admittedly excluded from the Members Register of the Company). 4. The Respondent No. 1 has also filed its statement of objections dated 05.02.2013 by inter alia contending as follows: (1) The claims sought to be made in the Petition are entirely without merit, and there is no element of truth whatsoever to the fanciful story sought to be made out in the Petition. Further, the instant Petition is in fact one actuated by mala fides, and it has been filed by the Petitioners at the instance of and with the connivance and collusion of two rabble rousing shareholders of the R1 Company, by name Vijay Narang and Bhupinder Rai, who have initiated a number of frivolous legal actions against the Company over the past 21 years with a view to prejudicing its smooth functioning. (2) The Petitioners are former shareholders of the Company and are close relatives of Shri Vijay Narang and Shri Bhupinder Rai, who presently hold 500 shares each in the Company. It is a matter of record that Shri Vijay Narang and Shri Bhupinder Rai are interested in bringing the affairs of the Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not be open to the Petitioners, by employing a clever device of drafting, to circumvent the law of limitation, merely by additionally invoking Section 397-402 of the Act, when the pleadings reveal that the only case sought to be urged is one falling under sec. 111 of the Act. It is now settled law that a Petition under Sec. 111 of the Act can be rejected if the claims sought to be made therein are time-barred. 5. The Respondent No. 5 has filed the statement of objections dated 05.02.2013 by inter alia contending as follows: (1) The transaction under which these shares were transferred by the Petitioners to R5 was concluded as back as in the year 2008, and the Petitioners have received valuable consideration for the same from R5. Having sold their 500 shares in favour of the R5 in 2007, the Petitioners are attempting now to extort more monies from this Respondent, by abusing the court process. (2) The father of R5, late Shri Om Prakash Narang, has floated the 1st Respondent Company in his lifetime, by taking over the bus body building business of one Shri S.M. Kannappa (which was organised as a partnership firm), and by converting the same into a private limited compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Supreme Court of India, during 1990 to 2012. As such, he has been continuously aware all along of the shareholding pattern in the Company and it is not open to him to now disclaim all knowledge of transactions entered into by him as long back as in 2008, in relation to certain shares held by him and his family. The Petitioner No. 1, being an engineering graduate of a reputed college, and being himself an experienced businessman, took complete responsibility for all the court matters in which the companies in which he was interested were involved, and it is entirely audacious to suggest that he had blindly let these matters to be managed by this Respondent. If anything, the truth is quite the contrary. (5) M/s. Prakash Leasing Limited was faced with a claim from the Income-Tax authorities in a sum of about Rupees Four Crores, and was also having to answer claims of small depositors/members of the public, amounting to about ₹ 74,59,980/-. Both the Petitioner No. 1 and R5 had struggled for several months to raise funds from the market and from potential alternative lenders to meet all these liabilities, but they were unable to do so. Ultimately, R5 and his f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... embers' Register of the Company. A few months thereafter, a claim was made in relation to the very same share by Mr. Bhupinder Rai, the former Managing Director of the Company, who also claimed to have acquired the very same share from the legal heirs of S.M. Kannappa. The Company had refused to act on the transfer request made by Mr. Bhupinder Rai, since he had not produced a share transfer form duly signed by the holder of the share as per the Company's records, (viz. the Petitioner No. 1). Mr. Bhupinder Rai had sought to assert that he had received the original share transfer certificate of S.M. Kannappa from the legal heirs of S.M. Kannappa, pursuant to the award pronounced in an arbitration proceeding presided over by one of his own employees at Surya Coach Builders Pvt. Ltd. Accordingly, he filed a petition before the Hon. High Court of Karnataka under the erstwhile Sec. 155 of the Companies Act, seeking rectification of the Members' Register. The matter was contested in the Hon'ble High Court of Karnataka between Mr. Bhupinder Rai and Mr. Sudershan Manchanda for several years, and was eventually decided in favour of the former, by a Learned Single Judge of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two of them, into equity. Mr. Vijay Narang and Mr. Bhupinder Rai had sought to assail the entry made in the Register of Members of the Company pursuant to the aforementioned allotment, by falsely contending that the allotment was a fictitious one. In that regard, they had filed a petition under Sec. 111 of the Companies Act in 1991, before the Southern Regional Bench of the Company Law Board. The Petitioner No. 1 and R5 had jointly contested that petition and had defended it, and had even been successful in that effort, in the first instance. (10) The law of limitation as set out in the Limitation Act applies squarely to all disputed questions of title, regardless of whether they are filed in the shape of a title suit, or couched as 'rectification proceedings' in the Company Law Board. As such, the petition deserves to be rejected at the threshold. Furthermore, even insofar as the Petitioner No. 1 is concerned, it is stated that his claims as to ill health are all trumped up and exaggerated, and any health issues that he may have faced certainly did not affect his mental capacity in any way, or cause him to become unaware of the transactions entered into by him. 6. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the appropriate authorities, which was done. At the time of filing of the objections to the instant petition, the R3 informed us that the share transfer forms may have been destroyed in a fire in the year 2009 that had occurred at the Company's office. Further he assured us that he would forthwith make efforts to trace the share transfer forms. Accordingly, the R1 Company in its objections has sought leave to produce these share transfer forms. Further the R3 suddenly passed away in July 2017. After the unfortunate demise of the R3, the R1 Company has made bona fide efforts to trace the share transfer forms and has reviewed all records in the erstwhile cabin of the R3 in the premises of the R1 Company. However, despite best efforts, the R1 Company has been unable to locate them. (2) It is contended that the R1 Company has suffered another fire on 07.11.2018 at their registered office, and there is a possibility that the share transfer forms were also destroyed in this fire along with several other documents of the R1 Company. Further R1 Company is continuing to make efforts to locate the share transfer forms, and undertake to place the same on record before this Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person who has knowledge of the said fact. Further, Section 114(g) of the Indian Evidence Act, 1872 provides that the court can presume the existence of certain facts which could be but is not produced, and if produced would be unfavorable for the person who holds it. This provision has been interpreted by the Hon'ble Apex Court in the case of Commissioner of Income Tax, Madras Vs. Best CO., reported in AIR 1966 SC 1325 and held that an adverse inference can be drawn against a party who has willfully suppressed a documents and evidence that was within his knowledge and keeping. (4) The NCLT is competent to hear the present case, as the NCLT is established to consolidate the jurisdiction exercised by the CLB, Board of Industrial and Financial Reconstruction (BIFR) and Appellate Authority for Industrial and Financial Reconstruction (AAIFR) and the High Court with regard to winding up proceedings. The powers of the NCLT are of wide nature. After the establishment of the NCLT, the jurisdiction of Civil Courts in matters relating to the Company and its insolvency is completely barred as per Section 430 of the Companies Act 2013. (5) The period of limitation starts runni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the Board of Directors. This makes it apparent that the Board has acted bona fide on the basis of documents that have been filed by the transferee of the shares. The absence of the share transfer forms does not make any difference to the case, given the fact that the documents were examined at the time of transfer and submission before the Board and the original share certificates are admittedly with the transferees of the shares. (3) Furthermore, the Petitioners were entitled to dividend on the single share only post 2008. There is no explanation provided by the Petitioners towards this at all. The Petitioners were previously receiving dividend on 501 shares, drastically reduced to one share from 2008 till 2012. The Respondents have produced the extract of dividend ledger account of the Respondent Company for the years 2003-04 till 2013-14 to evidence the same. The fact that the dividend reduced so drastically and that they stopped receiving any dividend whatsoever makes it apparent that the Petitioners always knew that the shares had been transferred and are now feigning ignorance only to make a baseless claim. (4) The Petitioners knew about the transfer from the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me, had handed over their original share certificates to the R5, and were surely fully aware that the transaction had been given effect to from 21.02.2008 itself on account of updation of all company records. The transfer of shares was carried out in accordance with law by placing the relevant documents before the Board of Directors for approval, as evidenced by the Minutes of the Board Meeting, the Members' Register, the Annual Returns of the Company since 2008, the Dividend Ledger etc. (3) The Petitioners were always well aware of their transfer of their 500 shares in favour of the R5, which was given effect to by the Company on 22.01.2008. The Petitioner No. 2 herself has expressly admitted to having knowledge of the transfer in the year 2008 itself, while giving evidence in O.S. No. 5053 of 1990 in her cross-examination. (4) The Hon'ble Supreme Court in Smt. Dilboo (Dead) by LRs and Ors. v. Smt. Dhanraji (Dead) and Ors. (2000) 7 SCC 702, has inter alia held that a litigant must exercise due diligence and in cases where a fact could be discovered by due diligence then deemed knowledge would be attributed to the litigant because a party cannot be allowed to exte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be in order by the Board of Directors, and only after this examination, the transfer of shares was duly effected. This has been explicitly recorded in the minutes, where the Board has recorded that on review, the documents submitted for seeking transfer were found in order . (9) He has relied upon the following judgments: i. Smt. Dilboo (Dead) by L.Rs. and Ors. v. Smt. Dhanraji (Dead) and Ors. ((2000) 7 SCC 702 passed by the Hon'ble Supreme Court of India ii. M. Madhusoodhanan and Anr. v. Kerala Kaumudi (P.) Ltd. and Ors. 2004 9 SCC 204 passed by the Hon'ble Supreme Court of India 12. After perusing lengthy pleadings made by the Parties, as briefly stated supra, the main issues arise for consideration in the instant case, are as follows: 1) Whether the composite petition filed under Sections 111, 397 398 R/w. Section 402 and 406 of the Act is maintainable when the Petitioners are alleged to be non-shareholders of the Company, as early as 2007-2008; 2) Whether the Respondents acted in accordance with law in transferring the impugned shares; 3) Whether the Petitioners have approached the Tribunal with clean hands seeking equitable relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also admitted by saying that during various transaction happening between the families of the Petitioner and R5, there were quite a few payments that was made by the Petitioner No. 1 to R5 and vice versa. 14. The Respondents have filed extract of Minutes of Meeting of Board of Directors held on 21.02.2008 (Annexure 4, page 49 to the Reply) wherein, it is recorded that a request letter from Mr. Bharat Bhushan Narang (Respondent No. 5) was received along with Transfer Deeds and related Original share Certificates purchased from Mrs. Meenu M., Mr. Sudarshan Kumar M., and Mr. Nikhil M., (the Petitioners herein) for transfer of their shares. After review of the documents submitted, the duly constituted Board of the Company, found that documents submitted are in order for effecting transfer of impugned transfer, as requested by the Respondent No. 5 and thus a Resolution was accepted to give effect to transfer of all Shares held by the Petitioners in favour of Respondent No. 5. Accordingly, the Register of Members are also corrected by showing that the Petitioners ceased to be Members of the Company. Folio No. E/08 is in respect of Petitioner No. 1, wherein it is stated that he ceased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere no notice has been sent by the company, within four months from the date on which the instrument of transfer, or the intimation of transmission, as the case may be, was delivered to the company. (4) If - (a) the name of any person - (i) is, without sufficient cause, entered in the register of members of a company, or (ii) after having been entered in the register, is without sufficient cause omitted therefrom; or (b) default is made, or unnecessary delay takes place, in entering in the register the fact of any person having become or ceased to be, a member [including a refusal under sub-section (1)], the person aggrieved, or any member of the company, or the company, may apply to the 2 [Tribunal] for rectification of the register. (5) The [Tribunal], while dealing with an appeal preferred under sub-section (2) or an application made under sub-section (4) may, after hearing the parties, either dismiss the appeal or reject the application, or by order-(a) direct that the transfer or transmission shall be registered by the company and the company shall comply with such order within ten days of the receipt of the order; or (b) direct rectification of the register and also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of transfer or the intimation of transmission, as the case may be, was delivered to the company. (4) If a public company without sufficient cause refuses to register the transfer of securities within a period of thirty days from the date on which the instrument of transfer or the intimation of transmission, as the case may be, is delivered to the company, the transferee may, within a period of sixty days of such refusal or where no intimation has been received from the company, within ninety days of the delivery of the instrument of transfer or intimation of transmission, appeal to the Tribunal. (5) The Tribunal, while dealing with an appeal made under sub-section (3) or sub-section (4), may, after hearing the parties, either dismiss the appeal, or by order-- (a) direct that the transfer or transmission shall be registered by the company and the company shall comply with such order within a period of ten days of the receipt of the order; or (b) direct rectification of the register and also direct the company to pay damages, if any, sustained by any party aggrieved. Etc 59. Rectification of register of members (1) If the name of any person is, without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a, and sought for dismissal of the Petition on this ground alone. 17. So far as the issue pending before the CLB, Mumbai Bench, vide C.P. No. 13 of 2014 (transferred C.P. No. 4 of 1991) is concerned, the C.P. was filed by Mr. Bhupinder Rai, Vijaya Kumar Narang and Shantilal Narang (since deceased) against M/s. S.M. Kannappa Automobiles Private Limited (R1 Company) which include the Petitioner No. 1 and Respondent No. 5 and also others and was finally disposed of by an order dated 26.08.2014. The question that arises in that Petition was whether the impugned 6000 shares were transferred to R6 and R7 (Petitioner No. 1 R5) in accordance with law or not. And it has no bearing on the instant issue. Moreover, the Petitioner No. 1 is not aggrieved party in the above said proceedings and the Petitioner was with the R5 in defending the above petition. Ultimately the CLB, Mumbai Bench found that the Petitioners therein are entitled to allotment of further shares in proportion to their respective shareholding in the R1 Company on its face value of ₹ 100/- per share out of 6000 shares allotted to the R6 R7 (Petitioner No. 1 R5) on 24.09.1990 which are presently held by R7 to R10 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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