Company Law Board
Shapoorji Pallonji Finance Ltd. vs Mideast (India) Ltd. on 21 September, 2000
Equivalent citations: [2002]110COMPCAS868(CLB)
ORDER
1. M/s. Shapoorji Pallonji Finance Ltd. (hereinafter referred to as "the petitioner") have filed a petition under Section 111A of the Companies Act, 1956, seeking directions to register the transfer of 4,20,000 equity shares lodged with M/s. Mideast (India) Ltd, (hereinafter referred to as "the respondent") as they had failed to register the transfer within two months from the lodgment of shares on October 13, 1997.
2. According to the petitioner, they had granted bills discounting facility/ inter-corporate loan facility to the respondent-company on September 5, 1995, and for that purpose the petitioner discounted the bills of exchange for Rs. 1,00,03,091 which were duly accepted by the respondent-company drawn by one Vishesh Commercial (P.) Ltd. and made payable to the petitioner for valuable consideration. The respondent-company had undertaken to pay the said sum for Rs. 1,00,03,091 to the petitioner on the due date, i.e., December 4, 1995. However, on the due date, i.e., December 4, 1995, the respondent dishonoured the said bill of exchange without any justification. Thereupon as and by the security for payment of the dues of the respondent-company in or about December 27, 1995, one Smt. Rita Singh, managing director of the respondent-company pledges her 4,20,000 equity shares in the respondent-company with the petitioner. The petitioner had further discounted two bills of exchange and out of the proceeds of those fresh bills of exchange the earlier bill was settled but subsequent bills still remain unpaid. According to the petitioner they have a claim of Rs. 55,28,333 as due and payable to them on September 30, 1996. The respondent-company in spite of the petitioner's repeated demands and promises failed to pay the said principal sum to the petitioner. Accordingly, on October 13, 1997, it lodged the said 4,20,000 shares of the respondent-company along with valid transfer deeds for effecting the transfer to its name. The respondent-company has not yet registered the transfer of the shares in favour of the petitioner nor has it given reasons therefor. According to the petitioner, the said shares have been lodged on October 13, 1997, the respondent-company were bound and liable to transfer the said shares in the name of the petitioner within two months from the date of lodgment of the shares but the respondent-company failed to do so. Being aggrieved by the failure of the respondent-company to register the transfer of shares in their favour the present appeal has been filed seeking necessary directions for registration of transfer of shares.
3. Shri Kawal Nain, advocate appearing for the respondent-company submitted that the petitioners have failed to file the present appeal within the period prescribed under Section 111A of the Companies Act, 1956, hence the same is not maintainable. He further invited attention to the respondent-company letters dated December 27, 1995 (page 16 of the petition) and submitted that the said shares have been given towards the security against ICD of Rs. 100 lakhs availed of by the company. He further submitted that the aforesaid shares were given as security for ICD and the petitioner have failed to indicate which of the ICD is outstanding. He further submitted that even if one goes with the submission made by the petitioners the bills of exchange of Rs. 1,00,03,091 for which shares were pledged as security, the petitioner have already received back Rs. 66,00,000 and further a sum of Rs. 41,93,495 was adjusted by discounting two bills of exchange and in view of this the earlier transaction of bills discounting stands settled and the petitioner's liability is discharged and hence the petitioner is not entitled to claim the registration of transfer of the aforesaid shares. He further submitted that since the petitioner's liability stands settled, the transfer deeds have become null and void and are not available for transfer. He submitted that in the present proceedings the petitioners are enforcing their guarantee due to failure on the part of the respondent-company to meet its commitment. In this connection he submitted that a reference under Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) has been registered by the Board for Industrial and Financial Reconstruction as Case No. 94 of 1995 and the respondent-company has been declared a sick industrial undertaking. The said reference is still pending. He further submitted that pursuant to provisions of Section 22(1) of the SICA the proceedings for recovery and enforcement of guarantee cannot be proceeded with against the respondent-company being a sick industrial undertaking without the concurrence of the BIFR. He further submitted that several winding up petitions under Section 433/439 have been filed against the respondent-company and are pending before the Delhi High Court. He further submitted that the first winding up petition has been filed on July 27, 1996, by Images Electronic India Pvt. Ltd. and the same has been numbered as C. P. No. 258 of 1996. The above winding up petition was adjourned by the Hon'ble Delhi High Court vide its order dated November 2, 1999, as the matter is pending before the BIFR. He further submitted that even the petitioners have also filed a winding up petition against the respondent-company before the Delhi High Court and it has been numbered as 240 of 1999 and is listed for hearing on October 17, 2000. He invited attention to the provisions of Section 441(2) of the Companies Act and submitted that the winding up of the respondent-company shall be deemed to commence at the time of presentation of petition for winding up. In view of the above legal provision the winding up proceedings of the respondent-company have commenced in July, 1996. He further invited attention to the provisions of Section 536(2) of the Companies Act and submitted that any transfer of shares in the company and alteration in the status of its members made after the commencement of winding up, shall unless the court otherwise orders, be void. In view of the aforesaid legal provision he submitted that no directions can be given for registration of transfer of shares as any transfer of the shares would be void after the commencement of winding up proceedings. He submitted that the respondent-company being a sick industrial undertaking it has got the protection under Section 22(1) of the Companies Act and the present proceedings cannot be proceeded with unless BIFR approval is obtained under the said section.
4. The petitioner in their rejoinder and written submission have stated that shares were lodged with the respondent for transfer of shares on October 13, 1997, and the petition was filed on September 4, 1998, however, the respondent did not file its reply even during the extended time allowed by this Board to the respondent-company. The respondent-company by taking undue advantage of the sympathy of this Board, kept on delaying the matter and has filed the affidavit in reply only after more than one and a half years to submit that it has gone before the BIFR. According to them the conduct of the respondent speaks for itself, and they are entitled to reliefs asked for in the petition on this basis alone. It is further submitted that the reference to the BIFR does not prejudice the rights of the petitioner before this Board in the present petition. It is upon the default of the respondent in not transferring the shares within two months of the lodgment the petitioner, in the present petition, has only claimed its statutory right of getting the shares transferred in its name as a pledgee, through the directions of this Board under Section 111A of the Companies Act. According to the petitioner any reference to the BIFR ex-post facto to the said date of lodgment cannot prejudice the right of the petitioner. It is further submitted that the right of the petitioner in obtaining any relief from this Board is not prejudiced by the fact that the respondent being referred to the BIFR, since the dues of the respondent towards the petitioner are not in respect of a loan granted to the respondent but are in respect of a business transaction involving discounting of bills of exchange of the drawers on behalf of the acceptor, i.e., the respondent-company. The transfer of shares in the petitioner's name which were given by way of pledge, by the managing director of the company is not barred by Section 22 of the SICA. In this case reliance was placed on the case of Madalsa International Ltd. v. Central Bank of India, AIR 1998 Bom 247; [2000] 99 Comp Cas 153. The transfer of shares as pledges, according to the petitioner, would not amount to the enforcement of the security under Section 22 of the SICA and cannot be held to be applicable in the present situation. In regard to the respondent's assertion that the claim stands settled, it is further submitted that security was provided for the financial accommodation provided by the petitioner and the transaction was a continuing one and upon discounting of further two bills of exchange the said pledge of shares continued for repayment of the dues thereunder. It is further submitted that the pledge did not get extinguished, since Section 174 of the Indian Contract Act stipulates that a pledge is presumed to continue in case subsequent advances are made. In view thereof it is submitted on behalf of the petitioner that the pledge did not stand discharged due to extension of the transaction. The petitioners are entitled for the reliefs to be granted in the light of the aforesaid submission.
5. The petitioners have further submitted that the petition has been filed under Section 111A of the Companies Act and the respondent are required to register the same within the period of two months however, they have not registered the shares within the statutory period nor have given any reason to refuse to register the transfer of shares. There cannot be any sufficient cause not to allow the registration of shares within the meaning of Section 111A of the Companies Act. It is further submitted that there is no time-limit prescribed for filing the appeal under Section 111A of this Companies Act. Reliance has also been placed on Estate Investment Co. Pvt. Ltd. v. Siltap Chemicals Ltd, [1999] 96 Comp Cas 217, 231, 232 wherein this Board has held that the grounds available to the company for refusal of registration of the transfer under proviso to Section 111A(2) are the same as enumerated under Section 111A(3) only and no other ground would be considered as "sufficient cause". It is further submitted that since in the present case even the grounds indicating in Section 111A(3) have not been alleged, there is no sufficient cause shown for the refusal/failure to register the transfer of shares and accordingly sought for direction for registration of the transfer of shares. Reliance has been also placed on Canara Bank v. Ankit Granites Ltd. [1999] 97 Comp Cas 511, 550 (CLB) wherein it has been observed that the shares of a public company are freely transferable and if the transfer is refused without sufficient cause, the transferee may appeal to the Company Law Board, which shall examine whether such refusal is with sufficient cause or not. If the refusal is without the sufficient cause, this Board will direct the company to register the transfer.
6. We have considered the various averments made by the parties. The respondent-company is registered as sick industrial undertaking with the BIFR pursuant to the provisions of the SICA. The respondent-company has submitted that since they are registered as sick industrial undertaking any proceedings for enforcement of any guarantee in respect of any loan and advances granted to such company cannot lie without the consent of the BIFR. In view of the aforesaid legal provision, proceedings of the nature referred to in the said Section 22 of the SICA cannot be proceeded with/without the approval of the BIFR. On the other hand, the petitioners have placed reliance upon the decided case of Madalsa International Ltd. v. Central Bank of India [2000] 99 Comp Cas 153 (Bom) referred to earlier wherein after considering the object and the purpose and the scheme of the SICA for the purpose of Section 22 of the said Act, the Bombay High Court has taken the view that any guarantee in respect of any loans, or advances granted to the industrial company in the context will have to be read as the guarantee given by the industrial company itself and none else. In view of this according to the petitioners the protection under Section 22(1) is not available in respect of the present security.
7. The Supreme Court had gone into the question of the scope of Section 22 of the SICA in the case of Patheja Bros. Forgings and Stamping v. I.C.I.C.I. Ltd. [2000] 102 Comp Cas 21 (SC); [2000] CLC 1492 wherein the court after considering Madalsa International Ltd.'s case [2000] 99 Comp Cas 153 (Bom) have held that (page 25 of 102 Comp Cas) : "words in Section 22 are clear and unambiguous and that they provide that no suit for the enforcement of a guarantee in respect of any loan or advance granted to the concerned industrial company will lie or can be proceeded with without the consent of the Board or the appellate authority. When the words of a legislation are clear, the court must give effect to them as they stand and cannot demur on the ground that the Legislature must have intended otherwise".
8. The respondent-company, admittedly being a sick industrial undertaking and having regard to the above-referred decision of the Supreme Court the present proceedings for enforcement of guarantee cannot be proceeded with without the consent of the BIFR. In view of the aforesaid position, we have not gone into the other issues raised in the present proceeding and we are not expressing any view on those issues at this stage.
9. The petition, accordingly, stands disposed of. Liberty granted to approach after the consent of the BIFR is obtained.