National Company Law Appellate Tribunal
Yash Vardhan Mall vs Indrapuri Studios Pvt Ltd on 28 March, 2023
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
PRINCIPAL BENCH, NEW DELHI
Company Appeal (AT) No. 321 of 2019
IN THE MATTER OF:
Yash Vardhan Mall ...Appellant
12, Ho-Chi-Minh Sarani,
Unit 'BE', Kolkata-700071
Versus
Indrapuri Studios Pvt. Ltd. ...Respondent No. 1
Office at: 4, Netaji Subhas Chandra Bose Road,
Kolkata - 700040.
Tejash Doshi, ...Respondent No. 2
'Fort Shanti Neer',
Flat No. 9A, 9th Floor,
90A, Bakul Bagan Road,
Kolkata - 700025.
Rashmi Bubna, ...Respondent No. 3
12, Ho-Chi-Minh Sarani,
Unit 'BE', Kolkata-700071.
Sanjeev Bubna, ...Respondent No. 4
11A, Judges' Court Road,
Alipore, Kolkata -700027.
Nirmal Kumar Karnani, ...Respondent No. 5
Company Appeal (AT) No. 321 of 2019
Page 1 of 43
4, Netaji Subhas Chandra Bose Road,
Kolkata-700040.
Shibnath Mazumdar Respondent No. 6
8, Krishna Chatterjee Lane,
P.O. Bally, Howrah -711201.
Dhirendra Kumar Doshi, Respondent No. 7
66A, Chakraberia Road,
Ground Floor, Kolkata -700020.
Present:
For Appellant : Mr. Sanjiv Sen, Sr. Advocate with Mr. Ashok Jain,
Ms. Anjali Singh, Mr. Mridul Suri, Advocates
For Respondents : Mr. Nirmalya Dasgupta, Ms. Pritha Basu,
Mr. Ashish Choudhury, Mr. Akash Agarwal,
Mr. Anand Kamal, Advocates for R-1, 2,3,4,7
Mr. Saurabh Kalia, Mr. Amit Kasera, Advocates for
R-5 & 6.
JUDGMENT
(Dated: 28.3.2023) [Per. Dr. Alok Srivastava, Member (Technical)] The Appellant Yash Vardhan Mall has filed this appeal under section 421 of the Companies Act, 2013 (in short 'CA') aggrieved by the final judgment and order dated 17.9.2019 (in short 'Impugned Order') passed by the National Company Law Company Appeal (AT) No. 321 of 2019 Page 2 of 43 Tribunal, Kolkata Bench in C.A. No. 1755 of 2015 in CP No. 189/KB/2015. Respondent No. 1 Indrapuri Studios Private Limited (in short 'R-1') is a company within the meaning of the Companies Act, 1956 and is engaged in the business of running a film studio in Tollygunge, Kolkata. Respondent No. 2 Tejash Doshi (in short 'R-2'), Respondent No. 3 Rashmi Bubna (in short 'R-3'), Respondent No. 4 Sanjeev Bubna (in short 'R-4'), Respondent No. 5 Nirmal Kumar Karnani (in short 'R-5'), and Respondent No. 6 Shibnath Mazumdar (in short 'R-6') are former and present Directors of R-1 Company and Respondent No. 7 Dhirendra Kumar Doshi (in short 'R-7') is father of R-1 and present Managing Director of R-1 company.
2. Briefly, the case of the Appellant as stated in the appeal and argued by him, is that CP No. 189/KB/2015 was filed by him before NCLT, Kolkata alleging oppression and mismanagement on the part of the R-1 Company and R-2 in particular. He has stated that he has a shareholding of 61.92% of the total shares in the R- 1 company, which was reduced to 0% by the respondents, which caused him to approach the then Company Law Board to challenge the reduction in his shareholding as also the various other instances of oppression and mismanagement, as well as wrongful removal of R-5 and R-6 as directors of the R-1 Company.
3. The Appellant has further stated that the deed of nomination dated 3.1.2013 pertaining to 3890 shares owned by Smt. Shrutika Doshi, of which Ms. Harshieka Doshi is the nominee, was taken on record in Board's meeting of R-1 Company held on 14.2.2013 and the Appellant's name was recorded in the Register of Members of the Company. He has added that after the death of Smt. Shrutika Doshi, the 3890 shares held by her were Company Appeal (AT) No. 321 of 2019 Page 3 of 43 registered in the name of the Appellant, after approval in the Board's meeting of R-1 Company held on 19.6.2013, which fact is also acknowledged by the R-1 Company in its Annual Return filed in the year 2013 duly signed by R-2. He has added that on 11.2.2015, R-2, the then Managing Director of R-1 Company transferred 4160 shares of R-1 Company owned by him to the Appellant and the sale consideration of Rs. 4,16,000/- was paid by the Appellant to R-2, and these 4160 shares were duly registered in the Register of Members of the R-1 Company. He has claimed that in this manner, the Appellant became holder of a total of 8050 shares of R-1 Company, which amounted to 61.92% of the total shareholding of the Company.
4. The Appellant has further stated that there were various disputes between R-2, and R-3 and R-4 and as a result R-3 filed Civil Suit No. 416 of 2012 before the Hon'ble High Court of Calcutta, but in September 2015, R-2 settled his dispute with R- 3 and R-4 and as a result an order dated 18.11.2015 came to be passed by the Hon'ble High Court of Calcutta, whereafter R-2, R-3 and R-4 colluded with each other to fabricate documents relating to nomination of 3890 shares and a 'Will' of Smt. Shrutika Doshi, which caused wrongful loss to the Appellant. He added that in the course of such fabrication of documents, R-2 wrote a letter dated 16.9.2015 to the Appellant stating that the Company had found another purported nomination executed by Smt. Shrutika Doshi dated 15.1.2013 and therefore, earlier nomination of 3.1.2013 and any action taken in consequence was void. He has alleged that the transfer of guardianship of 3890 shares in the name of R-2, as per deed of nomination dated 15.1.2013, is based on a fabricated document and, therefore, any right accruing to R- 2 from this deed of nomination is null and void. Furthermore, Company Appeal (AT) No. 321 of 2019 Page 4 of 43 this transfer is in violation of the interim stay order dated 20.7.2015 of Hon'ble High Court of Calcutta, which also makes the transfer of 3890 shares in favour of R-2 as guardian of Harshika Doshi void as the transfer contravenes the stay order.
5. As regards other acts of oppression, the Appellant has alleged that R-2 indulged into an illegal act of oppression by issuing a letter dated 17.9.2015 by which the sale of 4160 shares by R-2 to the Appellant was cancelled and the consideration amount of Rs. 4,16,000/- was returned to the Appellant in his bank account through RTGS. In addition, R-5 and R-6 were wrongfully removed as Directors of R-1 Company by R-2, R-3 and R-4. As a result of such wrongful and illegal acts of oppression and mismanagement perpetrated by R-2, R-3 and R-4, the Appellant filed company petition CP No. 189/2015, wherein R-1 to R-4 and R-7 filed a demurrer application CA No. 1755/2015 challenging the maintainability of original company petition, in which the NCLT has passed the Impugned Order.
6. We heard the arguments presented by Learned Senior Counsel/Learned Counsel for all the parties and perused the record.
7. The Learned Senior Counsel for Appellant has initiated his arguments by pointing out to the Deed of Nomination dated 3.1.2013, by which the Appellant was made guardian of the minor Ms. Harshieka Doshi, the nominee, by Smt. Shrutika Doshi, who was the holder of 3890 shares of R-1 company. He has argued that on the basis of this Deed of Nomination, the company recorded his name vide decision in the Board meeting held on 14.2.2013 in the Register of Members of R-1 Company. He has Company Appeal (AT) No. 321 of 2019 Page 5 of 43 further argued that the fact of his being guardian of the nominee Ms. Harshieka Doshi in respect to 3890 shares held by Smt. Shrutika Doshi was also recorded in a Will dated 1.3.2013 made by Smt. Shrutika Doshi, whereby Appellant's guardianship of the nominee Ms. Harshieka Doshi was recorded and further, it was stated in the said Will that the Appellant shall remain guardian of Ms. Harshieka Doshi with respect to 3890 shares till she attains the age of 30 years.
8. The Learned Senior Counsel for Appellant has further argued that after the death of Smt. Shrutika Doshi on 26.5.2013, a settlement was reached between R-2, R-3 and R-4 and quite unexpectedly, a new Deed of Nomination dated 15.1.2013 regarding guardianship with respect of 3890 shares emerged, by which Shri Tejash Doshi was made the guardian of Ms. Harshieka Doshi. He has said that Shri Tejash Doshi is the father of Ms. Harshieka Doshi, but due to certain circumstances the Appellant was made the guardian of the minor nominee Ms. Harshieka Doshi by her now deceased mother, and the Deed of Nomination dated 15.1.2013, which has been produced by R-2 in September 2015, is a fabricated and forged document to deny the legitimate right of the Appellant as guardian of Ms. Harshieka Doshi in relation to the 3890 shares, of which she was the nominee. He has further claimed that the NCLT relied on this fabricated Deed of Nomination to adjudicate the demurrer application CA No. 1755/2015 by incorrect appreciation of fact and law.
9. The Learned Senior Counsel for Appellant has further argued that the transfer of 4160 shares by Shri Tejash Doshi, the then Managing Director of R-1 Company to the Appellant, was in accordance with the company's Articles of Association, whereby a Company Appeal (AT) No. 321 of 2019 Page 6 of 43 non-member could also be given shares in the interest of the Company, but R-2 vide letter dated 17.9.2015 unilaterally decided that the sale and consequent transfer of 4160 shares to the Appellant was void, without even providing an opportunity to the Appellant to prove legitimacy of his ownership of the said shares. He has claimed that this unilateral action of Shri Tejash Doshi is not in accordance with the principle of natural justice and the legal provision as provided in the Companies Act, whereby once the Appellant's name had been entered into in the Register of Members as owner of 4160 shares of R-1 Company, it could not have been deleted through unilateral action of R-2.
10. The Learned Senior Counsel for Appellant has further argued that a Company Petition being CP 189/2015 was filed by the Appellant alleging various acts of oppression and mismanagement against Respondents No. 1, 2, 3, 4 and 7 and while this application was under consideration, a demurer application CA No. 1755/2015 was filed by Respondents No. 1, 2, 3, 4 and 7 claiming that the petitioner Yash Vardhan Mall of the main Company petition does not satisfy the requirement of being a petitioner as required under Section 244 of the Companies Act, 2013 because he does not hold 10% of the issued, paid-up and subscribed shares capital of the Company and, therefore, the said CP NO. 189/2015 is not maintainable. He has argued that the Appellant is the guardian of minor Ms. Harshieka Doshi, who is the nominee of late Smt. Shrutika Doshi of 3890 shares, and additionally he also holds 4160 shares of R-1 Company, and thus he is the holder of 8050 number of shares, which is approximately 61.92% of the total paid up and subscribed shares of the Company. The Appellant has stated that, therefore, he is fully entitled to prefer CP No. 189/2015. He has further argued that Company Appeal (AT) No. 321 of 2019 Page 7 of 43 while looking at the aspect of maintainability, the NCLT should have adjudicated the issue of maintainability alongwith the issues of oppression and mismanagement together, which included deciding about his ownership from 61.92% to 0% shareholding since the reduction of petitioner's shareholding to 0% was itself due to the oppression of the petitioner/Appellant.
11. Expanding this argument, the Learned Senior Counsel for Appellant has claimed that Ms. Harshieka Doshi, the minor daughter of late Smt. Shrutika Doshi was made nominee of 3890 shares held by Smt. Shrutika Doshi, and by a valid nomination deed dated 3.1.2013 the Appellant Yash Vardhan Mall was made the guardian of the minor nominee. He has further argued that guardianship of Appellant arising out of this nomination deed was taken due note of by the R-1 Company and the shares were recorded in the name of the Appellant Yash Vardhan Mall in the Register of Members as per Board's resolution dated 19.6.2013, which is part of record. He has further argued that at the time of preferring of the main company petition CP No. 189/2015, the nominee Ms. Harshieka Doshi was a minor and he, as guardian of the minor, was fully responsible for 3890 shares and the interest of Harshieka Doshi therein and therefore, he was fully entitled to prefer CP No. 189/2015 on the grounds of oppression and mismanagement among other grounds.
12. The Learned Senior Counsel has further added that 4160 number of shares were allotted by the then Managing Director of R-1 Company Tejash Doshi (R-2) in accordance with Article 30 of the Articles of Association, which stipulates that any person selected by the Directors who is desirable to be admitted to the membership of the Company in the interests of the Company Company Appeal (AT) No. 321 of 2019 Page 8 of 43 could be transferred its shares. The Learned Senior Counsel for Appellant has further argued that the Appellant paid Rs. 4,16,000/- for transfer of 4160 shares @ Rs. 100/- per share as decided by R-1 Company, and consequently vide Board's Resolution dated 19.6.2013, his name was entered in the Register of Members of the R-1 Company as holder of 4160 shares and thus, the Appellant became holder of 8050 shares as is evidenced by the Register of Members (attached at pgs.198-199 of the Appeal Paper Book Vol.I).
13. The Ld. Senior Counsel for the Appellant has further argued that as there was a long-standing dispute between late Smt. Shrutika Doshi and R-2 on one side and R-3 and R-4 on the other side, a suit had been filed in the Hon'ble High Court of Calcutta by R-3 and R-4 alleging acts of oppression and mismanagement against the other party. He has added that after the demise of Smt. Shrutika Doshi in May, 2015, a settlement was worked out between Shri Tejash Doshi (R-2) and Smt. Rashmi Bubna (R-3) and Shri Sanjeev Bubna (R-4) and after execution of this settlement, certain documents were fabricated and forged to throw out the Appellant from the family arrangement to his determent. He has claimed that this deed of nomination dated 15.1.2013 surfaced only in the year 2015 even though it is purported to be executed in 2013, which is after the above-stated settlement had been worked out between R-2, R-3 and R-4, and there is no explanation as to why this deed of nomination dated 15.1.2013 was not brought to the notice of R-1 Company soon after its execution for making appropriate entry in the Register of Members. He has further pointed out that in the Annual Return of the Company for FY 2012-13 filed before the statutory authority, the name of Yash Vardhan Mall appears as transferee Company Appeal (AT) No. 321 of 2019 Page 9 of 43 in relation to 3890 shares with the date of registration of transfer of shares as 19.6.2013, which is the date of the Company's Board meeting dated 19.6.2013, and this is corroborated by the entries in the Register of Members. On this basis he has surmised that the second deed of nomination dated 15.1.2013 was definitely a fabricated and forged one, prepared as an afterthought to deny the Appellant the guardianship of Ms. Harshieka Doshi, which was intended by her mother Smt. Shrutika Doshi.
14. The Learned Senior Counsel for Appellant has further argued that a Will was made by Smt. Shrutika Doshi on 1.3.2013 whereby the Appellant Mr. Yash Vardhan Mall was made the sole executor of her will and further Mr. Tejash Doshi and Mr. Yash Vardhan Mall were made joint trustees to look after the interest of the minor Ms. Harshieka Doshi and her sister and only 20% of her (Smt. Shrutika Doshi's) estate was to be transferred to the beneficiaries on attaining the age of 18 years, and 30% of the estate was to be transferred when the beneficiaries would attain the age of 25 years and the rest 50% was to be transferred when the beneficiaries would attain the age of 30 years. He has claimed that after the above-noted settlement had been worked out between R-2, R-3 and R-4, another fabricated Will dated 22.4.2013 was produced by Mr. Tejash Doshi whereby he and his father Mr. Dhirendra Kumar Doshi were made trustees of the Will. He has contended that the second Will dated 22.4.2013 is forged and fabricated and moreover, in the absence of probate the NCLT has relied on the second Will dated 22.4.2013 and the deed of nomination dated 15.01.2013, both of which are highly suspicious, to decide the demurrer application CA No. 1755/2015 and thereby, the maintainability of CP No. 189/2015.
Company Appeal (AT) No. 321 of 2019 Page 10 of 43
15. The Learned Senior Counsel for Appellant has further argued that various illegal acts of oppression and mismanagement were alleged in CP No. 189/2015 and by such determination of the demurer application, the maintainability of the original company petition No. 189/2015 has been decided against the Appellant and without even considering the reliefs sought through the CP No. 189/2015, which is denial of justice to the Appellant. He has further contended that the issue of maintainability as well as the issues raised in the main CP should have been decided together as that would have been a just and fair course of action, and this was also the intent of this Tribunal, when it ordered in Company Appeal No. 318/2018 that "the Tribunal should decide the main petition together with the IAs preferred by the parties on an early date without granting unnecessary adjournment to the parties, uninfluenced by any observation made in the Impugned Order 2.8.2018".
16. The Learned Senior Counsel for Appellant has also argued that the cancellation of 4160 shares by the R-1 Company was done in a unilateral manner by sending letter dated 17.9.2015 whereby the company informed the Appellant that the sale and consequent transfer of 4160 shares in R-1 Company was adjudged as void and the amount of Rs. 416000/- was returned by direct credit in the bank account of the Appellant, and the Appellant was asked to hand over the original shares certificates. In this connection, he has referred to Article 30 of the Articles of Association, which authorizes the Directors of the Company to transfer shares to the non-members in the interests of the company and therefore, the transfer of 4160 shares was a lawful and legitimate act and the Register of Members was modified to show the said transfer of 4160 shares in the name of Yash Company Appeal (AT) No. 321 of 2019 Page 11 of 43 Vardhan Mall. The Learned Senior Counsel for Appellant has referred to the provisions in the Companies Act, 2013, which only entitles the Company to make corrections with regard to shareholding in simple and straight forward cases involving bonafide mistakes, whereas in the present case, since the shares were lawfully transferred to the Appellant, the Company was required to follow the procedure of natural justice before deleting the ownership of Appellant from the Register of Members. In this connection, he has referred to section 59 of the Companies Act, 2013 to show that only such corrections can be made in the Register of Members, which are either 'bonafide mistakes' or 'wrongful entries'. He has cited the definition of 'correction' and 'mistake' as well as 'rectification' from the Black's Law Dictionary to further clarify and bolster his point.
17. The Learned Senior Counsel for Appellant has cited the judgments in the matter of Montreaux Resorts (P) Ltd. & Ors. Vs. Ascot Hotels & Resorts Ltd. & Ors. [2018 SCC Online NCLAT 664], Anup Kumar Agarwal & Ors. Vs. Crystal Termotech Ltd. & Ors. [MANU/NL/0015/2017] and Woodbriar Estate Limited & Ors. Vs. V.N.A. Chandran [MANU/CL/0079/2005] in support of the claim that the issue of maintainability being a mixed issue of law and fact has to be decided together at the time of final hearing of the petition and the issue of maintainability cannot be decided at the beginning. On the basis of these judgments, he has contended that in cases where an applicant alleges that his shareholding was brought down by way of oppression and mismanagement below the threshold requirement of 1/10th of total shareholding without notice and knowledge, the Tribunal should first see whether the appellant had 1/10th of the shareholding prior to the date of Company Appeal (AT) No. 321 of 2019 Page 12 of 43 alleged oppression and mismanagement and go on to consider the case on merits.
18. With regard to the power of the company to effect rectification in the Register of Members and such powers being available only if the rectification is made by way of correction of simple mistake, the Learned Senior Counsel for Appellant has cited judgments in the matters of PV Damodara Reddi & Anr. vs. Indian National Agencies Limited [MANU T/0217/1945] and Afzal Khan & Ors. vs. Mehboob Ayub Khan & Ors. [MANU/MH/0420/2016] in support.
19. The Learned Senior Counsel for R-1, R-2, R-3, R-4 and R-7 (collectively called "Respondents") has initiated his argument by showing that in both the deeds of nomination, the nominee is Harshieka Doshi and the Appellant Yash Vardhan Mall is not the nominee or the holder of 3890 shares, as he is claiming to be, and therefore it is not clear what case the Appellant is making out in his favour. He has pointed out that in the list of parties of the original company petition, Mr. Yash Vardhan Mall is cited as sole petitioner and there is no mention of Ms. Harshieka Doshi, who is the actual nominee of the shares held by Smt. Shrutika Doshi. Therefore, the case that the Appellant has come up with is an incorrect case and he has not approached the NCLT with clean hands. The Learned Senior Counsel for Respondents has also referred to the affidavit dated 29.3.2022 filed by Mr. Tejash Doshi, father of Ms. Harshieka Doshi, stating that she has attained adulthood on 16.11.2021 and now Mr. Yash Vardhan Mall cannot claim to be the guardian of Ms. Harshieka Doshi.
Company Appeal (AT) No. 321 of 2019 Page 13 of 43
20. The Learned Senior Counsel for Respondents has argued that the petitioner is neither the holder nor the nominee of 3890 shares, and therefore he cannot claim to be petitioner in the original company petition, since he is required to be a member of the R-1 Company to be a petitioner. He has further argued that 4160 number of shares were also transferred to the Appellant, since he was taken as the guardian of Ms. Harshieka Doshi who is the nominee of 3890 shares, but now 4160 shares allotted to the Appellant stand cancelled because the Appellant is not the rightful owner of the 3890 shares. Therefore, in respect of both 3890 shares and 4160 shares, the Appellant is not entitled to file company petition CP/189 of 2015, claiming to be aggrieved by oppression and mismanagement of the Respondents.
21. The Learned Senior Counsel for Respondents has referred to para 62.29 of the original company petition to contend that no instance of mismanagement in R-1 Company has been pointed out and the reliefs sought by the petitioner cannot therefore be granted. The Learned Senior Counsel for Respondents has also referred to Smt. Shrutika Doshi Will dated 1.3.2013 in which Mr. Tejash Doshi, as father and natural guardian of the minor daughter of Smt. Shrutika Doshi is the trustee and also the executor of the said Will.
22. Regarding the cancellation of 4160 shares, the Learned Senior Counsel for Respondents has referred to Article 30 of the Articles of Association to point out that no share could be transferred by a member to a person who is not a member of the Company, and therefore, since Mr. Yash Vardhan Mall was not a member but just a guardian of Ms. Harshieka Doshi who is the nominee of 3890 shares, the allotment of 4160 shares was not in Company Appeal (AT) No. 321 of 2019 Page 14 of 43 consonance with the Articles of Association, and hence the Company, once it came to know of this illegal transfer, cancelled the allotment of 4160 shares and returned the amount of Rs.4,16,000/- by RTGS transfer to the Appellant.
23. The Learned Senior Counsel for Respondents has claimed that R-3 and R-4 (Rashmi Bubna and Sanjeev Bubna) had raised the issue that the petitioner in the original company petition had no right, title and interest in the said 3890 shares and therefore, he was not entitled to prefer the company petition CP No. 189/2015. He has added that the matter of allotment of 4160 shares being null and void was also stated in the reply of R-3 and R-4 in CP No. 189/2015. With regard to the directorship of R-3 and R-4, the Learned Senior Counsel for Respondents has referred to the reply of R-3 and R-4 to CP No. 189/2015 to contend that the appointment of R-3 and R-4 as directors of the R-1 Company was done in accordance with the requirements of Articles of Association after due decisions were taken in the AGM of Respondent No. 1 Company.
24. The Learned Senior Counsel for Respondents has further argued that section 59 of the Companies Act, 2013 empowers the Company to rectify the Register of Members, if the name of any person is entered in without sufficient cause, and in the present case, the name of Mr. Yash Vardhan Mall was entered in the Register of Members with regard to 4160 shares without entitlement and not in accordance with Article 30 of the Articles of Association, and therefore, the rectification of the Register by deleting Yash Vardhan Mall's name was carried down to rectify the said mistake. The Learned Senior Counsel for Respondents has referred to judgments in the matter of No. 7 Reese River Company Appeal (AT) No. 321 of 2019 Page 15 of 43 Silver Mining Co. Ltd. v. Smith (1869) LṚ. 4 H.L. 64,81 and Smt. Biva Pyne vs. Pyne Properties (P) Ltd. & Others (2009 SCC OnLine CLP 46) to vehemently argue that the rectification was done to correct a mistake committed by the R-1 Company and therefore, such rectification did not require any notice to be given to the Appellant and hearing him on the matter before effecting the deletion of the Appellant's name.
25. The Learned Senior Counsel for Respondents has referred to the judgment of Hon'ble Supreme Court in the matter of Claude- Lila Parulekar (Smt) V. Sakal Papers (P) Ltd. And Ors. [2005) 11 SCC 73] wherein the binding nature of the articles of association with respect to the shareholders and company has been held as being sacrosanct, contend that in the present case too Article 30 of the Articles of Association of the R-1 company should be strictly followed. The observations are as hereunder:
"25. Section 36 of the Companies Act, 1956 makes the memorandum and articles of the company, when registered, binding not only on the company but also the members inter se to the same extent as if they had been signed by the company and by each member and covenanted to by the company and each shareholder to observe all the provisions of the memorandum and of the articles. The articles of association constitute a contract not merely between the shareholders and the company but between the individual shareholders also. The articles are a source of power of the Directors who can as a result exercise only those powers conferred by the articles in accordance therewith. Any action referable to the articles and contrary thereto would be ultra vires.
xx xx xx xx
49. If the notices issued by Respondents 2, 3 and 4 were not under Article 58, then it was not open to Respondents 2, 3 and 4 to have sold the shares to the Pawar Group without issuing such notices. Hence irrespective of whether there was Company Appeal (AT) No. 321 of 2019 Page 16 of 43 a concluded contract between the appellants .and Respondents 2, 3 and 4 in respect of the 3417 and 93 shares, the shares could not have been sold to the Pawar Group. Apart from the lack of notice under Article 58, as we have already noticed, the right of a transferor in terms of the articles of the Company to sell the shares to a person of the transferor's choice is required to be exercised within the period specified in the articles. This is clear from Article 63. According to the respondents the appellants had repudiated the contract by challenging the certification of the auditor in February 1985. If that were so then the Directors were required to give the notice to the transferor or if no such notices were given, the transferors could sell within the period of 30 days thereafter. Those 30 days had long since expired much before the date on which the sale of the shares is said to have taken place between Respondents 2, 3 and 4 and the Pawar Group."
26. The Learned Senior Counsel of Respondents has also cited the judgment Hon'ble Supreme Court in another matter of John Tinson & Co. Pvt. Ltd. & Ors -Vs- Surjeet Malhan (Mrs). & Anr. [(1997) 9 SCC 651] to show the sanctity of the Articles of Association of a company in the following manner:
"7. The next question is whether the transfer of the shares held by Mr. B.K. Malhan is valid in law. In that behalf clause (8) of the Articles of Association is relevant. It is now a well-
settled legal position that Articles of b Association of a private company is a contract between the parties. Clause (8) reads that: "No transfer of any share in the capital of the company shall be made or registered without the previous sanction of the Directors......" It is an admitted position that no previous sanction has been obtained from the Directors for transfer of the shares held by Mr. Malhan. Shri Lekhi contends that Mr. Malhan being the only Director, since his father had already resigned and he had entrusted the shares to the appellant, Bhagat, there is a transfer in the eye of law. We are unable to agree with the learned counsel. The concept of previous sanction of the Directors connotes that there should be a written resolution accepting the transfer from Mr. Malhan in Company Appeal (AT) No. 321 of 2019 Page 17 of 43 favour of Bhagat and such previous sanction should be preceded by handing over of the shares. In this case, such an action was not done and, therefore, even the transfer of the shares held by Mr. Malhan in favour of the appellant is not valid in law. The Division Bench of the High Court, therefore, was right in granting the decree as prayed for."
27. In respect of the observations in the two above-cited judgments, the Learned Senior Counsel of Appellant has distinguished them by pointing out that Article 30 of R-1 Company's Articles of Association are clear that even non- members could be transferred shares if it is Company's interest, and hence transfer of 4160 shares to Appellant was done in accordance with the Articles of Association of the R-1 Company and no infringement of the Company's Articles of Association has taken place.
28. In support of the contention that rectifying a Register of Members by the Company without approaching a court in case of a mistake in transfer of shares, the following is cited by the Learned Senior Counsel of Respondents in the matter of Michaels and Another v. Harley House (Marylebone) Ltd. [(1999) 2 Com. L.J. 466 = [1997] 1 WLR 967 = (1997) 3 All E.R. 446] wherein it is laid down as follows:
"Mr. Mowbray also submitted that the entry in the company's register showing that Frogmore became registered as a shareholder on 24 March should be taken as conclusive. The register is prima face evidence: sections 361 and 352(2)(b) and (c) of the Companies Act 1985. He submitted that it should be taken as conclusive unless and until rectified, that there was no statutory power to rectify it in this respect under section 359, and that it had not been and could not now be rectified. I disagree. The register is of course prima facie Company Appeal (AT) No. 321 of 2019 Page 18 of 43 evidence, but it can be rebutted, and has been. If it is or becomes plain that an entry is mistaken, it is open to the company to rectify it without an order of the court, and the company should do so: see Reese River Silver Mining Co. Lid. v. Smith (1869) L.R. 4 H. L. 64, 81. It is understandable, and appropriate, that the error should not have been rectified pending the current proceedings, but in my view it can and should now be corrected to show that Frogmore became a shareholder on 25 March, not 24 March, and even in the absence of that being done I am entitled to proceed on the basis of the facts as proved, albeit inconsistent with the entry in the register."
29. This judgment is distinguished on the ground that that while the register is the prima facie evidence and if an entry has been made therein by mistake, it is open to the Company to rectify it without an order of the court but in the present case the addition of Mr Yash Vardhan Mall's name is by a valid transfer of 4160 shares and no mistake in the said transfer is apparent.
30. On the same issue of rectification in the register the Learned Senior Counsel for Respondents has also referred to the judgment of Court of Chancery in the matter of Reese River Silver Mining Co. Ltd [(1869) Law Reports 4 House of Lords] wherein it is held as hereunder:
"That question is answered, it seems to me, by a very short consideration of the facts of the case. In this part of the argument, it must be assumed that fraud was committed, and that there was a right on the part of Mr. Smits to have his name removed from the register. He discovered the fraud and, it is admitted, without any delay, stated his discovery to the company; he repudiated his shares, he required his name to be taken off the register, and, in order to make more emphatic his claim in that respect, he filed a bill in the Court of Chancery stating the facts, and praying that his name Company Appeal (AT) No. 321 of 2019 Page 19 of 43 might be taken off the register, and he verified that bill by his affidavit. The exigency of the moment being to restrain an action for calls, he applied for an injunction, and no doubt the necessity for an injunction explains the reason why the bill was filed in preference to a motion being made under the 35th section. Upon that application he obtained an injunction of the Court, suspending the action of the directors as to recovering any call against him.
Now, my Lords, that step was taken by Mr. Smith, of course, at his own peril. If upon the hearing of the cause it had turned out that he was wrong, and the directors right, he would have remained to this time a shareholder in the company. If, on the other hand, it turned out in the progress of the cause, as I think in the opinion of all your Lordships it did turn out, that he was right and not wrong, then I apprehend that the clear duty of the directors was, when the claim was made in a way as to which there could be no mistake, to comply with that which was the right of the Plaintiff in that suit, and to take his name off the list of shareholders, at all events upon the filing of the bill. Therefore, this appears to me to be a case clearly coming within the 35th section, where there has been default in the executive of the company--there having been, at the time of the winding up of the company, a name upon the register which ought not to have been there."
31. These facts of case in this judgment relate to a mistake where both the petitioner and the company are of the same view regarding correcting the mistake in the register of members and the petitioner (Mr. Smith) has filed a bill in the chancery for correction of the mistake. Thus, there is no difference of opinion between the petitioner and the company whereas in the present case the Appellant and the Company are on different page as far as the deletion of the Appellant's name from the register is concerned that if a petition is filed for a matter, which is not genuine and which is for exerting pressure in order to achieve a collateral purpose, the petition ought to be dismissed primarily on this ground. He has cited this judgment in support of his Company Appeal (AT) No. 321 of 2019 Page 20 of 43 contention that the Appellant/petitioner filed the original company petition primarily to gain control of R-1 Company and not for any reason of oppression and mismanagement and therefore, he has mis-stated the fact of the ownership of 3890 shares, which are actually held by Ms. Harshieka Doshi as a nominee in pursuance of his ulterior motive, the original company petition ought to be dismissed on this ground only.
32. The Learned Senior Counsel for Respondents has referred to the judgment in the matter of Kanwar Singh Saini Vs. High Court of Delhi (2012 4 SCC 307), which was cited by the Learned Counsel for Appellant to clarify that the interim order passed by the Hon'ble High Court of Calcutta in the Civil Suit filed by R-3 was merged in the final order and therefore, there is no contravention by the R-1 Company in transferring back the shares, which were given by mistake to the Appellant. The Learned Senior Counsel for Respondents has also cited the judgment in the matter of Needle Industries (India) Ltd. vs. Needle Industries Newey (India) Holding Ltd. & Ors. (1981 3 SCC 333) to point out that even if an act is illegal, it may not be oppressive and to state that in the present case, even if the shares were not cancelled in a legal manner there was remedy available as per section 59 of the Companies Act, 2013 and mere cancellation of shares cannot be called oppressive which would invite a petition under sections 241-242. He has further referred to the judgment in the matter of S.L. Kapoor vs. Jagmohan (1984 4 SCC 379) to claim that even if the principle of natural justice is breached, the 'doctrine of utility' would dictate that the action of R-1 Company is justified.
Company Appeal (AT) No. 321 of 2019 Page 21 of 43
33. The Learned Senior Counsel for Respondents has cited the judgment of Hon'ble Supreme Court in the matter of M.C. Mehta vs. Union of India and Ors [1999 6 SCC 237], wherein it is held that if, on the admitted or indisputable factual position, only one conclusion is possible and permissible, the Court need not issue a writ merely because there is violation of the principles of natural justice. The Learned Senior Counsel has also taken us through various paragraphs in the Impugned Order to show that the demurrer application CA No. 1755/2015 was heard alongwith Company Petition No. 189/2015.
34. In rejoinder, the Learned Senior Counsel for Appellant has reiterated that Article 30 of Articles of Association lays down that shares can be transferred to non-members of the Company, if it is in the interests of the Company, and further emphasised that 4160 shares were transferred to the Appellant by R-2, which were entered in the Register of Members after approval of the Board of Directors. In support of his contention, he has referred to a list of persons, who were non-members of the Company for transfer of shares starting from the year 1987-88 and pointed out that Mr. Tejash Doshi, Smt. Shrutika Doshi and Smt. Rashmi Bubna were also beneficiaries of transfer of shares at the time they did not hold any shares in the Company. He has emphatically argued that since the transfer of shares and inclusion of the name of the Appellant in the Register of Members was done in accordance with the decision of the Board of Directors, it was incumbent on the R- 1 Company and its Managing Director to follow the principle of natural justice before cancelling such shares. He also argued that no reasons were stated in the letter cancelling 4160 shares and therefore, there wasn't sufficient cause to cancel those shares and the reason being given about infringement of Article 30 of Company Appeal (AT) No. 321 of 2019 Page 22 of 43 Articles of Association for cancellation of these shares is an afterthought. He has also argued that section 95 of the Companies Act, 2013 lays down that the Register of Members maintained by the Company shall be the prima facie evidence of ownership of shares and therefore, the Register of Members as it stood after it recorded transfer of 4160 shares was the prima facie evidence of the ownership of the shares by the Appellant.
35. The Learned Senior Counsel for Appellant has argued that the Appellant has filed the original company petition in the belief that he is the owner of 3890 and 4160 shares. Finally, the Learned Senior Counsel for Appellant has claimed that the only issue considered by NCLT in the Impugned Order relate to issues raised in the demurrer application 1755/2015 and hence the NCLT has, in a summary manner, dismissed his original petition CP No. 189/2015, and therefore, both the demurrer application and the original company petition CP 189/2015 have not been adjudicated in accordance with law and the related orders should be set aside.
36. The Learned Counsel for Respondents No. 5 and 6 has claimed that the original company petition also challenges the removal of R-5 and R-6. He has pointed to paragraph 45 of the Impugned Order to support his contention that removal of R-5 and R-6 as Directors of the Company was illegal and it was claimed as such by the Appellant in the original company petition. He has further pointed to paragraphs 6.17 and 6.18 of the original company petition CP No. 189/2015 to further reinforce his argument that R-5 and R-6 were illegally removed as Directors of the R-1 Company, whereafter form DIR-12 was illegally filed by R-1 Company under the digital signature of R-2 showing the Company Appeal (AT) No. 321 of 2019 Page 23 of 43 change of designation of R-4 and illegal appointment of R-3 as director of the Company. He has further argued that no AGM of R-1 Company was held on 16.9.2015 nor any notice and agenda/agenda notes of the alleged AGM were received by the Appellant, who is the single largest majority shareholder of the said Company, when R-5 and R-6 were removed as Directors and therefore, any decision taken in the purported AGM was illegal and void.
37. The Learned Counsel for R-5 and R-6 has further argued that despite relevant pleadings made by the Appellant as petitioner of the original company petition, the NCLT has held in the Impugned Order that since R-5 and R-6 have not challenged their removal, therefore the Appellant cannot raise any grouse on that account. He has argued that section 241(1)(a) gives right to a member to challenge an action if it is prejudicial to the interests of the company and section 241(1)(b) is also applicable in the case as by changing the Register of Members and removing R-5 and R- 6 as directors and altering the Board of Directors the Respondents have committed acts of oppression and mismanagement and therefore, the NCLT is not correct in holding that if R-5 and R-6 have not challenged their removal as directors. He has also argued that R-5 and R-6 were not retiring as Directors and were removed illegally in the purported AGM which never took place. In addition, the Learned Counsel for R-5 and R-6 has referred to section 152(6) read with section 160 of the Companies Act, 2013 to emphasize that the appointment of directors as laid down in these sections relate to a public company, whereas the present is the case of a private company. Finally, the Learned Counsel for has referred to Articles 111 to 117 of the Articles of Association to show that the rotation of directors has to be done in a particular Company Appeal (AT) No. 321 of 2019 Page 24 of 43 manner in R-1 Company, which is a private company. He has clarified that in accordance with these provisions, one-third directors retire in every Annual General Meeting, which is how R- 5 and R-6 have been removed as directors.
38. The main issue that is relevant in deciding this appeal is whether the Appellant is the owner of 3890 shares and 4160 shares, as has been claimed in the original company petition, and whether the issue of maintainability raised in the demurer application CA No. 1755/2015 was decided in accordance with legal provisions and whether the other issues raised in the original company petition were looked at on merits, as is claimed in the Impugned Order.
39. It is noted that the Appellant filed CP No. 189/2015 claiming to be a holder of total 3890 + 4160 = 8050 shares in R-1 Company. We note that while has nowhere in the original company petition stated that he is filing the petition to protect the interest of minor Ms. Harshieka Doshi, who was actual nominee of 3890 shares, but he has stated in the appeal memo that he is the guardian of Ms. Harshieka Doshi, who is the nominee of 3890 shares held by Smt. Shrutika Doshi. Thus it is not entirely correct to say that Mr. Yash Vardhan Mall has hidden the fact that he is just the guardian of Harshieka Doshi who is the nominee of the said shares, and incorrectly stated that he is the owner of 3890 shares.
40. The following judgment in the matter of Re BELLADOR SILK, LTD. (Chancery Division (Plowman. J.), December 10, 11, 14, 15,16,17,18,21, 1964, January 14, 1965) has been cited by the Learned Senior Counsel of Respondents to contend that the Company Appeal (AT) No. 321 of 2019 Page 25 of 43 Appellant has hidden the fact that he is not the nominee or owner of 3890 shares but merely guardian of the minor nominee Harsheika Doshi and by doing so he is trying to gain control of the R-1 company in which he, at the beginning, had no shares. The relevant portion of the judgment is as follows:
"I have thought it right briefly to review the facts and to state my findings on them but, if I have done so somewhat cursorily, it is because, in my judgment, this case must fail for different reasons. First and foremost is the reason that I do not regard this petition as a bona fide attempt to obtain relief under o. 210 at ail. It became obvious during Moss Simmons' cross-examination that he did not really want the relief for which he was asking in the petition and that its real object was to achieve a collateral purpose, namely, to get some satisfaction in I regard to the repayment to Bellador Ltd. or to the Simmons group of companies, of the outstanding loan. Indeed, he made no bones about this in the witness box. For example, he was asked if he wanted a receiver appointed and he said that of course he did not, and, although he stated that there were some irregularities of which he disapproved, he time and again emphasized that his real concern was to force an agreement with his co-directors for the repayment of the loans to the Simmons group. The urgency of this became apparent when he explained that the money was needed for the purpose of honoring an agreement made with the Inland Revenue in regard to the payment of arrears of tax. If the loan was not repaid, he was, he said, faced with ruin. A petition which is launched not with the genuine object of obtaining the relief claimed, but with the object of exerting pressure in order to achieve a collateral purpose is, in my judgment, an abuse of the process of the court, and it is primarily on that ground that I would dismiss this petition."
We note from the appeal memo that the Appellant has mentioned that he is guardian of Ms Harsheika Doshi. He has certainly claimed incorrectly to be the owner of shares held by Smt Shrutika Doshi whose nominee is Harsheika Doshi but there is no evidence of his meddling in the affairs of the company or that he Company Appeal (AT) No. 321 of 2019 Page 26 of 43 is trying to gain control of the company and it could be just a speculation.
41. In relation to 4160 shares, we note that a transfer was made in the name of the Appellant by virtue of approval of the Board of Directors dated 19.6.2013. Further, nomination under section 109(a) of the Companies Act, 2013 was done in favour of Mr. Yash Vardhan Mall recorded in the Board's meeting on 14.2.2013, who was guardian of the minor Ms. Harshieka Doshi, the nominee of 3890 shares. This record is attached on pages 198-199 of the appeal paperbook, Vol.I, wherein Mr. Yash Vardhan Mall, R/o 12, Ho-Chi-Minh Sarani, Unit-3, Calcutta- 700071 is recorded as holder of total 3890 + 4160 = 8050 shares. We also note that the Annual Return for year 2012-13 of R-1 Company filed in compliance of the requirement under section 159 of the Companies Act, 1956 records that 3890 shares were transferred in the name of Mr. Yash Vardhan Mall by the transferor Smt. Shrutika Doshi with the date of registration of transfer appearing as 19.6.2013 (pgs.201-210 of the appeal paperbook Vol. I).
42. The relevant provisions of the Companies Act, 2013 and the Articles of Association of R-1 Company are reproduced below for ready reference:
The Companies Act, 2013 "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 Company Appeal (AT) No. 321 of 2019 Page 27 of 43 unnecessary delay takes place in entering in the register, the fact of any person having become or ceased to be a member, the person aggrieved, or any member of the company, or the company may appeal in such form as may be prescribed, to the Tribunal, or to a competent court outside India, specified by the Central Government by notification, in respect of foreign members or debenture holders residing outside India, for rectification of the register. "
"Articles of Association
30. A share may be transferred by a member or other person entitled to transfer to any member selected by the transferor, but save as aforesaid no share shall be transferred to a person who is not a member so long as any member (or any person selected by the Directors as one whom it is desirable in the interests of the Company to admit to membership) is willing to purchase the same at a fair value.
xx xx xx xx
111. At the first ordinary general meeting and at every succeeding ordinary general meeting one-third of the Directors, or, if their number is not a multiple of three, then the number nearest to, but not exceeding one-third, shall retire from office and be eligible for re-election."
43. We note that the Impugned Order considered the issues raised in demurer application CA no. 1755/2015, which is regarding maintainability of the original company petition CP No. Company Appeal (AT) No. 321 of 2019 Page 28 of 43 189/2015 and finds that the company petition is not maintainable on two grounds, namely, (i) that 3890 shares were not held by the Petitioner/Appellant, since Harshieka Doshi is the correct rightful nominee of her mother Smt. Shrutika Doshi's 3890 shares, and (ii) the transfer of 4160 shares was done in contravention of Article 30 of the Articles of Association. Therefore, the impugned order infers that since Yash Vardhan Mall as petitioner of CP No. 185/2015 does not own any shares in R-1 Company, the company petition filed by him under Section 241-242 is not maintainable.
44. We note that Article 30 of the Articles of Association lays down that a share may be transferred to any member selected by the transferor, but it could also be transferred to a person, who is not a member so long as the person selected by the Directors is one to whom it is desirable to be given shares in the interest of the Company and who is willing to purchase the same at a fair value. In addition, we note the list provided by the Appellant in the appeal memo resisting of 23 non-members, who were transferred shares between 1987-88 and 2008-2009. We also note that the names of Mr. Tejash Doshi, Smt. Shrutika Doshi and Smt. Rashmi Bubna are also included in this list (page 350 of appeal paperbook. Vol.II).
45. Thus, in view of the documents presented by the parties, particularly the Articles of Association and the list of non- members, who were transferred shares of R-1 company, we are of the view that 4160 shares were transferred by Mr. Tejash Doshi to Mr. Yash Vardhan Mall, which were duly recorded in the Register of Members of R-1 Company in accordance with Board's resolution dated 19.6.2013 (attached at pp.198-199 of appeal Company Appeal (AT) No. 321 of 2019 Page 29 of 43 paperbook Vol.I). Article 30 of the Articles of Association quite clearly provides that shares can be transferred to non-members, if the Directors feel that such transfer is in the interests of the Company.
46. We further note that through a letter dated 17.9.2015 (pg. 216 of appeal paperbook Vol.I) an amount of Rs. 4,16,000/- which was earlier paid by the Appellant towards transfer of 4160 shares was returned by direct credit into Yash Vardhan Mall's bank account on 17.9.2015, which he attempted to return, but could not do so, as the operation of the R1 Company's bank account was suspended. It is clear from this letter dated 17.09.2015 that R-1 company has decided that the sale and consequent transfer of 4160 shares was void, but no reason is provided in the letter as to why the sale and transfer of shares has been found to be void.
47. The judgment cited the Learned Senior Counsel for Respondents in the matter of Smt. Biva Pyne vs. Pyne Properties (P) Ltd. (supra) holds that 'it is apparently clear that what this Board has to examine is whether the omission of the name of late Moti Lall from the Register was with or without sufficient cause' and further that 'the Court has to perforce examine whether the alterations sought is with sufficient cause and the Court cannot simply hold that since the alteration was without recourse to law, the alteration was illegal or invalid'. In light of this judgment, we are of the view that sufficient cause was to be shown by R-1 Company before cancelling 4160 shares. No document or evidence has been placed on record by the Respondents to show that there was sufficient cause in cancelling 4160 shares. The only document is the letter dated 17.9.2015 Company Appeal (AT) No. 321 of 2019 Page 30 of 43 which purports to return Rs.4,16,000/- to Mr. Yash Vardhan Mall but significantly without recording any reason as to why the said shares were adjudged as void.
48. We also note that Hon'ble Supreme Court has held in the matter of M.C. Mehta vs. Union of India & Ors. (supra) that "breach of natural justice in adjudicating the matter may not be compulsion if on the admitted undisputable factual position, only one conclusion is possible and permissible." This judgment is distinguished on the ground that the present matter is a case where two conclusions regarding cancellation of 4160 shares was possible on the facts of the case because Article 30 of Articles of Association of R-1 Company allows transfer of shares to be made to non-members in the interests of the Company. The judgment in the case of Reese River Silver Mining Co. Ltd (supra) is also distinguished as in that case a member, after finding that his name had been wrongly entered in the Register of Members, filed a bill in the Court of Chancery praying that his name might be taken out of the Register and, he was praying for correction of a mistake that had been committed because of wrongful action or fraud. Therefore, the members had himself requested for deletion of his name. Mistake is defined in the Black's Law Dictionary as "an error, misconception or misunderstanding; and erroneous belief".
49. In the matter of Montreaux Resorts (P) Ltd. & Ors. Vs. Ascot Hotels & Resorts Ltd. & Ors. [2018 SCC Online NCLAT 664] this Tribunal has observed as follows:-
Company Appeal (AT) No. 321 of 2019 Page 31 of 43 "17. This Appellate Tribunal vide its judgement dated 24 January, 2017 in the matter of Anup Kumar Agarwal v.
Crystal Thermotech Ltd. has held as under:
"A shareholder/member or group of shareholder/members without and notice or information cannot visualize or presume that his/their shares) will be brought down to their disadvantage, which amounts to oppression and mismanagement. On such anticipation or presumption no petition under Section 397 or 398 of the Companies Act, 1956 can be filed. Such aggrieved shareholder(s)/member(s) can file the petitioner under Section 397 and 398 of the Companies Act, 1956 only after cause of action has taken place, If that be so, the day on which a petitioner under Section 397 and 398 Is filed by a shareholder/member, whose shareholding has been brought down below the requirement of having an aggregate of 10% out of the total shareholding, will be deprived to avail remedy Under Section 387 and Section 398, without their fault. He will be remediless. In 'Bhagwati Developers Pvt Ltd.' and, 'Rajahmundry Electric Supply Ltd.' aforesaid issue was not raised nor decided. For the reasons aforesaid, we are of the view that the law laid down by Supreme Court in 'Bhagwati Developers Pvt Ltd.' and 'Rajahmundry Electric Supply Corporation Ltd.' are not applicable in the case where an applicant alleges 'oppression and mismanagement' in bringing down his shareholding below the requirement of 1/10th of the total shareholding of the company, thereby deprived him of his right to sue.
50. In the present case the cancellation of 4160 shares has been done without either showing sufficient cause or claiming that a mistake had been committed by R-1 Company while transferring the shares to Yash Vardhan Mall, and therefore, we do not think that judgments in the matter of Smt. Biva Pyne vs. Pyne Properties (P) Ltd. (supra), M.C. Mehta vs. Union of India & Ors. (supra) and S.L. Kapoor vs. Jagmohan & Ors. (supra) can provide any support to the case of the Respondents.
Company Appeal (AT) No. 321 of 2019 Page 32 of 43
51. A perusal of the appeal memo makes it clear that even though while filing the company petition the Appellant did not show how interests of Harshieka Doshi are being prejudiced, and also that he did not explicitly state that he is only acting as a guardian of Harshieka Doshi in relation to 3890 shares, the Appellant did state that he is the guardian of this minor Ms. Harsheika Doshi, who is the nominee of Smt. Shrutika Doshi in respect of 3890 shares. Therefore, we do not think that the Appellant approached the NCLT with 'unclean hands' as has been alleged by the Respondents.
52. We also find that the Article 30 of the Articles of Association of the R-1 Company has not been appreciated appropriately after looking at it in its entirety by the Learned Senior Counsel for Respondents.
53. We also consider the argument of the Learned Senior Counsel of the Respondents that cancellation of shareholding may be an isolated act and there should be a series of acts which would be appropriate ground of 'oppression and mismanagement' when considering a petition under section 241-242. In presenting this argument he has cited the following from the judgment in Needle Industries (India) Ltd. & Others Versus Needle Industries Newey (India) Holding Ltd. and Others [(1981) 3 Supreme Court Cases 333]:
"49. The question sometimes arises as to whether an action in contravention of law is per se oppressive. It is said, as was done by one of us, Bhagwati, J., in a decision of the Gujarat High Court in Seth Mohanlal Ganpatram v. Sayaji Jubilee Cotton & Jute Mills Co. Ltd.' that "a resolution passed by the directors may be perfectly legal and yet oppressive, and conversely a resolution which is in contravention of the law Company Appeal (AT) No. 321 of 2019 Page 33 of 43 may be in the interests of the shareholders and the company".
On this question, Lord President Cooper observed in Elder v. Elder :
The decisions indicate that conduct which is technically legal and correct may nevertheless be such as to justify the application of the "just and equitable"
jurisdiction, and, conversely, that conduct involving illegality and contravention of the Act may not suffice to warrant the remedy of winding up, especially where alternative remedies are available. Where the "just and equitable" jurisdiction has been applied in cases of this type, the circumstances have always, I think, been such as to warrant the inference that there has been, at least, an unfair abuse of powers and an impairment of confidence in the probity with which the company's affairs are being conducted, as distinguished from mere resentment on the part of a minority at being outvoted on some issue of domestic policy.
Neither the judgment of Bhagwati, J. nor the observations in Elder are capable of the construction that every illegality is per se oppressive or that the illegality of an action does not bear upon its oppressiveness."
We distinguish the above judgment by noting that there are multiple acts that have been alleged in the section 241-242 petition by the Appellant/Petitioner before NCLT and hence the petition is not just limited to one act of cancellation of 4160 shares held by the Appellant.
54. In the light of detailed discussion in preceding paragraphs, it can be appreciated that even non-members could be transferred shares of the company if it is in the interest of the company. This provision is supported by the list of non-members produced by the Appellant who have been transferred shares of R-1 Company from the year 1987-88 onwards. Significantly, this averment has not been disputed by the Respondents.
Company Appeal (AT) No. 321 of 2019 Page 34 of 43
55. Insofar as the issue of the Appellant claiming ownership of 3890 shares while preferring CP No. 189/2015 is concerned, we find that the nominee of these shares is the minor Ms. Harshieka Doshi. The Learned Senior Counsel for Respondents has cited the judgment in the matter of Aruna Oswal Versus Pankaj Oswal & Ors [(2020) 8 Supreme Court Cases 79] wherein it is held as hereunder:
"15. It is quite apparent from a bare reading of the aforesaid provisions of Section 72(1), every holder of securities has a right to nominate any person to whom his securities shall "vest" in the event of his death. In the case of joint holders also, they have a right to nominate any person to whom "all the rights in the securities shall vest" in the event of death of all joint holders. Subsection (3) of Section 72 contains a non obstante clause in respect of anything contained in any other law for the time being in force or any disposition, whether testamentary or otherwise, where a nomination is validly made in the prescribed manner, it purports to confer on any person "the right to vest" the securities of the company, all the rights in the securities shall vest in the nominee unless a nomination is varied or cancelled in the prescribed manner. It is prima facie apparent that vesting is absolute, and the provisions supersede by virtue of a non obstante clause any other law for the time being in force. Prima face shares vest in a nominee, and he becomes the absolute owner of the securities on the strength of nomination. Rule 19(2) of the Companies (Share Capital and Debentures) Rules, 2014 framed under the Act, also indicates to the same effect. Under Rule 19(8), a nominee becomes entitled to receive the dividends or interests and other advantages to which he would have been entitled to if he were the registered holder of the securities; and after becoming a registered holder, he can participate in the meetings of the company. Rule 19(8) is extracted hereunder:
"19. (8) A person, being a no nominee, becoming entitled to any securities by reason of the death of the holder shall be entitled to the same dividends or interests and Company Appeal (AT) No. 321 of 2019 Page 35 of 43 other advantages to which he would have been entitled to if he was the registered holder of the securities except that he shall not, before being registered as a holder in respect of such securities, be entitled I n respect of these securities to exercise any right conferred by the membership in relation to meetings of the company."
xx xx xx xx
31. We refrain to decide the question finally in these proceedings concerning the effect of nomination, as it being a civil dispute, cannot be decided in these proceedings and the decision may jeopardize parties' rights and interest in the civil suit. With regard to the dispute as to right, title, and interest in the securities, the finding of the civil court is going to be final and conclusive and binding on parties. The decision of such a question has to be eschewed in instant proceedings. It would not be appropriate, in the facts and circumstances of the case, to grant a waiver to the respondent of the requirement under the proviso to Section 244 of the Act, as ordered by NCLAT."
xx xx xx xx
33. We are of the opinion that the proceedings before NCLT filed under Sections 241 and 242 of the Act should not be entertained because of the pending civil dispute and considering the minuscule extent of holding of 0.03%, that too, acquired after filing a civil suit in company securities, of Respondent 1. In the facts and circumstances of the instant case, in order to maintain the proceedings, the respondent should have waited for the decision of the right, title and interest, in the civil suit concerning shares in question. The entitlement of Respondent 1 is under a cloud of pending civil dispute. We deem it appropriate to direct the dropping of the proceedings filed before NCLT regarding oppression and mismanagement under Sections 241 and 242 of the Act with the liberty to file afresh, on all the questions, in case of necessity, if the suit is decreed in favour of Respondent I and shareholding of Respondent 1 increases to the extent of 10% Company Appeal (AT) No. 321 of 2019 Page 36 of 43 required under Section 244. We reiterate that we have left all the questions to be decided in the pending civil suit. Impugned orders passed by NCLT as well as NCLAT are set aside, and the appeals are allowed to the aforesaid extent. We request that the civil suit be decided as expeditiously as possible, subject to cooperation by Respondent 1. Parties to bear their costs as incurred."
It comes out from the above-stated observations in the Aruna Oswal Judgment that the rights of a nominee are different from the actual holder of the shares and those of the guardian are not the same as that of the nominee of the shares, in the event that the owner of the shares is deceased. It is quite clear that the Appellant could not have claimed to be holder of the 3890 shares whose nominee was Ms Harsheika Doshi, more so when he does not show in the original company petition how the interests of the minor Ms. Harsheika are being prejudiced by the action of the Respondents. It would be a matter of adjudication though, as the Appellant was relying on the entry in the Register of Members to claim shareholding of 3890 shares by him. Yet it is a fact that he was holder of the 4160 shares till the time of their cancellation, which is also one of the acts of oppression alleged by the Appellant.
56. We further note that the deed of nomination dated 3.1.2013 was brought to the notice of the Company soon after its execution and taken note by Board of Directors in meeting dated 14.2.2013, whereas the second deed of nomination dated 15.1.2013 was neither presented to the R-1 Company for making a correctional entry in the Register of Members nor did it see the light of the day for almost two and a half years. Such an omission has not been explained by the Respondents, and it raises genuine suspicion Company Appeal (AT) No. 321 of 2019 Page 37 of 43 about the veracity of the second deed of nomination. We are, therefore, inclined to follow the law paid down in Section 59 of the Companies Act, 2013, which provides that the Register of Members would be the prima facie evidence of the ownership or nomination with regard to the Company's shares.
57. The Learned Senior Counsel for Respondents has cited the judgment in S. L. Kapoor Versus Jagmohan and Others [(1980) 4 Supreme Court Cases 379] to contend that if there is only one outcome or result possible in a matter under dispute, the compliance or otherwise of natural justice requirement would not be material and make any difference. The following is held in this judgment:
"17. Linked with this question is the question whether the failure to observe natural justice does at all matter if the observance of natural justice would have made no difference, the admitted or indisputable facts speaking for themselves. Where on the admitted or indisputable facts only one conclusion is possible and under the law only one penalty is permissible, the court may not issue its writ to compel the observance of natural justice, not because it approves the non- observance of natural Justice but because courts do not issue futile writs. Bur it will be a pernicious principle to apply in other situations where conclusions are controversial, however, slightly, and penalties are discretionary."
The above judgment is also distinguished as in the present case two different outcomes were possible in case notice regarding the transfer of 4160 shares was given to the Appellant before cancelling them as Article 30 of the Articles of Association did Company Appeal (AT) No. 321 of 2019 Page 38 of 43 provide for shares to be given to non-members when it was in the interest of the company.
58. We come to the conclusion that the ownership of 4160 shares, an issue which has been discussed in detail in earlier paragraphs, certainly vests with Mr. Yash Vardhan Mall and the allegation that the Company has not followed the due procedure in cancelling these shares is found to be correct. The plea taken by the R-2 that these shares were awarded on the mistaken notion that Mr. Yash Vardhan Mall is the holder of 3890 shares is also not found to be supported by facts since the transfer of 4160 shares to Yash Vardhan Mall has nowhere been shown to be done in consequence of his 'holding' 3890 shares and moreover Article 30 of the Articles of Associations allows transfer of shares to non- members if it is done in the interest of the company. Therefore, the unilateral cancellation of the 4160 shares, which is alleged to be an oppressive act, is a question open for adjudication. The section 241-242 petition preferred by the Appellant cannot be, therefore, decided at the threshold on the issue of maintainability on the basis of non-ownership of these shares as their illegal cancellation is itself the subject matter of the original company petition C.P. No. 189 of 2015.
59. When the issue of maintainability is connected with the subject matter of an oppression and mismanagement petition, in the matter of Anup Kumar Agarwal & Ors. Vs. Crystal Thermotech Ltd. & Ors [MANU/NL/0015/2017] this Tribunal has held as follows:
"31. The question of oppression and mismanagement and maintainability in the present case is a mixed question of facts and law. As the petition was filed on the ground that the Company Appeal (AT) No. 321 of 2019 Page 39 of 43 shareholding of the applicants has been brought down below 1/10th of the total shareholding of a Company by oppression and mismanagement, Tribunal was required to decide the question of maintainability at the time of final hearing of the Petition.
Both the merit and question of maintainability were required to be decided together. On hearing the parties, in case the Tribunal forms opinion that there was no oppression and mismanagement on the date of cause of action as alleged by the applicant then in such case it was open to the Tribunal to dismiss the petition as not maintainable in view of Section 399 of the Companies Act 1956."
60. A view has been taken by Hon'ble Supreme Court in Woodbriar Estate Limited & Ors. Vs. V.N.A. Chandra [MANU/CL/0079/2005] regarding dismissing a petition at the threshold when a mixed question of law and fact has been raised, which is as follows:
"Therefore, the company petition cannot be dismissed at the threshold as laid down by this Board in Kishan Khariwal V. Ganganagar Industries Limited (supra), more so, when such dismissal at threshold will lead to serious repercussions as held in Jer Rutton Kavasmaneck v. Gharda Chemicals Limited (supra). The conduct of the respondents cannot in any way disentitle them from agitating their rights before any forum. However, the issues raised by the respondents in the present application involving a mixed question of law and fact and not being pure issue. of law touching upon the question of jurisdiction of the Court or bar by any law, cannot be tried as preliminary issues in the light of the provisions of Order 14 Rule 2 of CPC and as reinforced' in Saurashtra Cement and Chemicals Industries Limited v. Esma Industries Private Limited (supra). Thus, it cannot be contended that maintainability should be tried as a preliminary issue."
61. We also take note of an earlier order of this tribunal in Yash Vardhan Mall Versus Indrapuri Studios Pvt. Ltd. & Ors. (2018 Company Appeal (AT) No. 321 of 2019 Page 40 of 43 SCC Online NCLAT 502) which was passed on an interim order of the NCLT in the original company petition while it was being adjudicated and which is as follows:
"3. Taking into consideration the fact that the Company Petition is pending since 2015 and more than two and a half years have passed and in terms of Section 422 of the Companies Act, 2013 the petition should have been disposed of within three months, we are of the view that the Tribunal should decide the main petition together with IA(s) preferred by the parties on an early date without granting unnecessary adjournment to the parties, uninfluenced by any observation made in the impugned order dated 2nd August, 2018."
This order stipulates that the interlocutory application, if any, and the main company petition, should be adjudicated together by the NCLT, which has not been done in this case in true spirit as the main company petition and the issues raised therein have been adjudicated in a hurried and cursory manner.
62. We are, therefore, of the clear view that the issue of maintainability which was raised in the demurrer application C.A. 1755 of 2015 should not have been adjudicated at the threshold to arrive at the main petition's non-maintainability when the issue was itself claimed as an act of oppression. We have also found that the transfer of 4160 shares made to Mr. Yash Vardhan Mall was in accordance with law and their summary cancellation was not done correctly. The NCLT, by allowing the demurrer application on the basis on non-ownership of these 4160 shares, and consequently dismissing CP No. 189 of 2015 in a cursory manner without looking at the merits of the various allegations made in the company petition has incorrectly adjudicated both the demurrer application and also C.P. 189 of 2015. So, even Company Appeal (AT) No. 321 of 2019 Page 41 of 43 though the Impugned Order notes that issue of maintainability and the issues raised in original company petition 189/2015 have been dealt with together in the Impugned Order, a close perusal of the Impugned Order does not show that the issues raised in the original company petition by the Petitioner/Appellant have been looked at and adjudicated on merits.
63. We, therefore, set aside the Impugned Order, which allows the demurrer application CA 1755 of 2015 on the basis of the detailed discussion in the afore-mentioned paragraphs. We also hold that CP No. 189/2015 has not been dealt with the required rigor and attention on the basis of merits that was required. The issue of guardianship of 3890 shares and whether the Appellant was entitled to maintain the original company petition on the basis of these 3890 shares should also be looked at afresh, among all the other issues, while the cancellation of 4160 shares is held as null and void by this judgment. The matter is remanded to NCLT for adjudicating on the issues raised in the original company petition by the Appellant/petitioner keeping the contentions of all the parties open.
64. With the above-noted directions, we allow the appeal and dispose it accordingly.
Company Appeal (AT) No. 321 of 2019 Page 42 of 43
65. There is no order as to costs.
[Justice Rakesh Kumar] Member (Judicial) [Dr. Alok Srivastava] Member (Technical) New Delhi 28th March, 2023.
/aks/ Company Appeal (AT) No. 321 of 2019 Page 43 of 43