2006 (3) TMI 774 - Board - Companies Law

Court upholds share transfer as valid, denies register rectification. Objections to jurisdiction dismissed, case proceeds.

ICICI Venture Funds Management Company Limited Versus Sofil Information Systems Private Limited and Ors.

The court held that the transfer of shares by respondents 2 to 6 to the seventh respondent was valid and compliant with the Articles of Association. The ... - Issues Involved:1. Whether the transfer of 3,95,600 equity shares by the respondents 2 to 6 to the seventh respondent violated the Investment Agreement, Non-disposal undertaking, and Articles of Association of the Company.2. Whether the Company should rectify its register of members by deleting the name of the seventh respondent and restoring the names of the respondents 2 to 6.3. Preliminary objections regarding the jurisdiction of the CLB under Section 111 and the impact of the pending civil suit.Detailed Analysis:Issue 1: Violation of Agreements and Articles of AssociationThe petitioner argued that the transfer of shares by the respondents 2 to 6 to the seventh respondent was in gross breach of the Investment Agreement, Non-disposal undertaking, and Articles of Association of the Company. Clause 15 of the Investment Agreement, incorporated as Article 11(a) in the Articles of Association, required the promoters to obtain the petitioner's prior approval before selling their shares. The petitioner contended that the respondents 2 to 6 transferred their shares without such approval, making the transfer invalid.However, the petitioner had given tacit consent for the sale through a communication dated 13.08.2001, which allowed the sale subject to certain conditions, including the purchase of the petitioner's shares by the seventh respondent at a specified rate. This consent was followed by a Memorandum of Understanding (MOU) dated 05.09.2001, which included the petitioner's shares in the sale agreement. The petitioner acknowledged the MOU and did not dispute it, indicating awareness and implicit approval of the share transfer.The respondents argued that the transfer was in compliance with Article 11(a), as the petitioner had given consent, and the petitioner's claim for an Internal Rate of Return of 50% was not enforceable against the respondents 2 to 6 as it was not embodied in the Articles of Association. The court agreed with this view, holding that the transfer was valid and in accordance with the Articles of Association.Issue 2: Rectification of Register of MembersThe petitioner sought rectification of the register of members to delete the name of the seventh respondent and restore the names of the respondents 2 to 6. The court found that the transfer of shares by the respondents 2 to 6 was in compliance with the Articles of Association and the petitioner had tacitly consented to the transfer. The petitioner was also pursuing a civil suit for the recovery of the balance purchase consideration for its shares, indicating a waiver of its right to claim an Internal Rate of Return of 50%.The court held that the petitioner could not claim to be an aggrieved person under Section 111(4) and was not entitled to seek rectification of the register of members. The court noted that the petitioner had not raised any objections to the transfer of shares by the respondents 2 to 6 at any point and only focused on the sale of its own shares to the seventh respondent.Issue 3: Preliminary Objections and Jurisdiction of CLBThe respondents argued that the CLB's jurisdiction under Section 111 was discretionary and summary in nature, and complex issues involving fraud and collusion should be relegated to a civil suit. The court, however, found that the issues could be decided in the summary proceedings of the CLB without relegating the parties to a civil suit. The court noted that the subject matter and reliefs claimed in the civil suit and the CLB proceedings were distinctly different, and the pendency of the civil suit did not bar the petitioner from seeking rectification of the register of members.The court also addressed the respondents' objection regarding the petitioner's authority to file the petition, holding that the petitioner, as the Asset Management Company, was empowered to initiate legal proceedings on behalf of the Trust.Conclusion:The court concluded that the transfer of shares by the respondents 2 to 6 to the seventh respondent was valid and in compliance with the Articles of Association. The petitioner was not entitled to seek rectification of the register of members, and the prayer for rectification was rejected. The preliminary objections raised by the respondents were found to be untenable, and the court proceeded to decide the case on merits. No order as to costs was made.