2015 (5) TMI 523 - Board - Companies Law

Court orders transfer of pledged shares to petitioner under Companies Act, rejects delay arguments.

The court found in favor of the petitioner, directing the respondent to transfer the pledged shares and return the share certificates within six weeks. ... Application under section 111A of the Companies Act, 1956 for register the shares - Shares pledge on account to avail bill re-discounting facility - Default in making payments in respect of the bills discounted - Shareholder signed the share transer forms in favour of the petitioner - Held that:- It is an admitted fact that the respondent company availed rediscounting facility of ₹ 75 lakhs from the petitioner and at the time of sanctioning the petitioner vide its letter dated 08.07.1996 made it clear that the directors shall pledge 12,00,00 shares of the R1 Company and 40,000 shares of IVR Constructions. Accordingly the respondents entered into an agreement with the petitioner on 09.09.1996 and in the terms of the agreement the pledge of 12,00,000 equity shares and 40,000 equity shares have been mentioned. The petitioner and the respondent had signed the agreement and there is no dispute. Further the promoter of the respondent company i.e. Shri Sundar Iyer entered an unattested agreement dated 09.09.1996 with the respondent company. The above unattested agreement is not in dispute. As per the above agreement the shareholder of the respondent company has categorically stated that as per the sanctioned letter the shareholder pledged the above shares in favour of the petitioner for effecting the transfer of said shares to pay the said loans or any other dues of petitioner. The shareholder also signed the share transfer forms in favour of the petitioner. Further as per clause 5 the petitioner can call upon the shareholder of the respondent company to execute the transfers in favour of the petitioner. Thus the shareholder of the respondent company is bound by the said agreement. Failing to repay the loan amounts to the petitioner by the respondent the petitioner requested the respondent to effect the transfer of shares pledged by the shareholder in favour of the petitioner in accordance with the terms and conditions of the unattested agreement entered by the shareholder. From the documents it is crystal clear that the petitioner has taken various steps to recover the loan however the respondent failed to repay the amount borrowed by the respondent. The petitioner has bonafidely exercised its right to claim transfer of pledged shares in favour of the petitioner. The stand of the respondent with regard to the one lime settlement and not to effect the transfer of shares is unwarranted and is not a ground to deny the right of the petitioner. Accordingly and in exercise of power conferred under section 111A of the Companies Act, 1956, I hereby direct the respondent company to register the shares in the name of the petitioner and return the share certificates with duly endorsement of transfer within a period of six weeks. Further the petitioner is entitled to the benefits accrued on the shares including the bonus shares, dividend etc. - Decided in favour of appellant. ISSUES PRESENTED AND CONSIDERED 1. Whether the petitioner is entitled under Section 111A of the Companies Act, 1956 to have the respondent company register pledged share certificates in the petitioner's name and return the certificates with due endorsement of transfer. 2. Whether the petitioner's claim is barred by laches, abuse of process, forum shopping or Section 10 of the Code of Civil Procedure (res judicata/pendency of another suit). 3. Whether the company court should refuse summary relief because (a) complicated questions of fact and law are pending in other proceedings, (b) necessary parties (the pledgor/transferor) are not impleaded, or (c) the amount due is not crystallised. 4. Whether unattested agreements, signed transfer forms and powers of attorney executed by the shareholder/pledgor are binding and sufficient to support invocation of the pledge and transfer of shares. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Entitlement under Section 111A to registration and transfer of pledged shares Legal framework: Section 111A empowers the company court/Tribunal to direct rectification of the register of members and compel registration where transfer is improperly refused. Precedent treatment: No specific precedents were applied or overruled in the judgment; the Court applied statutory principles of Section 111A in the exercise of its powers to secure registration where contractual and documentary requisites for transfer are satisfied. Interpretation and reasoning: The Court examined the sanction letter, the rediscounting agreement (09.09.1996), promissory note and the unattested agreements and powers of attorney executed by the shareholder/pledgor. The sanction letter and agreement expressly required pledge of specified equity shares as security for the rediscounting facility. The unattested agreement by the shareholder recorded pledge of the shares, blank/signed transfer forms and an undertaking that the shareholder would execute transfers on call. The registrars' correspondence and the company's own earlier acknowledgements showed receipt of requests and that transfers were not effected. On these documents the Court found the petitioner's right to call for transfer on default to be bona fide and established. Ratio vs. Obiter: Ratio - where pledgor has executed agreements and transfer forms, and the company refuses transfer despite call in accordance with contractual terms and statutory power under Section 111A, the company court may direct registration and return of share certificates with due endorsement. Obiter - incidental observations on entitlements to dividends/bonuses pending transfer (treated as consequential relief). Conclusion: The Court directed the respondent company to register the shares in the petitioner's name and return the share certificates with duly endorsed transfers within six weeks, and to allow the petitioner benefits accruing on the shares (bonus, dividend, etc.). Issue 2 - Objections of laches, abuse of process, forum shopping and Section 10 CPC (pendency of other proceedings) Legal framework: Principles governing limitation, laches, abuse of process and the doctrine in Section 10 CPC that bars parallel proceedings where matter in issue is directly and substantially the same in a pending suit. Precedent treatment: The Court addressed the arguments on their merits by reference to the record and timing of interlocutory orders in other proceedings rather than invoking a fixed precedent to dismiss for delay or forum shopping. Interpretation and reasoning: The respondent relied on long delay (requests for transfer from 1999; petition filed 2009) and on prior/parallel proceedings (civil suit for recovery; company petition/winding-up proceedings; appeals). The Court analysed the documentary chain showing repeated demands for transfer, contemporaneous correspondence from registrars and the Stock Exchange showing acknowledgement of lodgement requests, and subsequent High Court orders that remitted issues. The Court found the petitioner had taken continuing steps to obtain transfer and had not been shown to have abandoned or to have unreasonably delayed enforcement; interlocutory and appellate activity in other forums contributed to the chronology. The Court rejected the argument that petitioner's prior pleadings in other proceedings estopped it from seeking relief under Section 111A here; the petition sought rectification of the register based on contractual pledge, a distinct statutory remedy. The Court did not treat alleged forum shopping or abuse as fatal because respondent failed to show the petitioner acted with unclean hands sufficient to bar equitable relief; further, the Court observed the petition sought enforcement of documentary rights already created. Ratio vs. Obiter: Ratio - mere pendency of other proceedings or delay, without cogent evidence of prejudice or clear abuse, does not automatically defeat a Section 111A application where the documentary right to transfer is established. Obiter - comments on the petitioner's prior pleadings before other courts being inconsistent were considered but not treated as a conclusive bar. Conclusion: The objections based on laches, abuse of process, forum shopping and pendency under Section 10 CPC were rejected; they did not preclude the grant of the relief sought under Section 111A on the material before the Court. Issue 3 - Appropriateness of summary relief in presence of contested facts, non-joinder of pledgor and non-crystallisation of debt Legal framework: Company courts may exercise summary jurisdiction under statutory provisions to rectify the register where the claimant establishes entitlement; however, the Court must ensure necessary parties are before it and that material facts support relief. Precedent treatment: The Court weighed the content of contractual documents and correspondence rather than deferring automatically to plenary civil proceedings. Interpretation and reasoning: Respondent argued the disputes involved complex factual controversies (validity of documents, amounts due), that the pledgor (transferor) was not impleaded, and that the debt had not been finally quantified. The Court considered the unattested pledge agreement, the signed transfer forms and powers of attorney by the shareholder/pledgor and the sanctioning documents which collectively manifested an immediate contractual right to call for transfer upon default. The Court found the transferor had contractually bound himself to execute transfers and the petitioner had produced the documents necessary for registration. Given those admitted documentary facts, the Court held the matter was ripe for relief under Section 111A and did not require remittal to a plenary forum. On non-joinder, the Court observed the pledgor's obligations were recorded in the documents relied upon and the relief sought was to rectify the company's register, a statutory function of the company court; absence of the pledgor did not preclude ordering registration where the company itself had custody/obligation to effect transfer and had refused to do so. As to crystallisation of debt, the Court held that where contractual security rights were invoked upon default and the documents permitted transfer to satisfy dues, the company could be directed to register notwithstanding further accounting disputes in other fora. Ratio vs. Obiter: Ratio - summary relief under Section 111A is appropriate where clear documentary rights to transfer exist, even if ancillary quantification disputes persist in other courts; non-impleadment of the pledgor does not necessarily vitiate a rectification order where the company is the gatekeeper to registration and has refused to effect transfer. Obiter - cautionary note that complicated factual disputes may preclude summary intervention if documentary entitlement is not shown. Conclusion: The Court found the petitioner's entitlement sufficiently established on documents and declined to refuse summary relief for reasons of complexity, non-joinder or uncrystallised claims. Issue 4 - Sufficiency and binding effect of unattested pledge agreements, signed transfer forms and powers of attorney Legal framework: Pledge/charge of shares, transfer mechanics and effect of signed transfer forms and powers of attorney in enabling registration by the transferee; company's duty to register transferee where formal requirements are met. Precedent treatment: The Court treated the instruments as operative for the purpose of calling upon transfer, focusing on their practical effect and the parties' conduct rather than formal attestation formalities which were not disputed as invalid in the record. Interpretation and reasoning: The judgment treated the unattested agreements, signed transfer forms and powers of attorney as evidencing the pledgor's consent to pledge and to execute transfers on demand. The corporate sanction letter and agreement referenced pledge of specified shares; the shareholder's unattested agreement and powers of attorney contained explicit clauses authorising the petitioner to effect transfer to satisfy dues and included signed transfer forms. The Court concluded these documents, in conjunction with the parties' conduct and correspondence (calls for transfer and refusals by the company), established the petitioner's right to have transfers registered. Ratio vs. Obiter: Ratio - where a shareholder has executed transfer deeds/powers of attorney/pledge documents and the company refuses transfer without lawful cause, the company court may compel registration despite formalities such as attestation being in dispute if the documentary matrix shows clear assent and entitlement. Obiter - the Court did not undertake a detailed enquiry into the attestation formalities or international formalities of pledge instruments beyond what was necessary for Section 111A relief. Conclusion: The Court held the unattested agreements, signed transfer forms and powers of attorney were sufficient to ground the petitioner's call for transfer and ordered registration. Relief and Consequential Directions The Court ordered the respondent company to register the shares in the petitioner's name and return the share certificates with duly endorsed transfer within six weeks, and to allow the petitioner benefits accrued on the shares (bonus, dividend, etc.). No costs were awarded.