2016 (3) TMI 33 - Board - Companies Law

Court Invalidates Director Removal & Share Transfer, Reinstates Petitioner

Shri Sudhir Kumar Jain and Ors. Versus M/s Aryan Wheels Pvt. Ltd. and Ors.

The court held that the removal of Petitioner No. 1 as a director without proper notice was illegal, declaring the resolution passed at the EGM as null ... Restoration of directorship - jurisdiction of this court conferred under sections 397 & 398 read with section 402 of the Companies Act, 1956 (for brevity 1956 Act) and section 59 of Companies Act, 2013 - prayer for issuance of an order restoring their directorship alongwith their rights to sign all the bank accounts of Respondent No. l-Company - Held that:- In the present case the petitioners have asserted in their pleadings that no notice of the EGM was given. In the reply filed by the respondents on 12.5.2014 or in the rejoinder the aforesaid assertion made by the petitioners has not been controverted specifically. Only a bald statement has been made without substantiating any fact or by placing on record a copy of the notice of meeting sent to the petitioner. Respondents have failed to show the service of notice and the mode adopted to serve the same on Petitioner No. l. During the course of arguments a faint attempt was made by making a reference to a notice dated 5.6.2013. However, such an attempt is meaningless because in the absence of any specific averment in that regard in the pleadings no notice could be taken of such a document. Thus the document has not been made a part of the pleadings authenticated and duly signed by the respondent No. 2. It is elementary proposition of law that in the absence of pleadings no evidence could be adduced to prove a fact because the other side would be deprived of an opportunity to meet the case of Respondent. Moreover the mode of service adopted for sending notice has remained a mystery. Therefore, it is of the considered view that removal of petitioner No. l as a director of respondent No. l company is patently illegal and the resolution passed in the EGM held on 27.6.2013 is null and void. As a sequel to the above discussion the E form No,32 uploaded on 4.7.2014 on the website of ROC, Kanpur is declared as illegal and the resolution passed on 27.6.2013 is declared null and void. Petitioner No. 1 is reinstated as director but he would not be entitled to sign any cheque because he has already withdrawn his bank guarantee. Validity of transfer of share and its registration without a proper instrument of transfer - Whether the case of the respondent is covered by unnumbered proviso 1 of section 108 of the Act or that proviso is inapplicable? - Held that:- There is nothing on record first to establish that share transfer deed was ever executed by the petitioner. The theory of lost documents in bag and lodging of police complaint fail to inspire any confidence. Therefore the shareholding of the petitioners in Respondent No. 1-company is restored. The annual return for the year 2013 showing transfer of petitioners' share is declared null and void. A direction is issued to respondent No. 1. Company to rectify its register of members by re-entering the names of the petitioners as existed in the register of 2012. A new e-form 32 be uploaded on the website of ROC, Kanpur within two weeks. The petitioners shall refund to respondent No.2 a sum of ₹ 13,52,500/- which is amount paid by respondent No. 2 for purchasing of shares within two weeks from the date of receipt of a copy of this order. Issues Involved:1. Legality of removal of Petitioner No. 1 as director under Section 284 of the Companies Act.2. Validity of the transfer of shares without a proper instrument of transfer.3. Applicability of the proviso to Section 108 of the Companies Act concerning the loss of the instrument of transfer.Detailed Analysis:Issue 1: Legality of Removal of Petitioner No. 1 as DirectorThe petitioners argued that no special notice was given for holding the Extraordinary General Meeting (EGM) to remove Petitioner No. 1 as a director, violating Section 284(2) of the Companies Act, 1956. The respondents failed to provide evidence of any notice served to the petitioner. The court held that the removal of Petitioner No. 1 as a director without proper notice was illegal, declaring the resolution passed at the EGM on 27.06.2013 as null and void. Consequently, Petitioner No. 1 was reinstated as a director, though not entitled to sign any cheques due to the withdrawal of his bank guarantee.Issue 2: Validity of the Transfer of Shares Without a Proper Instrument of TransferThe court examined whether the transfer of shares was valid without a proper instrument of transfer. According to Section 108 of the Companies Act, a duly stamped and executed instrument of transfer is mandatory for registering the transfer of shares. The petitioners claimed no transfer deed was executed, alleging fraud by the respondents. The respondents' assertion that the transfer deed was lost was found unconvincing, as they failed to provide evidence of the existence of the original document or the attesting witnesses. The court concluded that the transfer of shares did not comply with the mandatory provisions of Section 108, thereby restoring the petitioners' shareholding in Respondent No. 1-company and declaring the annual return for 2013 showing the transfer as null and void.Issue 3: Applicability of the Proviso to Section 108The respondents argued that the transfer was covered by the proviso to Section 108, which allows registration of transfer if the instrument is lost, provided the Board of Directors is satisfied. The court rejected this argument, stating that the existence of the original instrument must be proved first. The respondents failed to establish the existence of the original document, and the self-serving statements regarding the lost documents were not credible. Therefore, the proviso to Section 108 was deemed inapplicable.ConclusionThe court partially succeeded in the petition, reinstating Petitioner No. 1 as a director and restoring the petitioners' shareholding in Respondent No. 1-company. The respondents were directed to rectify the register of members and upload a new e-form 32 on the ROC website within two weeks. The petitioners were required to refund the amount paid for the shares within two weeks from the receipt of the order.