2013 (4) TMI 917 - HC - Companies Law

High Court overturns Company Law Board's decision, emphasizes procedural compliance, evidence requirements, and equitable considerations.

Manoj Kumar Kanuga Versus Marudhar Power Pvt. Ltd.

Manoj Kumar Kanuga Versus Marudhar Power Pvt. Ltd. - [2013] 179CompCas 504 (AP) Issues Involved:1. Preliminary objections.2. Rectification of the Register of Members.3. Increase in Authorized Share Capital.Summary:I. Preliminary Objections:1. When Appeal is Admitted Only on Two Questions, Can Other Questions of Law Be ExaminedRs. - The Court can examine additional questions of law not initially framed if they arise out of the order of the Company Law Board (CLB). The Court must ensure the respondents are not caught by surprise and are given a fair opportunity to respond.2. Composite Application Under Sections 111 and 397 of the Act: - A composite application under Sections 111 and 397 is maintainable. The CLB Regulations and the Fees Rules do not prohibit such petitions, and compelling separate petitions would be unfair and lead to multiplicity of proceedings.II. Scope of an Appeal Under Section 10F:- The appeal under Section 10F is limited to questions of law arising out of the CLB's order. The High Court can interfere if the CLB's findings are perverse, based on no evidence, or arbitrary.III. Rectification of the Register of Members:1. Scope of Section 111 of the Act: - The CLB has exclusive jurisdiction to decide matters of rectification of the register of members. It must examine if the procedural requirements under the Act were complied with before recording the name of the transferee.2. Burden of Proof: - The initial burden is on the appellants to show their names were entered in the Register of Members. Once established, the burden shifts to the company to prove the deletion of names was with sufficient cause.3. Appellants 1 and 2 Became Shareholders as Subscribers to the Memorandum of Association: - A-1 and A-2 became members of R-1 by subscribing to the Memorandum of Association.4. Appellants 3 and 4 Became Members on Their Being Allotted Shares: - A-3 and A-4 were shown as shareholders in the returns of allotment filed with the Registrar of Companies.5. Register of Members and Annual Returns: - The annual returns filed by R-1 showed A-1 to A-4 as shareholders, indicating their names were in the Register of Members.6. Compliance with Section 108 of the Act Necessary for a Valid Transfer of Shares: - Transfer of shares requires compliance with Section 108, including execution of a duly stamped transfer deed by the transferor and transferee.7. Payment of Consideration for Transfer of Shares: No Proof: - There was no evidence of consideration paid for the transfer of shares from A-1 to A-4 to R-4 and R-8.8. Failure to Produce the Minutes Book of Shareholders Meetings, and the Meetings of the Board of Directors: Its Consequences: - R-1 failed to produce the minutes book, and only loose sheets were provided, which have no evidentiary value.9. Contemporaneous Documents, Filed Before the CLB by the Respondents, Do Not Establish That Appellants Had Transferred Their Shares: - Various documents and affidavits provided by the respondents did not conclusively prove the transfer of shares by the appellants.10. Violation of Foreign Exchange Laws by Appellant No. 4: - The CLB did not establish which statutory provision rendered the investment by A-4 illegal.11. Legal Review Report of M/s. Khaitan and Company: - The report assumed the authenticity of documents without independent validation.12. Dematerialization of the Shares of the 1st Respondent: - No evidence was provided that NSDL verified the share transfer deeds during dematerialization.13. Reply Statements of Respondents 4 and 6: - The untested affidavits of R-4 and R-6 were not sufficient to prove the transfer of shares.14. Loss of Copies of Share Transfer Deeds: No Proof: - No evidence was provided regarding the loss of share transfer deeds.15. No Evidence: - The findings of the CLB were based on no legally acceptable evidence.16. Admission of the Appellants That They Had Transferred 76% of Their Shareholding to R-8 - Its Effect: - The appellants admitted to transferring 76% of their shares, and the CLB should confine its examination to the remaining 24%.17. Delay and Laches: - Mere delay of two years does not automatically disentitle the appellants from seeking rectification.18. Contradictory Stand of the Appellants: - The CLB should consider the contradictions in the appellants' pleadings while re-examining the case.19. Should This Court Adjudicate on the Merits of the Claim for Rectification of the Register of MembersRs. - The High Court should not re-appreciate evidence but remand the matter to the CLB for fresh consideration.IV. Increase in Authorized Share Capital:1. Is Approval of the Company Law Board Required to Be Obtained Only After the Registered Office of a Company Is Shifted From One State to AnotherRs. - The CLB's confirmation of the alteration of the registered office does not presuppose that the office was already shifted.2. Is the Finding of the CLB That an EGM of the 1st Respondent Was Convened and Held on 29.09.2004 Based on No EvidenceRs. - The CLB did not provide sufficient reasons for accepting the respondents' version of the EGM.3. Statutory and Other Provisions Applicable to the Alteration of the Memorandum of Association, for Increase of the Authorised Share Capital, in an Extra-Ordinary General Meeting: - Compliance with Sections 172 and 173 of the Act is necessary for convening an EGM.4. Affidavit of Sri Arvind Kumar Sanghvi: - The affidavit did not provide sufficient details regarding the notice and convening of the EGM.5. Power of the CLB Under Section 10-E (4-C) of the Act and Regulation 24 of the CLB Regulations: - The CLB should have exercised its powers to summon records and examine witnesses.6. Section 399: Share Holding Qualification to Be Satisfied Is on the Date on Which the Act of Oppression Took Place: - The appellants satisfied the qualification shareholding under Section 399 at the time of the alleged act of oppression.7. Shareholders Who Are Parties Were Given Up: - The CLB should re-examine the case after putting all respondents on notice and giving them an opportunity to be heard.8. Contention of the Respondents That the Object of Section 397 Is Not to Rake Up the Past But to Redeem the Future, and That Equity Is Not in Favour of the Appellants: - The CLB should consider the equitable jurisdiction under Section 402 while re-examining the case.Conclusion:The order of the CLB is set aside to the extent indicated and remanded for fresh consideration. The CLB shall re-examine the case within six months, considering the statutory provisions and observations made in this order.