2017 (5) TMI 22 - AT - Companies Law

Shareholder status tied to lawful share transfers under Companies Act, emphasizing procedural adherence.

The Appellate Tribunal upheld the Tribunal's decision that the status of the respondents/petitioners as shareholders could only change if shares were ... Maintainability of petition under Section 397 and 398 of the Companies Act, 1956 - respondents/petitioners are not the shareholders and, thereby, do not have the locus standi to file the petition - Held that:- To decide the question whether the respondents/petitioners have ceased to be shareholders or not, the Tribunal has not refused to rely on the MOU on the ground that any agreement against the provisions of Indian Contract Act cannot be noticed. Having heard the learned counsel for the appellants and on perusal of the record, we are of the view that the observation made by the Tribunal at paragraph 14 of the impugned judgement cannot be treated to be a finding with regard to the validity of the MOU reached between the parties on 16.4.2011. It is merely a premise view to decide the question whether shares stood transferred. Further, as admittedly the shares have not been transferred in favour of the appellants in accordance with law, i.e. no entry having made in the register of the company, we hold that the respondents/ petitioners continue to be shareholders till their shares are registered in the name of other persons. For the reasons aforesaid we are not inclined to interfere with the impugned judgement dated 2.1.2017. However, we make it clear that the order passed by the Tribunal or by Appellate Tribunal will not come in the way of the appellants in registering their name, if transfer is genuine and in accordance with law. The appeal stands disposed of with the aforesaid observations. Issues:1. Jurisdiction of the Tribunal under Sections 397 and 398 of the Companies Act, 1956 to decide on the status of shareholders based on agreements between parties.2. Maintainability of the petition under Sections 397 and 398 of the Companies Act, 1956 due to lack of locus standi of the respondents/petitioners as shareholders.3. Interpretation of MOU dated 16th April, 2011 and its relevance in determining the status of the respondents/petitioners as shareholders.4. Applicability of the definition of 'relative' in Section 2(41) of the Companies Act, 1956 to bind the petitioners to the MOU.5. Effect of non-transfer of shares in accordance with the law on the status of the respondents/petitioners as shareholders.Analysis:1. The appellants challenged the Tribunal's order regarding the jurisdiction to determine whether the respondents/petitioners are members of the company. The appellants argued that the Tribunal exceeded its jurisdiction by considering agreements between parties in violation of the Indian Contract Act. The Appellate Tribunal observed that the Tribunal's statement on the application of definitions from enactments to agreements was not a finding on the validity of the MOU but a premise view to ascertain if shares were transferred. The Appellate Tribunal upheld the Tribunal's decision, emphasizing that shares must be transferred lawfully for shareholders' status to change.2. The maintainability of the petition under Sections 397 and 398 of the Companies Act, 1956 was questioned due to the respondents/petitioners' alleged lack of locus standi as shareholders. The Tribunal noted the appellants' argument that an MOU had been executed, and money accepted, leading to the transfer of shares. However, the Tribunal found that without proper transfer procedures as per the Act and Articles of Association, shareholders could not be considered non-shareholders. The Appellate Tribunal concurred, stating that until shares are lawfully transferred, the respondents/petitioners remain shareholders.3. The interpretation of the MOU dated 16th April, 2011 played a crucial role in determining the status of the respondents/petitioners as shareholders. The Tribunal highlighted that the absence of petitioners' signatures on the MOU raised doubts about the transfer of shares. Despite arguments regarding relatives signing the MOU, the Appellate Tribunal emphasized that definitions in enactments cannot bind parties in agreements contrary to the Indian Contract Act. The Tribunal's decision underscored the importance of lawful share transfers for altering shareholder status.4. The applicability of the definition of 'relative' in Section 2(41) of the Companies Act, 1956 to bind the petitioners to the MOU was contested. The Tribunal rejected this argument, emphasizing that definitions in enactments cannot be applied to agreements in violation of the Indian Contract Act. The Appellate Tribunal concurred, maintaining that the validity of the MOU was not the central issue, but rather the lawful transfer of shares to alter shareholder status.5. The impact of non-transfer of shares in accordance with the law on the status of the respondents/petitioners as shareholders was a key consideration. The Tribunal and Appellate Tribunal both highlighted that shares must be transferred lawfully, with entries made in the company's register, for shareholders' status to change. As no proper transfer had occurred, the respondents/petitioners were deemed to continue as shareholders until lawful transfers took place. The decision emphasized the significance of adhering to legal procedures for altering shareholder status.