2020 (11) TMI 547 - AT - Companies Law

NCLT orders share transfer registration, emphasizes statutory compliance and natural justice

The National Company Law Tribunal (NCLT) deemed the refusal to register the transfer of shares as arbitrary and directed the Appellants to rectify the ... Transfer of Equity Shares - Section 56 of the Companies Act, 2013 - specific case of the Appellant is that in the ‘Share Transfer Form’ SH- 4 furnished by the Respondent, the distinctive number of the share was not mentioned, corresponding certificate numbers were not mentioned, witness signature and name was not found, the Transferee’s details was not mentioned - HELD THAT:- It is the version of the Respondent that the Appellants’ ‘Grounds of Appeal’ and the ‘Questions of Law’ are based on non-existent ‘Articles of Association’ dated 18.02.1992 which is a forged and fabricated document with a view to mislead this Tribunal in reversing the findings of the impugned order. For the fraudulent acts committed by the Company and its Directors an investigation is to be ordered and a direction for filing of criminal complaint under the provisions of the Companies Act is to be issued, in the interest of justice. In the instant case the Respondent had furnished the Indemnity Bonds / Sworn Affidavit to the effect that they had lost the original share certificates and that the first Appellant / Company was requested for issuance of ‘Duplicate Share Certificates’ to the Respondent / Petitioner since the shares were sold. When the original share certificates were lost / mislaid / untraceable, it is not prudent for the Appellants to insist upon the production of original share certificates in question to effect the transfer of shares, as opined by this Tribunal. Besides this, the other reasons projected on behalf of the Appellants that just because the Respondent / Petitioner had filed numerous criminal / civil cases and that he was not attending the ‘Board Meetings’ and he would create problems for smooth functioning of affairs of the Company will not hold water and they are unworthy of acceptance in the considered opinion of this Appellate Tribunal. Taking into consideration of the facts and circumstances of the present case in a holistic fashion, especially in the teeth of rejection of transfer of shares through letter dated 30.10.2015 mentioning two reasons therein, this Tribunal without any simmering doubt holds that they are clearly unsustainable in the eye of Law and hence, the said letter dated 30.10.2015 was set aside in the impugned order, by the National Company Law Tribunal, Bengaluru Bench, Bengaluru. Appeal dismissed. Issues Involved:1. Refusal to register the transfer of shares.2. Compliance with Section 56 of the Companies Act, 2013.3. Validity of the transfer deed and accompanying documents.4. Issuance of duplicate share certificates.5. Allegations of malafide intentions and procedural lapses by the Board of Directors.6. Evaluation of the Tribunal's decision and its adherence to legal principles.Issue-wise Detailed Analysis:1. Refusal to Register the Transfer of Shares:The National Company Law Tribunal (NCLT) concluded that the refusal by the Appellants to register the transfer of shares in favor of the Respondent was arbitrary and unjustifiable. The Tribunal directed the Appellants to rectify the register of shareholders and incorporate the Respondent's name in place of the original shareholders, Mr. T. Shahul Hameed and Mr. P.A. Ibrahim Haji, for the respective shares. The Tribunal also mandated the submission of necessary documents by the Respondent and compliance by the Company within specified periods.2. Compliance with Section 56 of the Companies Act, 2013:The Appellants argued that the Tribunal ignored statutory provisions under Section 56, which requires a duly executed transfer deed accompanied by the original share certificate for the transfer of shares. The Appellants contended that the transfer form lacked essential details such as share certificate number, folio number, distinctive numbers of the shares, and the name and address of the transferee. Additionally, the original share certificates were not enclosed with the transfer form.3. Validity of the Transfer Deed and Accompanying Documents:The Appellants highlighted that the transfer deed was not attested by any witnesses, a mandatory requirement, and that the original share certificates were not enclosed. They also pointed out that the transferor had not reported the loss of the original share certificates to the company. The Respondent, however, provided indemnity bonds and affidavits from the transferors requesting the issuance of duplicate share certificates, which were not acted upon by the Board.4. Issuance of Duplicate Share Certificates:The Appellants contended that the transferor should have obtained duplicate share certificates as per Rule 6(2)(a) of the Companies (Share Capital and Debentures) Rules, 2014, before selling the shares. The Tribunal noted that the power to issue duplicate shares lies with the Board of Directors and that the refusal to issue duplicate share certificates despite requests from the transferors was an adverse circumstance against the Appellants.5. Allegations of Malafide Intentions and Procedural Lapses by the Board of Directors:The Respondent alleged that the Board's refusal to register the transfer of shares was based on frivolous and vague reasons, such as the Respondent's non-attendance at Board meetings and allegations of criminal nature against other Directors. The Tribunal found these reasons unworthy of acceptance and indicative of malafide intentions. The Tribunal also noted that the Board had not communicated the notice of refusal to both the transferor and transferee as required by Section 58(1) of the Companies Act, 2013.6. Evaluation of the Tribunal's Decision and its Adherence to Legal Principles:The Tribunal evaluated the reasons provided by the Board for refusing the transfer of shares and found them to be illegitimate. The Tribunal emphasized that the discretionary power to refuse the transfer of shares should not be exercised in an arbitrary, fraudulent, or capricious manner. The Tribunal upheld the Respondent's right to have the shares transferred in his name and directed the Company to comply with the necessary formalities.Conclusion:The Tribunal dismissed the Appeal, affirming the NCLT's order to set aside the letter dated 30.10.2015 and directing the registration of the transfer of shares in favor of the Respondent. The Tribunal found no legal infirmities in the NCLT's decision and emphasized the importance of adhering to statutory requirements and principles of natural justice. The Respondent was directed to furnish all necessary documents within three weeks, and the Company was instructed to comply with the Tribunal's directions within three weeks thereafter.