2020 (11) TMI 756 - Tri - Companies Law

Petition Dismissed: Share Conversion Lawful, No Violations Found

The Tribunal dismissed the petition, finding the conversion of partly paid-up shares into fully paid-up shares lawful and necessary for financial reasons. ... Transfer and registration of shares - deletion of entries made in furtherance to conversion of 2,00,00,000 partly up equity shares into fully paid-up equity shares - It is submitted that the petitioner is coercing the respondents to buy at exorbitant price, its 2,40,70,000 shares which were purchased by the petitioner from various banks during 2011-12 at an average price of ₹ 1.11 per share - HELD THAT:- Partly paid-up shares were issued in 2003-04, which was long prior to the applicant purchasing the shares of respondent No. 1-company from the banks. The petitioner is aware of the authorised capital of respondent No. 1-company. There is no irregularity in calling for conversion of partly paid shares into fully paid shares, because respondent No. 1-company needed money for payment to the banks to avoid proceedings under the SARFAESI Act, 2002. Partly paid shares were issued prior to the petitioner becoming shareholder of respondent No. 1-company. Even assuming that the petitioner purchased shares in 2011-12 though transfer was effect on May 20, 2015 yet 2 crores partly paid shares of ₹ 10 were issued prior to 2011-12. Absolutely the petitioner cannot have any grievance for conversion of partly paid-up shares in to fully paid-up shares on March 16, 2015. The partly paid-up shares were issued prior to passing of restraining order, then how order dated March 20, 2008 of the Company Law Board is violated. Only conversion of partly paid shares into fully paid shares has taken place after interim order - this is not in violation of any interim order. The applicant is therefore, not entitled to challenge such conversion and the applicant is not entitled to any relief for forfeiture or for cancellation of the shares. The grievance of the applicant is that calling for conversion of partly paid shares into fully paid shares is in contravention of the order passed by the then Company Law Board, whereunder the Company Law Board directed that shareholding to be in status quo. This order dated October 23, 2008. No fresh shares were issued by the company after passing of the interim order. Partly paid shares were issued prior to the interim order. They were only converted into fully paid shares after the interim order. It cannot be said that there is violation of the interim order passed by the Company Law Board under section 179(3)(a) of the Companies Act, 2013. The board of directors are entitled to make calls on shareholders in respect of money unpaid on their shares. So, the board of directors are well within the powers to make a call on the shareholders in respect of unpaid shares to make them as fully paid. The company is entitled to issue partly paid shares. The petitioner became shareholder long after the company issued partly paid equity shares. Therefore, there is no irregularity in converting the partly paid shares into fully paid shares. The applicant has not filed any material warranting for appointment of auditor for auditing the accounts. In fact, the petitioner was supplied financials for the financial years 2014-15, 2015-16, 2016-17. When such is the case there is no need for ordering auditing of the accounts of respondent No. 1-company. The petitioner has also filed one more application against the respondents under section 241 of the Companies Act, 2013 - there are no grounds to grant any relief in favour of the petitioner. Petition dismissed. Issues involved:1. Rectification of the register of members.2. Declaration of the issue of equity shares as contrary to law.3. Appointment of an independent audit firm.4. Compliance with interim orders and statutory requirements.5. Allegations of coercion and harassment.Detailed Analysis:1. Rectification of the Register of Members:The petitioner sought rectification of the register of members of respondent No. 1 by deleting entries related to the conversion of 2,00,00,000 partly paid-up equity shares into fully paid-up equity shares. The petitioner argued that this conversion was contrary to the order passed by the Company Law Board (CLB) directing respondent No. 1 to maintain the status quo regarding shareholding. The petitioner claimed that respondent No. 1 failed to transfer shares purchased by the petitioner from banks and did not comply with the CLB's orders. The Tribunal found that the partly paid-up shares were issued long before the petitioner purchased shares from the banks, and the conversion into fully paid-up shares was necessary to avoid proceedings under the SARFAESI Act, 2002. Thus, the Tribunal held that there was no irregularity in the conversion process and denied the petitioner's request for rectification.2. Declaration of the Issue of Equity Shares as Contrary to Law:The petitioner contended that the issue of 2,00,00,000 equity shares of Rs. 10 each was contrary to law and sought their forfeiture. The Tribunal observed that the shares were issued in 2003-04, much before the petitioner became a shareholder. The conversion of these shares into fully paid-up shares was done to meet financial obligations and avoid SARFAESI proceedings. The Tribunal concluded that the conversion did not violate any interim order and was within the powers of the board of directors under section 179(3)(a) of the Companies Act, 2013. Consequently, the Tribunal dismissed the petitioner's request to declare the issue of shares as contrary to law and forfeit them.3. Appointment of an Independent Audit Firm:The petitioner requested the appointment of one of the top five audit firms in India to audit the accounts of respondent No. 1 for the financial years 2014-15 to 2016-17. The Tribunal noted that the petitioner had already been provided with financial statements for the relevant years. Furthermore, the Tribunal found no material evidence warranting the appointment of an independent auditor. The Tribunal held that the petitioner failed to justify the need for such an audit and dismissed this request.4. Compliance with Interim Orders and Statutory Requirements:The petitioner alleged that respondent No. 1 violated interim orders by converting partly paid-up shares into fully paid-up shares and failed to comply with statutory requirements, including filing annual forms with the Ministry of Corporate Affairs (MCA). The Tribunal found that the conversion of shares was not in violation of any interim order and was necessary for financial reasons. The Tribunal also noted that respondent No. 1 had provided financial statements to the petitioner and complied with statutory obligations. Therefore, the Tribunal dismissed the petitioner's allegations of non-compliance.5. Allegations of Coercion and Harassment:Respondents Nos. 1 to 4 contended that the petitioner was coercing them to buy its shares at an exorbitant price and had filed the petition to harass them. The Tribunal found that the petitioner purchased shares at a low price from banks and was aware of the issuance of partly paid-up shares. The Tribunal also observed that the petitioner filed another petition under section 241 of the Companies Act, 2013, seeking an exit route from respondent No. 1. The Tribunal concluded that the petitioner's claims were baseless and without merit, and dismissed the petition.Conclusion:The Tribunal dismissed the petition, finding no grounds to grant any relief to the petitioner. The Tribunal held that the conversion of partly paid-up shares into fully paid-up shares was lawful and necessary for financial reasons, and there was no violation of interim orders or statutory requirements. The Tribunal also found no justification for appointing an independent audit firm and dismissed allegations of coercion and harassment.