2023 (4) TMI 1142 - AT - Companies Law

Tribunal nullifies share allotment, orders corrections in Register of Members within 30 days.

The Tribunal allowed the appeal, setting aside the Impugned Order and declaring the share allotment to R-3 and R-4 as null and void. Corrections in the ... Declaration of the allotment of shares of R-1 Company in favor of R-3 and R-4 and their continued holding them as illegal - Seeking declaration that resolutions of the board of directors dated 2.12.2011 and 1.2.2012 by which the allotment of shares took place as invalid and illegal - restraining R-3 and R-4 from misusing any right or privilege as shareholders of R-1 Company - time limitation - principles of res-judicata and estoppel. Whether the Appellant’s knowledge of the allotment of shares having been made to R-3 and R-4 in the year 2011 and her maintaining silence from 2011 to 2016 regarding the allotment, and also that she, inter alia, acknowledged the fact of the shares’ allotment to R-3 and R-4 provide res judicata and estoppel to her raising this issue later in CP No.09/2016? - HELD THAT:- The Appellant, even though she was a co-petitioner in CP No. 59/2014, was not a director of R-1 Company nor involved into day-to-day management and affairs of the Company, and therefore, even if she participated in the AGM, wherein the new shareholding of R-3 and R-4 were presented in the Annual Report of the company and Profit and Loss Account for the year 2012-13, she did not have any specific knowledge of the change in her own proportionate shareholding as a result of fresh allotment of shares to R-3 and R-4. The Appellant’s petition CP 09/2016 is not affected by res judicata and estoppel in that the Appellant did not lose the entitlement to file the company petition. Whether the petition CP No. 09/2016 is beset with delay and laches and is hit by the issue of limitation? - HELD THAT:- When there exists a continuum in the act of oppression and mismanagement which continues up to the date of filing of the petition, any delay and laches cannot take away the right of the petitioner even if the origin of such acts occurred much prior to the institution of the company petition - In the matter of Praveen Shankaralayam v Elan Professional appliances Pvt. Ltd. [2017 (1) TMI 61 - NATIONAL COMPANY LAW TRIBUNAL, NEW DELHI], which has been cited by the Learned Senior Counsel for R-3 and R-4, the NCLT, New Delhi has held that the instant petition is hopelessly barred by limitation as per the provisions of Limitation Act. It has already been pointed out that for action like the one complained of by the petitioner, the period of limitation provided by the Limitation Act is three years. The petitioner as has acquired knowledge of all the facts as per his own showing by his reply sent to the Assistant Registrar of Companies on 23.2.2011. Thus, answer to the second question is that the company petition CP No. 09/2016 does not suffer from delay and laches. Whether the allotment of shares to R-3 and R-4 violates the provisions of the Articles of Association of R-1 Company and if so, whether the allotment of shares is null and void on account of contravention of Articles of Association and non-payment of premium? - HELD THAT:- The Memorandum and Articles of Association of a Company are sacrosanct and they represent a binding contract between the members and the company also the members inter se and further, the directors in a company are in a fiduciary position and they must exercise their powers with utmost care and faith for the benefit as well as in the interest of the company and the shareholders are entitled to know the details when new shares are being issued. When we examine the allotment of shares to R-3 and R-4 by the R-1 Company, it is clear that the then directors of R-1 Company, who were father and brothers of the Appellant, did not exercise necessary care and caution in the allotment of the fresh shares, which quite clearly should have been done in accordance with the Articles of Association of the Company. Our answer to the question of violation of Articles of Association in the allotment of shares to R-3 and R-4 is in the positive. Payment of premium - HELD THAT:- It is noted that 1,77,800 equity shares were allotted to Jansi Reddy and R. Yathin Reddy, by a resolution of the Board of Directors dated 2.12.2011 and the approval was given for allotment of these shares @ Rs. 10 per share and therefore, there is no document or record to show that any premium was required to be paid by the allottees for allotment of shares but since the allotment of shares to R-3 and R-4 has been found to be null and void, hence the question of payment of premium pales into insignificance. Thus, even if the Appellant had knowledge of the allotment of shares to R-3 and R-4 which was clearly in contravention of the Articles of Association, she was eligible and entitled to raise the issue of contravention of Articles of Association in allotment of these shares as she was not a person directly responsible for making such an allotment - The Articles of Association are binding on the company and its members and also on Board of Directors and if laid down procedure and principles have not been followed in allotment of shares to R-3 and R-4, the allotment cannot be held as valid. The NCLT committed an error in approving the share transfer to R-3 and R-4 as being in accordance with law and thereafter dismissed CP No. 09/2016. Since it is concluded that the allotment of a total of 1,88,800 shares to R-3 and R-4 is bad in law, the Impugned Order is set aside and the Appeal, is allowed and further it is held that allotment of these shares to R-3 and R-4 by virtue of the Resolution dated 2.12.2011 of the Board of Directors as null and void. Appeal disposed off. Issues Involved:1. Res judicata and estoppel concerning the Appellant's knowledge and acknowledgment of share allotment.2. Delay and laches in filing the petition CP No. 09/2016.3. Violation of Articles of Association in the allotment of shares to R-3 and R-4.Summary:Issue 1: Res judicata and EstoppelThe Appellant was a co-petitioner in CP No. 59/2014, where she acknowledged the share allotment to R-3 and R-4. However, the Appellant sought liberty to file a fresh petition when withdrawing from CP No. 59/2014. Despite her participation in the AGM and acknowledgment of shareholding changes, she did not have specific knowledge of her reduced shareholding. The Tribunal concluded that the Appellant's petition CP No. 09/2016 is not affected by res judicata and estoppel, allowing her to file the company petition.Issue 2: Delay and LachesThe Appellant's shareholding was reduced from 28% to 8.64% due to the share allotment to R-3 and R-4, constituting a continuous act of oppression. The Tribunal relied on the judgment of the Hon'ble Delhi High Court in Surinder Singh Bindra v. Hindustan Fasteners (P) Ltd., which supports the notion that continuous acts of oppression can be challenged irrespective of the time elapsed. Thus, the company petition CP No. 09/2016 does not suffer from delay and laches.Issue 3: Violation of Articles of AssociationClause 5 of the Articles of Association mandates that new shares be offered to existing shareholders first. There was no evidence that such an offer was made to the existing shareholders before allotting shares to R-3 and R-4. The Tribunal referenced multiple judgments, including Claude-Lila Parulekar v. Sakal Papers (P) Ltd. & Ors., which emphasize the binding nature of the Articles of Association and the fiduciary duty of directors. The Tribunal found that the share allotment to R-3 and R-4 violated the Articles of Association and was therefore null and void.Conclusion:The Tribunal set aside the Impugned Order, declared the allotment of shares to R-3 and R-4 as null and void, and directed corrections in the Register of Members of R-1 Company within thirty days. The appeal was allowed without any order as to costs.