2025 (11) TMI 1108 - AT - Companies Law

Disputed company property owned by respondent; appellant not member, private MOU unenforceable, interim relief denied

Satyanarayan Gupta Versus Shivangan Realestate Pvt Ltd & Ors

NCLAT held the disputed property belonged to the respondent company and prior Civil Suit findings that the appellant was not a director or shareholder had ... Wrongful acquisition of appellant shares - appellant is the beneficial owner of the 5000 Equity shares in Respondent no.1 company - HELD THAT:- The Court was of the view the disputed property belong to Respondent No.1 company and it was never made a party to the suit and that the Respondents No.2 and 3 were impleaded in the said suit in their personal capacities. It was also a part of the said order at the time of filing of the suit the appellant had no connection with the company that owns the disputed property as neither he was a director nor a shareholder. These findings in Civil Suit No.93/2025 given by the Upper Civil Judge No.13, Bassi, Jaipur were never challenged and had attained finality. It was argued by the Respondents, the Company Petition itself is not maintainable as admittedly the appellant is neither a member nor shareholder of Respondent No.1 company and the petition was never filed qua the affairs of the company and rather was filed to execute the MoU dated 01.01.2022, between private parties. Further, in such MoU, Respondent No.1 was never a party. Admittedly not a single penny towards the amount of loan and interest, as stated in the MOU has been returned till date by the appellant towards his liability, hence cannot seek status quo on sale of company’s property on the basis of MOU dated 01.01.2022. Of course, the appellant would get his share from the sale proceeds, after deducting his liabilities towards loan(s) against him together with interest etc. There are no reason to grant any interim relief as prayed in the application - application dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether a company petition under Part XIV (oppression and mismanagement) is maintainable by a person who is not a registered member/shareholder of the company, when he claims beneficial ownership of shares previously transferred and recorded in the company's register. 2. Whether alleged non-compliance with Section 89(5) of the Companies Act, 2013 (duty to disclose beneficial ownership) by the recorded shareholder or by the beneficial owner constitutes 'oppression and mismanagement' actionable under the Companies Act. 3. Whether interim relief (status quo on disposal/sale of company property) is justified where the petitioner admits he transferred shares earlier, has outstanding liabilities under a private memorandum of understanding (MoU) between private parties, and where parallel civil proceedings have recorded adverse findings against the petitioner. 4. The legal effect of final/finalized findings in a civil suit (Order 7 Rule 11 dismissal and findings regarding non-party company and petitioner's lack of connection) on maintainability and merits of a subsequent company petition seeking declaration of beneficial ownership and rectification of statutory records. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Maintainability of Company Petition by Non-Registered Person Claiming Beneficial Ownership Legal framework: Company petitions under the Companies Act addressing oppression and mismanagement ordinarily concern rights and affairs of the company and are typically instituted by persons with a proprietary or membership interest in the company; reliefs like rectification of register implicate statutory records maintained by the company. Precedent Treatment: No external judicial precedents were cited in the impugned judgment; the Tribunal relied on factual record and statutory scheme. Interpretation and reasoning: The petitioner admitted he had himself transferred the shares in 2017 and the transfer is reflected in the company's statutory records. The petition sought declaration of beneficial ownership and consequential rectification of the register, but at the time of filing the petitioner was neither a director nor a shareholder according to a prior civil court order which attained finality. The Tribunal held that where the petitioner is not a registered member and the documentary records reflect transfer, the petition is not maintainable as a company petition seeking reliefs in respect of the company's affairs unless the petitioner establishes a legal basis entitling him to treat himself as a member or to invoke the company's remedial machinery. Ratio vs. Obiter: Ratio - A person who is not a registered member and who admits to having transferred shares, without establishing a legal basis for treating himself as a member, cannot maintain a company petition for rectification of the register or for oppression/mismanagement reliefs in respect of those shares. Conclusions: The company petition was not maintainable on the present facts because the petitioner was not a member as per company records and had not successfully challenged that status in prior proceedings. Issue 2 - Section 89(5) Non-Compliance and Whether It Constitutes Oppression and Mismanagement Legal framework: Section 89 imposes duties regarding declaration of beneficial ownership; Section 89(5) specifically requires the person holding shares to disclose particulars of the beneficial owner to the company, with statutory consequences (penalty) for failure to comply. Precedent Treatment: No precedential authority was applied; the Tribunal applied the statutory scheme. Interpretation and reasoning: The Tribunal observed Section 89(5) prescribes a duty on the holder of shares to declare details of the beneficial owner and prescribes penal consequences for non-compliance. The petitioner, by seeking declaration of beneficial ownership in his pleadings, would himself be under the duty to make declarations under Section 89. The statutory mechanism provides specific consequences (penalty), and failure to comply is not per se an act of oppression or mismanagement warranting relief under the oppression/mismanagement provisions unless additional elements of unfairness or prejudice to the company are established. Ratio vs. Obiter: Ratio - Non-adherence to Section 89(5), being a statutory duty with penal consequences, does not automatically constitute oppression and mismanagement for purposes of Part XIV relief; the statutory penalty regime is the primary remedy. Conclusions: The Tribunal upheld the NCLT's view that Section 89(5) non-compliance cannot, by itself, be treated as oppression and mismanagement; therefore the petitioner's claim on that ground fails. Issue 3 - Interim Relief Where Petitioner Admits Transfer, Has Outstanding Liabilities under MoU, and Parallel Civil Findings Exist Legal framework: Grant of interim relief in company petitions requires prima facie entitlement, balance of convenience, and prevention of irremediable harm; courts consider admissibility and bona fides of the petition and whether relief would prejudice third-party or company rights. Precedent Treatment: No precedents cited; Tribunal applied general principles for interim relief. Interpretation and reasoning: The petitioner admitted non-payment of the liabilities quantified in the MoU (including an outstanding liability of Rs.11 crores and periodic payments), and the MoU did not make the company a party. A civil suit between the parties had been dismissed on Order 7 Rule 11 with findings that the disputed property belonged to the company and the company was not a party; those findings were unchallenged and final. Given these circumstances, the Tribunal found no reason to grant status quo or other interim relief in favour of the petitioner, as the petitioner could not show a prima facie case entitling him to freeze company property pending resolution, and granting such relief would be inconsistent with the final findings in the civil suit and the petitioner's admitted liabilities. Ratio vs. Obiter: Ratio - Interim relief was properly refused where the petitioner lacks membership status, admits outstanding liabilities under a private MoU, and where final adverse findings in a civil suit undermine the petitioner's asserted entitlement to relief affecting company property. Conclusions: The Tribunal dismissed the interlocutory application for interim relief and concurred with the NCLT's refusal to grant relief at threshold. Issue 4 - Effect of Final Findings in Civil Suit on Company Petition Legal framework: Final adjudications between parties on matters of fact and issue estop subsequent proceedings on the same issues where the findings are conclusive; the propriety of invoking company forum is examined in light of such finality and the scope of issues actually decided. Precedent Treatment: The Tribunal relied on the fact of finality rather than on cited authority. Interpretation and reasoning: The civil court's Order 7 Rule 11 dismissal recorded that the disputed property belonged to the company and that the petitioner had no connection with the company at the time of filing the suit; those findings were not challenged and had attained finality. The Tribunal treated those findings as relevant and dispositive for maintainability and for the petitioner's ability to claim relief in the company forum, concluding that the company petition could not be used to revisit those decided questions between the same parties without proper legal basis. Ratio vs. Obiter: Ratio - Final findings in previous civil proceedings that relate to the petitioner's connection to the company and to ownership of the disputed property are material and bar re-litigation of the same issues in a subsequent company petition absent successful challenge to the earlier order. Conclusions: The Tribunal affirmed that the civil court's unchallenged findings supported dismissal of the company petition and negated the petitioner's entitlement to the reliefs sought. Overall Conclusion The Tribunal found no merit in the appeal: the company petition was not maintainable under the facts (petitioner not a registered member and having admitted prior transfer), Section 89(5) non-compliance does not in itself amount to oppression and mismanagement, interim relief was rightly refused given the petitioner's admissions and final civil findings, and the NCLT's order dismissing the petition at threshold was affirmed. Pending applications were closed.