TaxTMI 
TaxTMI 
2019 (12) TMI 567
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....terial facts and (b) the plaintiff praying for similar reliefs simultaneously before this Court and NCLT that would require adjudication on the identical core issue. In light of the same, this matter needs to be decided upon exchange of affidavits." In order to appreciate the finding it is necessary to consider the case made out by the appellants in their pleadings. The plaint states that the respondent no. 1, a company, owns an immovable property, popularly known as "Middleton Chambers". The respondent no. 1 is owned, directly or indirectly, by the respondent no. 2 and 3. It is stated that the respondent no. 2 and 3 obtained loans and advances from the appellants at various instances; and that, as on 31st March 2018, a sum of Rs. (approximately) 29,27,00,000 remained due and payable by the respondent no. 2 and 3 to the appellant no. 1 and 2. The plaint states that the respondent nos. 2 and 3 have acknowledged payments received by them from the plaintiffs. It is stated that towards the end of June 2018, the respondent no. 2 and 3 approached the appellants with the promise to make payment of a part of their dues within the next six months, and offered to secure such payment....
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....ion, of increase of its authorized capital and issuance of bonus shares in favour of the respondent no. 2 to 5. It also came to the appellants' knowledge that a board resolution had been passed on 15th October 2018 authorizing the increase of authorized share capital of the company and issuance of bonus shares to the holders of equity shares of the company. An Extraordinary Board Meeting had also been held on 14th November 2018 to increase the authorized capital of the respondent no. 1 and a further meeting had been held on 1st December 2018 allotting bonus shares. This, the appellants allege, is in contravention of an agreement between the parties while getting the appellants to agree on part payment within six months during the end of June 2018 referred to hereinabove. The appellants contend that this amounted to a fraud played by the respondent no. 2 to 5 on the appellants; and the particulars of the fraud have been set out in paragraph 23 of the plaint. In these circumstances, the appellants approached this court, seeking the following reliefs - "(a) Declaration that the purported amendment of the Memorandum of Association of the defendant no. 1 company provi....
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....f the defendant no. 1 at 10, Middleton Street, Kolkata - 700 071; [other incidental reliefs]" The appellants had also filed a petition before the National Company Law Tribunal (hereinafter referred to as "NCLT"). In the said petition, the appellants has prayed for similar reliefs as prayed for in the suit. The reliefs claimed are as follows - "a. An order directing the respondent to register the transfer the 81,633 shares transferred by Prabha in the name of the petitioner no.1 and, upon delivery of the balance 11,19,173 shares to it, to register the transfer of the same as well as in the name of the petitioners in the manner following and to direct consequent rectification of the share register of the respondent:- 500000 shares transferred by Prabha in the name of the Petitioner no.2 - 3000233 shares transferred by Prabha in the name of the Petitioner no.1 11600 shares transferred by Shanti in the name of the Petitioner no.1 100400 shares transferred by Moksh in the name of the Petitioner no.1 74200 shares transferred by Moksh in the name of the Petitioner no.1 29100 shares transferred by Moksh in the name of the Pe....
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....different from the appellants' cause of action in the application preferred before the NCLT under sections 58 and 59 of the Companies Act 2013 being Appeal No. 312/KB/2019. It is submitted that the appellants' cause of action in the present suit is one of breach of agreement, of breach of negative covenant of the agreement, breach of trust, and fraud. The appellants' cause of action in the NCLT petition being Appeal No. 312/KB/2019 is simply the failure on the part of the respondent no. 1 company to register the shares in the appellants' names in its register of members. Mr. Saha submits that the plaint case is that the respondent no. 2, 3, 4 and 5 had made over the entire shareholding of the respondent no. 1 company to the appellants and despite doing so, they thereafter proceeded to enhance the authorized capital and paid up capital of the respondent no. 1 and issued and allotted to themselves bonus shares. The respondent has challenged the same as being contrary to the terms of the agreement entered into by the respondent no. 2 and 3 with the appellants, the express and/or implied negative covenant in the same, and on the ground of fraud. It is submitted that ....
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....ed. In rebuttal to the contention about the maintainability of a combined application before the NCLT, Mr. Saha submits that section 241 and 244 clearly bar a non-member from approaching the NCLT for reliefs under section 242 of the 2013 Act; and therefore, what cannot be done directly cannot also be done indirectly. For the proposition that what cannot be done directly cannot be done indirectly, reliance is placed on State of Haryana v. M.P. Mohla [2007] 1 SCC 457 (paragraph 15) and Rashmi Rekha Thatoi v. State of Orissa [2012] 5 SCC 690 (paragraph 37). It is submitted that as a transfer of shares is completed with the execution of share transfer deeds and the delivery of shares, where they are in physical form, the transferee of shares, as such, always becomes a shareholder before he becomes a member - which, before his name is registered in the register of members, confers to him the beneficial interest in the shares transferred. A shareholder having such beneficial interest in shares has a right to protect his beneficial interest in such shares even before his name is entered in the register of members or pending the consideration of his application under section 58 or 59 fo....
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....ance Co. AIR 1953 SC 385, Killick Nixon Ltd. v. Bank of India [1985] 57 Comp Cas 831 and National Travel Services v. CIT reported at (2018) 3 SCC 95 (paragraphs 12, 18 and 19). Mr. Saha states that the appellants are, as such, already the beneficial owners of the entire shares of the respondent no. 1 company. As the transferor of the said shares, the respondent nos. 2 to 5 are in the position of trustees of the appellants and are obliged to act only as per the instructions of the appellants. They cannot in any event act in a manner detrimental to the beneficial interest of the appellants in the shares. In fact, even the voting rights in respect of the said shares, could, if at all, be exercised only in accordance with the wishes of the appellants. This is the right which the appellants, even as non-members, are entitled to assert and to protect and this is what they have sought to do by filling the instant suit. In this context, Mr. Saha has also referred to section 2(27) of the Companies Act 2013, which envisages, in the definition of "control", the right of persons other than shareholders to appoint majority directors of a company or to control the management of policy decisions,....
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....ppellants are the 100% shareholders of the respondent no.1 company. As such, the grant of the interim reliefs sought by the appellants in G.A. No. 552 of 2019 need not await any declaration from the learned NCLT that the appellant's are the shareholders of the respondent no.1 company, or have a beneficial interest in the said shares, thereby entitling them to participate in the management of the company as per the provisions of section 2(27) of the Companies Act, 2013. It is submitted that the respondents have acted in breach of trust by attempting to prejudicially alter the authorised share capital and shareholding pattern of the respondent no.1 company, despite being under an obligation to exercise the voting rights in respect of the 12,00,806 equity shares transferred to and held by the appellants, in consonance with the interests of the appellants and not otherwise. Under the circumstances, the appellants are entitled to the reliefs sought in G.A. No. 522 of 2019. It is submitted that subsequent to the institution of the said civil suit in this court, the appellants, discovered that in further derogation of the terms of the agreement between the appellants and the respon....
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....nd 59 before the NCLT. The learned Single Judge further erred in failing to appreciate that it is settled law that while section 10 of the Code of Civil Procedure, 1908 prohibits the Court from proceeding with the 'trial' of any suit in which the matter in issue is also directly and substantially in issue in a previously instituted suit, the word 'trial' for the purposes of section 10 of the Code must be construed to mean a judicial examination and determination of the issue in civil or criminal court by competent tribunal. It is settled law that section 10 of the Code of Civil Procedure, 1908 is not a bar to the institution of the suit. Neither can it be construed to be a bar against passing of interlocutory orders such as orders for appointment of receiver, injunction or attachment before judgement. Reference in this regard is made to Indian Bank v. Maharashtra State Cooperative Marketing Federation Ltd. [1998] 5 SCC 69 (paragraphs 7 to 10), Sujanbai v. Motilal Gopal Saraf 1980 MHLJ 578 (paragraphs 10,11), and SennajiKapurchand v. PannajiDevichand AIR 1922 Bom 276. It is submitted that in light of the aforementioned decisions, there can be no doubt that similar pr....
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....lete bar on the civil court on issues which the NCLT is empowered to determine. For this proposition, reference is made to Shashi Prakash Khemka v. NEPC Micon reported at 2019 SCC Online SC 23, SAS Hospitality Pvt. Ltd. v. Surya Constructions Pvt. Ltd. reported at 2018 SCC Online Del 11909, Viji Joseph v. P. Chander (decision by the Madras High Court in Original Side Appeal Nos. 29 and 30 of 2019 and C.M.P. Nos. 1884 and 1904 of 2019) (paragraphs 8.6, 8.14, 9, 13-17), and Chiranjeevi Rathnam v. Ramesh (decision by the Madras High Court, Madurai Bench, in C.R.P.(PD)(MD) No. 870 of 2017 and C.M.P.(PD)(MD) No. 3846 of 2017) (paragraphs 6, 9, 11, 16, 18, 19, 21, 24-28). In relation to treatment of a similar exclusion clause as section 430 of the 2013 Act in section 34 of the SARFAESI Act 2002, reliance is placed on a decision of our court in Delta International Ltd. v. Smt. Nupur Mitra AIR 2018 Cal 8 (paragraphs 18-22 and 31-32). On the aspect of the share scrips/certificates, it is submitted that the contention of the respondent no. 2 and 3 is that the shares scrips were only for "comfort" and the transfer forms were not to be used for the purpose of the transfer of shares. It is a....
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....st June 2016 (w.e.f. 1st June 2016). The section states - "Section 430. Civil Court not to have jurisdiction - No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Tribunal or the Appellate Tribunal is empowered to determine by or under this Act or any other law for the time being in force an no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or any other law for the time being in force, by the Tribunal or the Appellate Tribunal." Under the old regime, the High Court as the Company Court entertained matters in respect of the Companies Act. With the constitution of the present NCLT, and its predecessor the Company Law Board, the jurisdiction, powers and functions hitherto exercised by the CLB and the High Court as company court under various sections of the 1956 Act have now been conferred on the NCLT under 2013 Act. However, the jurisdiction or powers hitherto exercised by the High Court as a company court under section 10 of the 1956 Act or by the CLB under section 10E of the 1956 Act are now esse....
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....." The scope of an exclusion clause or an ouster clause has been explained by the Privy Council in Secretary of State v. Mask & Co. AIR 1940 PC 105, wherein it is stated- "It is settled law that the exclusion of the jurisdiction of civil courts is not to be readily inferred, but that such exclusion must be either explicitly expressed or clearly implied. It is also well settled that even if the jurisdiction is so excluded, the civil courts have jurisdiction to examine into cases where provisions of the Act have not been complied with, or the statutory Tribunal has not acted in conformity with the fundamental principles of judicial procedure." The power exercised by a company court (now the Tribunal) is in respect of corporate rights and not individual rights of a citizen (See Poonamchand Kothari v. Rajasthan Tube Mfg. Co. Ltd. (1996) 87 Comp Cas 842 (Raj), Avanthi Explosives (P.) Ltd. v. Principal Subordiante Judge [1987] 62 Comp Cas 301 (AP), and Dr. T.M. Paul v. City Hospital (P.) Ltd. [1999] 97 Comp Cas 216 (Ker)(DB)). The principles regarding the exclusion of the jurisdiction of civil courts have been discussed by the Supreme Court in certain cases. In Dhulabha....
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....5) Where the particular Act contains no machinery for refund' of tax collected in excess of constitutional limits or illegally collected a suit lies. (6) Questions of the correctness of the assessment apart from its constitutionality are for the decision of the authorities and a civil suit does not lie if the orders of the authorities are declared to be final or there is an express prohibition in the particular Act. In either case the scheme of the particular Act must be examined because it is a relevant enquiry. (7) An exclusion of the jurisdiction of the Civil Court is not readily to be inferred unless the conditions above set down apply." The principles laid down in Dhulabhai (supra) and followed in Tara Chand Gupta (supra) were used in a number of cases under the old Act to determine if a remedy lay in the civil courts. It is also appropriate to refer to the following observation made by the Supreme Court in Raja Ram Kumar Bhargava v. Union of India AIR 1988 SC 752: "......The question turns on the scope of the exclusionary clause in the statute. The effect of clauses excluding the civil courts' jurisdiction are considered in several pronou....
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....s held in Tej Prakash S. Dangi v. Coromandal Pharmaceuticals Ltd. [1997] 89 Comp Cas 270 (AP) that such a matter could not go to the company court. However, this view was reversed in K. Venkat Rao v. Rockwool (India) Ltd. Ltdreported at (2002) 108 Comp Cas 494 (AP)(DB)wherein it was held that the director in question was entitled to go before the company court. In Vithalrao Narayanrao Patil v. Maharashtra State Seeds Corpn. Ltd. [1990] 68 Comp Cas 608 (Bom), the Bombay High Court followed a decision of the Calcutta High Court in Hirendra Bhadra v. Triton Engg. Co. (P.) Ltd. [1975-76] 80 CWN 242 and held that except where jurisdiction has been specifically conferred on the district courts by the central government, the High Court is the proper court to entertain any dispute in respect of the affairs of a company. However, in Santosh Poddar v. Kamal Kumar Poddar [1992] 3 BomCR 310 (Bom)(DB) wherein the Division Bench overruled Vithalrao (supra) and disagreed with Hirendra Bhadra (supra) and held that there is no ouster of the jurisdiction of a Civil Court in all cases where the provisions of the Companies Act may be attracted. It held that it is only in respect of those proceeding....
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.... period of thirty days from date on which instrument of transfer, or intimation of such transmission, as the case may be, was delivered to company, send notice of refusal to transferor and transferee or to person giving intimation of such transmission, as the case may be, giving reasons for such refusal. Subsection (2) of Section 58 envisions that without prejudice to subsection (1) of Section 58, securities or other interest of any member in a public company shall be freely transferable; provided that any contract or arrangement between two or more persons in respect of transfer of securities shall be enforceable as a contract. Subsection (3) of Section 58 provides that transferee may appeal to Tribunal against refusal within a period of thirty days from the date of receipt of notice or in case no notice has been sent by company, within a period of sixty days from the date on which instrument of transfer or intimation of transmission, as the case may be, was delivered to company. Sub-section (4) of Section 58 says that if a public company without sufficient cause refuses to register transfer of securities within a period of thirty days from the date on which instrument of transfer....
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....to transfer such securities and any person acquiring such securities shall be entitled to voting rights unless voting rights have been suspended by an order of the Tribunal. Subsection (4) of Section 59 of Act of 2013 provides that where transfer of securities is in contravention of any of the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992) or Act of 2013 or any other law for the time being in force, the Tribunal may, on an application made by depository, company, depository participant, holder of securities or Securities and Exchange Board, direct any company or a depository to set right the contravention and rectify its register or records concerned. Subsection (5) of Section 59 of Act of 2015 instructs that if any default is made in complying with the order of the Tribunal under section 59, company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than one la....
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....nal with powers to 'pass such orders thereon as it thinks fit'. The Tribunal is also vested with the power of review. Section 424 provides the Tribunal the same powers and functions as are vested with a civil court. In addition thereto, the Tribunal also has the power to punish for contempt. Both the learned senior counsel before us have accepted that the rationale of the Division Bench of the Delhi High Court in Ammonia Supplies Corpn. (P.) Ltd. v. Modern Plastic Containers [1993] 52 DLT 252 that the Tribunal cannot adjudicate on difficult or complex questions is no longer relevant or applicable. The basis for the Division Bench to have said so was that at the time when that case had come to be filed, the powers of the Tribunals were summary in nature. Under the 2013 Act, as enunciated hereinabove, the NCLT has been given very wide powers akin to that of a civil court and can also punish for contempt. Therefore, in view of the wide powers given to the NCLT and these powers not being merely summary in nature, the basis of the Division Bench's judgment in Ammonia Supplies (Delhi High Court) (supra) withers away and thus its rationale, that the Tribunal cannot decide diff....
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....t rectification of the register and the payment of damages by the company. It is entitled to decide any question relating to the title of any person who is a party to the application to have his name entered in or omitted from the register and to decide any question which it has necessary or expedient to decide in this connection. An appeal to the High Court against any decision or order of the CLB on a question of law is available to any person aggrieved thereby under the provisions of Section 10F." In paragraph 31 it is observed as follows:- 31. Now, under Section 111 of the Companies Act as amended with effect from 31st May, 1991, the CLB performs the functions that were therefore performed by courts of civil judicature under Section 155. It is empowered to make orders directing rectification of the company register, as to damages, costs and incidental and consequential orders. It may decide any question relating to the title of any person who is a party before it to have his name entered upon the company's register; and any question which it is necessary or expedient to decide. It may make interim orders. Failure to comply with any order visits the company with ....
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....uch seriously disputed question of title." The issue as to whether there has been a proper lodgement of shares and under the articles the company was obliged to record transfer of the shares and carry out necessary rectification of the share register are matters which the NCLT is empowered to determine under the Act. In the interlocutory application the court has to prima facie return a finding that the plaintiffs are entitled to rectification of the share register. This exercise by reason of Section 430 of the Companies Act read with Section 59 and Rule 70 sub-Rule 5(a) of the NCLT Rules 2016 are matters which the tribunal is exclusively empowered to decide under the Companies Act, 2013. It is possible as held in Cheran Properties Ltd. (supra) (paragraphs5, 10, 27, 28 and 35) relied upon by Mr. Ratnanko Banerjee, learned Senior Counsel appearing on behalf of the respondent that a combined application under sections 58, 59, 241 and 242 can be made before the NCLT. Once the tribunal comes to a finding in favour of the appellants that rectification is necessary, the appellants may seek further reliefs that are available to the appellants under Section 241 and 242 of the Companies ....
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....dent no. 2 and 3 to the appellant no. 1 and 2. It is stated that towards the end of June 2018, the respondent no. 2 and 3 approached the appellants with the promise to make payment of a part of their dues within the next six months, and offered to secure such payment by depositing with the appellants the entire shareholding of the respondent no. 2, 3, 4 and 5 in the respondent no. 1 company; and in the event of failing to make payment of a part of the appellants' dues within the next six months, to transfer the entire shareholding of the respondent no. 2 to 5 in the respondent no. 1 company to the appellants at their face value, which would serve to set off a portion of their debt to the appellants. The plaint states that the appellants agree to accept the terms aforementioned; and consequently, on 25th July 2018, the respondent no. 2 to 5 made over to the appellants the original share scrips and certificates of all 12,00,806 shares of the respondent no. 1 company. The receipt was acknowledged by the appellant. In late December 2018, the six month period envisaged under the aforementioned oral agreement expired but the dues were not paid. Therefore, the appellants proceeded ....
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....018, it failed to take any step in this regard. This despite the fact that the said JoydeepNath had himself executed the transfer deeds along with each of the defendant no. 2 to 5 and was as such well and fully aware that the shares pertaining to the same had been transferred to the plaintiffs." (Emphasis Supplied) Thirteen days after the letter dated 27th December 2018 was sent to the company, the appellants wrote to the respondent no. 2 and 3, who were the shareholders of the company and who had handed over the purported share scrips/certificates to the appellants. The plaint states that in the letter dated 10th January 2019, the appellants wrote to the respondent no. 2 and 3 "as the person in control of the defendant no. 1 company to forthwith instruct the said defendant and its directors to immediately act on the application already received for the transfer of the said 81633 shares in the favour of the plaintiffs". This is stated in paragraph 13 of the plaint, as herein below - "13. In the circumstances as aforesaid, on 10th January 2019, the plaintiffs wrote to the defendant no. 2 and 3 asserting their ownership of shares representing the entire issued an....
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....hares registered in their names." (emphasis supplied) The plaint asserts that the reply letter dated 16th January 2019 "amounted to a refusal to register the transfer of the said 1200806 shares in the plaintiffs' favour". The plaint states that as a result of this act of "refusal to register the transfer of the ... shares", the appellants became "entitled to ... take appropriate steps ... in accordance with the provisions of sections 58 and 59 of the Companies Act 2013". This is stated in paragraph 15, as herein below - "15. As the said letter dated 16th January 2019 written by the defendant no. 2 and 3, inter alia, as the persons in control of the defendant no. 1 company amounted to a refusal to register the transfer of the said 1200806 shares in the plaintiffs' favour notwithstanding delivery of the original share scrips/certificates and the duly executed and stamped transfer deeds in respect thereof, the plaintiffs became entitled to and as such were advised to take appropriate steps against the defendant no. 1 in accordance with the provisions of sections 58 and 59 of the Companies Act 2013, for which they were advised to once again visit the website of the ....
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....ny, send notice of the refusal to the transferor and the transferee or to the person giving intimation of such transmission, as the case may be, giving reasons for such refusal." As far as the letter dated 27th December 2018 is concerned, the 30 day period requirement under section 58(1) of the Act was to expire on 29th January 2019. In between this period, the appellant wrote the letter dated 10th January 2019 to the respondent no. 2 and 3, in their capacity as the shareholders of the respondent no. 1 company, "to forthwith instruct the said defendant and its directors to immediately act on the application already received for the transfer of the said 81633 shares in the favour of the plaintiffs". Firstly, this letter dated 10th January 2019 cannot be construed as an application made to the company under section 58(1) of the Act since it is a letter to the shareholders of the company. Secondly, this letter dated 10th January 2019 was only to instruct the respondent no. 1 company to act on the application that the respondent no. 1 had already received under section 58(1) of the Act. The 30 day period envisaged under section 58(1) of the Act came and went. The procedure under ....
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....application for non-registration of the shares of the appellant had to be made before the Tribunal under section 59(1) of the Act as this was something that the NCLT was expressly "empowered to determine". Once the tribunal receives the application under section 59(1) of the Act, it is empowered, under section 59(2) of the Act extracted herein above, to either dismiss the appeal or "direct that the transfer or transmission shall be registered by the company within a period of ten days of the receipt of the order". If the appellant succeeds in this application, the natural corollary would be that it would then be deemed to be a 'member' within the meaning of section 2(55) of the 2013 Act. In that eventuality, the other reliefs that it is seeking, under sections 241 and 242 of the 2013 Act, could then be granted. Therefore, there would be no bar on a combined application being filed, as is the prevailing norm. The concept of "member", "shareholder" and "holder of a share" as appeared in the Companies Act, 1913 and 1956 came up for consideration in Howrah Trading Co. (supra) where it is stated: 'The words "member", "shareholder" and "holder of a share" have ....
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....ther obstacles remain in enforcement of the said right, the transfer becomes effective as against the company also. Thereafter, the company cannot unilaterally alter its articles affecting the aforesaid right of the transferee. Mr. Saha, the learned Senior Counsel appearing on behalf of the appellant, has contended that the appellants have beneficial interest in the shares as the blank transfer deeds duly signed by the respondent nos. 2 and 3 have been made over to the appellants in lieu of repayment of loan granted by the appellants in favour of the respondents nos. 2 and 3. Whether the said shares were given as a security for the loan or is applied towards reduction of the liability of the respondent nos. 2 and 3 towards the appellants is a vexed question. However, the fact remains that the appellants alleged that the said shares were part of the consideration amount in which case once there was a refusal to register the said shares the parties had to follow the procedure contemplated under the Companies Act, 2013 for redressal of such grievance. The Companies Act, 2013 is a complete code. Section 59 of the Companies Act, 2013 read with Rule 70 of the NCLT Rules empowers the t....
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.... the said shares, could, if at all, be exercised only in accordance with the wishes of the appellants. It is submitted that owing to the appellants' beneficial interest in the 12,00,806 equity shares in the respondent no. 1 company, the appellants are entitled, even as non-members, to participate in the management and affairs of the company, if necessary through the respondent no. 2 to 5, who must act as trustees of the appellants and exercise the voting rights in respect of the said shares in accordance with the interest of the appellants and not otherwise. This is the right which the appellants, even as non-members, are entitled to assert and to protect and this is what they have sought to do by filling the instant suit. Mr. Saha's submission is that the reliefs claimed are essentially due to acts that have occurred in breach of this trust since before the appellants could be registered as members of the company, the company had gone on to take certain acts that would have ordinarily been classic cases where petitions for oppression and mismanagement could have been filed by the appellant. Mr. Saha contends that since the respondents, however, wrongfully and unlawfully pr....
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.... but ultimately held that Mr. Reddy was under no obligation to obtain the additional shares on behalf of Sir Padampat since it would have meant Mr. Reddy having to bear a "heavier pecuniary burden than he undertook to bear as a constructive trustee by reason of the sale of his shares in favour of the cestui que trust" since it would have required him to buy the shares in his own name and incur significant personal expenses. The Court however noted that the situation would have been different if the shares had been fully paid up and no liability was attached to them. Mr. Saha has also referred to and relied on Killick Nixon (supra) where a Division Bench of the Bombay High Court "read down" the term "member" for the purposes of section 397 and 393 of the Companies Act 1956 "in order to exclude from its ambit "bare" members whose names continue on the Register of Members although they have sold their shares". In Killick Nixon (supra), the transferee had preferred a separate application under section 111 and 155 of the 1956 Act for registration of their shares but had filed the company petition that was in appeal in the case through the transferor under sections 397 and 398 of the ....
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....ts through the transferor who is his constructive trustee. Applying this principle, the Supreme Court, in the case of Howrah Trading Co. Ltd. v. CIT [1959] 356 ITR 215; 29 Comp Cas 282, observed that the transferee cannot claim any benefit which a shareholder may be having. We have been addressed at length on the question whether a transferor can be compelled by the transferee to file a portion under ss. 397 and 398 of the Companies Act. It was submitted before us that the transferor can only be compelled by the transferee to perform those acts and duties which are attached to the holding of shares; for example, the transferee can compel the transferor to hand over to him dividends received in respect of such shares. He can also compel the transferor to hand over any benefits received in respect of these shares because these are rights of property which are attached to the shares. It was submitted that the transferee cannot compel the transferor to do anything more or to perform on his behalf or to exercise at his behest his other rights which are the rights arising from the membership of the company. More specifically, a transferee cannot compel a transferor to file a petition und....
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....nsfer. The first two steps are not enough to make the transferee a member of a company. Neither the agreement to transfer nor the delivery of the signed transfer form and share certificate (or share scrips) will pass legal title to the transferee (though it may pass an equitable interest in the shares to the transferee). The normal rule is that a person becomes a member of a company and the legal owner of the shares when they have agreed on the transfer, and the transfer has been subsequently carried out and the transferee's name has been entered into the register of members of the company (See Gower Principles of Modern Company Law (Tenth Edition) Chap 27-8 (pg. 902)). It follows from this that the mere transfer of the share certificate (or share scrip) without the registration of the transferee in the register of members does not make the transferee a member of the company. If the company rejects or refuses to register a person who seeks to be registered, an appeal mechanism is provided for under limited grounds in section 59 of the Companies Act 2013. For the instant proceeding, however, it may be important to determine the precise legal position of the transferor and transf....
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....he 1956 Act. However, that is not the case today. If the appellant, who claims to be the transferee of the shares, wanted to file an action for oppression and mismanagement through the constructive trustee/respondent nos. 2 to 5, like was done in Killick Nixon (supra), that application would today have to be filed by the constructive trustee/respondent nos. 2 to 5 before the NCLT under sections 241 and 242 of the Companies Act 2013. For this reason, the reliefs claimed in the present suit cannot be granted by this court. The proper application would have to be made before the NCLT. In saying so, we must also add that, in addition to the above, it appears that in the present case, the reliefs claimed are being sought directly against the company/respondent no. 1. In Mathalone (supra) as well as in Killick Nixon (supra), the transferee or the cestui que trust was seeking directions against the company through the transferor/constructive trustee. In Mathalone (supra), Sir Padampat sought reliefs against Mr. Reddy to act on his behalf with respect to the company. In Killick Nixon (supra), the transferee, Dhanraj Mills Pvt. Ltd., was acting through the transferor, Bank of India, and ....
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....lication under section 58 and 59 of the 2013 Act. This may result in a situation where, hypothetically, the NCLT could dismiss the application and hold that the appellants are not entitled to be registered as members of the company but the court finds, after an inquiry into the facts, that the appellants ought to be deemed as members and then go on to the grant the reliefs claimed in the suit. This would result in an anomalous situation where even though the appellants have been deemed to not be members by the proper forum, it gets the consequential reliefs in the suit. It results in conflict of decision. In order to become eligible and qualify for any reliefs claimed in the petition, the appellant must pass muster the test of establishing a strong prima facie finding that the appellant has now become a beneficial owner of the shares, which finding can be arrived at necessarily by the NCLT for granting any interim relief to the appellant as prayed for in the said proceeding. It was possible for the appellant to claim relief of oppression and mismanagement under sections 241 and 242, with a prayer for exemption under section 244 by way of amendment of the existing pleadings to demon....