TaxTMI 
TaxTMI 
2023 (9) TMI 1670
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.... 2 in exercise of its jurisdiction under Section 59 of the Companies Act, 2013 (hereinafter referred to as 'the Act'). 2. M/s Vijaya Hospitality and services Limited is the 1st Appellant Company and the original Respondent in the Company Petition No. 122/KOB/2019. The 2nd Appellant is the Chairman and Managing Director of the 1st Appellant Company, holding 52.86 % of the total shareholding of the Company. The Learned Senior Counsel for the Appellant submitted that the authorised share capital of the Company is Rs. 22,00,00,000/- comprising of 2,20,00,000 equity shares of Rs. 10/- each. The issued, subscribed and paid-up share capital is Rs. 21,87,16,860/- comprising of 2,18,71,686 equity shares of Rs. 10/- each. It is stated that the Respondent Nos. 1-4 are minority shareholders of the Appellant No. 1 Company who hold 80,000 equity shares, that is 0.37 % of the total shareholding. Respondent Nos. 1-4 were the original Petitioners in the main Company Petition filed under Section 59 and 62 of the Companies Act, 2013. It is seen from the record that TCP No. 185/2016 was filed by the 2nd Appellant and Mr. CK Sibi to address various disputes among the shareholders and was initially f....
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....with respect to the allocation of shares. It is submitted that the Impugned Order is effectively modifying and reviewing the Orders dated 12/01/2017 and 18/04/2017, which have actually attained finality. A perusal of the Order dated 12/01/2017 makes it clear that it was made considering the emergency situation where funds were infused into the Appellant No. 1 Company ensuring its continued survival and the Order was passed in pursuance of the wide powers that are conferred upon NCLT, under Section 241-242 of the Companies Act. 5. The Learned Counsel also submitted that the inherent powers under Rule 11 of the NCLT Rules, 2016 also allows the Tribunal to make such Orders that may be necessary for meeting the ends of Justice. It is submitted that while passing an Order for allotment of Shares in its exercise of powers under the Act, NCLT is not bound to follow Section 62 of the Act which is applicable for when the Company voluntarily wants to allot shares. NCLT has failed to take into account the effect of Section 242 sub sections (5) & (6) of the Act which provide for any alteration made in the Memorandum of Association of a Company in pursuance of an Order passed under Section 2....
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....2017, to increase the share capital to Rs. 22,00,00,000/-. On 11/07/2017, the Board of Directors took a decision to allot shares at par to Mr. K.C. Baboo against the sum of Rs. 11,00,00,000/- infused by him. It is the case of the Respondents that without making a valuation of shares, the allotment was made to Mr. K.C. Baboo by virtue of which allotment, he became the largest shareholder with shareholding rising from 4 % to 52.86 %. The Learned Counsel paced reliance on the decision of the Hon'ble Supreme Court of India in the matter of 'M/s Ammonia Supplies Corporation (P) Ltd. Vs. M/s. Modern Plastic Containers Pvt. Ltd.' reported in [(1998) 7 SCC 105], wherein it was held that Section 155 deals with the power of Company Court to rectify the Register of Members maintained by the Company. The very word rectification connotes something what ought to have been done and what ought not to have been done was done requiring correction. Rectification in other words is a failure on the part of the Company to comply with the directions under the 'Act'. In order to qualify any rectification, every procedure as prescribed under the 'Act' before recording the name in the Register of the Compan....
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....he mandatory requirements of Section 62(1)(c) of the Act and that the Company cannot be an Appellant as the Company is not an Aggrieved Party. 10. The Learned Counsel for the Respondents placed reliance on the Judgment of Hon'ble Supreme Court in the matter of 'IFB Agro Industries Ltd. Vs. SICGIL India Ltd.' reported in [(2023) 4 SCC 209] in support of his submission regarding the power of rectification of Register of Members under Section 59 of the Act. The relevant portion from the said Order, as relied upon by the Learned Counsel for the Respondent, is extracted as below: "21. The scope and ambit of Section 155 of the 1956 Act, as it then existed, fell for consideration in a decision of this Court in Ammonia Supplies 1. The application for rectification in Ammonia case¹ was filed under Section 155, and it was submitted that the scope for rectification under Section 155 is enlarged in comparison with the position as it were under Section 38 of the 1913 Act. Rejecting the argument, this Court in Ammonia¹ held that the jurisdiction exercised by the court for rectification of the register of members is essentially limited. The comparative analysis in Ammonia&su....
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....013. The Authorities primarily dealt with the exercise of powers of the Tribunal under Section 397, 398 and 402 of the Companies Act, 1956 in the context of dispensation of convening of Shareholder Meetings. The issue in this case, does not pertain to the convening of Shareholders Meeting for seeking their approval for preferential allotment. It is settled law that the Shareholders Meeting cannot be conducted to defeat the Orders of the Tribunal. The issue before this Tribunal pertains to the compliance with the mandatory procedures for share price determination under Section 62 (1) (c) of the Act and has nothing to do with the principles relied upon by the Learned Counsel for the Appellant. Assessment : 12. The main issue which arises in this Appeal is whether 'allotment of shares' on 'Preferential basis by way of private placement', in pursuant to an Order passed under Section 241-242 of the Companies Act, 2013 requires adherence to Section 62 (1) (c) of the Act read with the applicable Companies Act (Share capital and Debentures) Rules, 2014. 13. It is the main case of the Appellants that CA 1/2016 was allowed permitting the 2nd Appellant herein to infuse funds in the f....
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....ed Accountants to go through the statutory records of R 1 company for conducting audit from 1st March 2017, till date. The CA is directed to submit report to this Bench within a period of three months from the date the copy of this order is received. The CA is authorised to supervise the implementation of the above given directions in letter and spirit. The CA is permitted to fix his remuneration as per the practice in vogue and inform the Applicants/Petitioners, who shall pay the same. Accordingly, C.A. 1 of 2016 is disposed of." (Emphasis Supplied) 15. This direction was made part of the Order in TCP 185/2016 dated 18/04/2017, the NCLT in Para 7 has concluded as follows: "The counsel for petitioners has drawn our attention to the Articles of Association wherein under Para 15(b) at Page 26 of the typeset it has been mentioned that the first directors of the company are C.K. Vijayan, C.K. Thampi Krishna, C.K.Sibbi (P1) and C.K. Babu (P2). C.k. Thampi Krishna expired while petitioners 1 & 2 were removed from the Directorship. Neither notice was given nor Board's resolution was passed. However, R1 to R4 and R6 have not properly controverted the allegations levelled in ....
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....e number of shares offered and limiting a time not being less than fifteen days and not exceeding thirty days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined (ii) unless the articles of the company otherwise provide, the offer aforesaid shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any other person; and the notice referred to in clause (i) shall contain a statement of this right; (iii) after the expiry of the time specified in the notice aforesaid, or on receipt of earlier intimation from the person to whom such notice is given that he declines to accept the shares offered, the Board of Directors may dispose of them in such manner which is not dis-advantageous to the shareholders and the company; (b) to employees under a scheme of employees' stock option, subject to special resolution passed by company and subject to such conditions as may be prescribed; or (c) to any persons, if it is authorised by a special resolution, whether or not those persons include the persons referred to in clause (a)....
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.... a company and where no appeal has been preferred to the Tribunal under sub-section (4) or where such appeal has been dismissed, the memorandum of such company shall, where such order has the effect of increasing the authorised share capital of the company, stand altered and the authorised share capital of such company shall stand increased by an amount equal to the amount of the value of shares which such debentures or loans or part thereof has been converted into. (Emphasis Supplied) 17. Section 62 (1) (c) specifies 'issuance of share capital to any persons, if it is authorised by a said Resolution, whether or not these persons including the persons referred to in Clause (a) or Clause (b) either for cash or for consideration other than cash, if the price of such shares is determined by the valuation report [of a registered valuer, subject to the compliance with the applicable provisions of Chapter III and any other conditions as may be prescribed]. Merely because the direction given by NCLT does not specifically mention the fulfilment of mandatory requirements of Section 62 (1) (c), it cannot be said that those Provisions need not be complied with as it has not been specifi....
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....nt for the shareholders' approval for alteration of the Memorandum of Association and placing the MCA Portal requirements on a higher pedestal compared to the mandatory legal requirements under the Companies Act, 2013, is wholly erroneous. 19. The contention of the Learned Counsel for the Appellants that the names of the 1st and 2nd Respondents are reflected in the Attendance Register of the Minutes Book of the Annual General Meeting held on 15/06/2017 and therefore, they consented to the said allotment of Rs. 10 face value, cannot be sustained as the Register only reflects the assent of Respondents to the increase in the authorised share capital and does not in any manner indicate the consent to the issuance at face value. The said allotment at face value is voted upon only through the Board of Directors dated 11/07/2017. There is no documentary evidence to substantiate the plea of the Appellants that the Respondents have categorically agreed or given their consent to the allotment of shares at 'Face Value'. 20. The Learned Counsel for the Appellants placed reliance on the Judgment of the Company Law Board, Southern Regional Bench in the matter of 'Bhupinder rai and Ors. Vs.....
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.... the managing director on the board of directors were accounted for. No ground had been made to interfere with the orders of the Company Law Board. (The appeal was dismissed with costs.)'. This principle is also not applicable to the facts of the attendant case as in that very same Judgment in Para 26 it is observed that 'the language in fact appears to indicate to the contrary. It permits the Company Law Board to pass orders as long as it is in the interests of the proper conduct of the affairs of the company and it is 'just and equitable' to pass such order. Whether in fact the order is justified will of course depend on the facts of each case.' We are of the earnest view that in the facts of this case, 'private placement by preferential shares, allotment' has attained finality, but the 'procedure' to be adopted in this allotment has not been specifically stated by NCLT and we observe that in the interest of the proper conduct of the affairs of the Company and for it to be 'just and equitable', it is imperative that the procedural requirements under Section 62 (1) (c) read with the relevant Rules under this Provision, be complied with. The Learned Senior Counsel also placed relia....
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....fy the register of members even by cancelling the excess shares. However, the NCLT erred in observing that the appellant has not approached the Registrar of Companies. This tribunal is of the view that the NCLT miserably failed to exercise the power and its jurisdiction as vested in it. Further the NCLT ought to have considered on the factual aspect of the inadvertent error and the appellant company bonafidely informed the RBI and its Regulators with regard to the inadvertent error/bonafide mistake crept in and sought permission to rectify the mistake by cancelling the excess shares. Even the R 1 company also through its Board Resolution expressed their No Objection for cancellation of excess shares." 22. From the aforenoted ratio it is seen that NCLT has the power to direct the concerned authorities to rectify the Register of Member even by cancelling their allotted shares. The Judgment relied upon by the Respondents in the matter of 'IFB Agro Industries Ltd. Vs. SICGIL India Ltd.' reported in [(2023) 4 SCC 209] wherein the Hon'ble Apex Court has discussed the scope of Section 155 of the Companies Act, 1956 is applicable to the facts of this case. 23. The Hon'ble Delhi High ....