E To E Transportation Infrastructure ... vs Zephyr Peacock India

NATIONAL COMPANY LAW APPELLATE TRIBUNAL AT CHENNAI APPELLATE JURISDICTION (Under Section 421 of the Companies Act, 2013) Company Appeal (AT) (CH) No. 16 of 2021 (Arising out of the Order dated 05.02.2021 in C.P. No. 38/BB/2020 passed by the Hon'ble National Company Law Tribunal, Bengaluru Bench)

Date of Order: 24.02.2022 In the matter of:

E to E Transportation Infrastructure Pvt. Ltd. # 325, 1st Floor, Amrutha Varshini 1st Main, A Sector, Yelahanka Newtown, Bengaluru, Karnataka. ...Appellant

Vs

1. Zephyr Peacock India Sanne House, Bank Street, Twenty Eight, Cybercity, Ebene 72201, Mauritius. ...Respondent No.1

2. The Registrar of Companies, Bangalore E Wing, 2nd Floor, Kendriya Sadana, Kormangala, Bengaluru - 560 034. ... Respondent No.2

3. Reserve Bank of India (Foreign Exchange Department) 10/3/8, Nrupathumga Road, Bengaluru 560 001. ...Respondent No.3 (newly added party)

Present:

For Appellant : Mr. Antony R. Julian, Advocate

For Respondents : Mr. Rishab Jain, PCA R1 : Mr. Avinash Krishnan Ravi, Advocate R2 : Mr. T. Poornam, For Mr. B. Giridhar Rao for Advocate R3 Mr. V.S. Rishwant, Advocate R3 Mr. J.V. Sakthi Balakrishnan, Advocate R3

Comp App (AT) (CH) No. 16 of 2021 1|Page JUDGMENT

(VIRTUAL MODE)

Per: Kanthi Narahari Member (T)

Brief Facts of the Case:

1) The present appeal is filed by the Appellant against the Impugned Order

dated 5th February 2021 passed by the NCLT, Bengaluru Bench whereby the

Company Petition of the appellant has been dismissed. Aggrieved by the same

the present appeal is preferred.

Appellant's Submissions:

2) Sri Antony R. Julian, Advocate appearing for the appellant submitted the

brief facts. He submitted that the appellant company was incorporated as a private

limited company, limited by shares under the Companies Act, 1956 with the ROC,

Bengaluru and the main object of the appellant company as stated in its

Memorandum of Association is to carry on the business of providing

infrastructure facilities, developing, designing, execution of works pertaining to

Metropolitan Transportation Authorities, Railway, Roadways and Airports etc.

3) The authorised share capital of the appellant company is Rs.52, 12,46,390

divided into 5,21,24,639 equity shares of Rs.10 each. The issued subscribed and

paid up share capital of the appellant company as on 31.03.2019 is Rs.24,35,510

divided into 2,43,551 equity shares of Rs.10 each.

4) The R1 company is a private company limited by shares incorporated under

the Laws of Mauritius. The R1 is a shareholder of the appellant company

currently holding 80,937 equity shares of Rs.10 each.

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2|Page

5) The appellant company issued two types of shares, i.e. equity and series A

CCPS and Series B CCPS shares to the entities as mentioned in page-5 and 6 of

the appeal paper Book. The respondent No.1 is classified as a person resident

outside India. The respondent No.1 was issued 10 equity shares and 3,466 Series-

A CCP shares both at Rs.27,788 per share. The appellant company required to

comply with foreign exchange management (transfer or issue security by a person

resident outside India), regulations 2000. In accordance with the said regulations

the details of investment made by the first respondent were reported to RBI by

filing Form-FC-GPR on 28.04.2012 along with a Valuation Report dated

15.03.2012. The fair value of the equity shares of the appellant company was

valued at Rs.8,112/- per share on the date of issue Series-A CCPS.

6) Subsequently, on 25.04.2014 the appellant company issued Series-B CCPS

shares to the entities as per the tabular column in para-14 page-6 of appeal paper

Book. The respondent No.1 was issued 2,880 Series-B CCP shares at Rs.27,788

per share.

7) The investment made in Series-A CCPS and Series-B CCPS were reported

to RBI by filing Form on 03.07.2014. The fair value of the shares of the appellant

company 4,827 per equity shares as per the valuation report prepared as per RBI

guidelines dated 24.12.2013. The documents have been filed before the RBI and

the RBI acknowledged vide letter dated 26.05.2014.

8) The formula for conversion of Series-A CCPS and Series-B CCPS into

equity shares as per the pricing guidelines in FEMA Regulations issued by the

RBI in Master circular dated 01.07.2011. As per the applicable pricing

guidelines, wherever the Series-A CCPS and Series-B CCPS worked out to

be converted into equity shares, the conversion price could not be less than

Comp App (AT) (CH) No. 16 of 2021

3|Page the fair value of the equity shares of the appellant company as on the date of

issue of shares i.e. Rs.8,112 per share for Series-A CCPS and Rs.4,826 per

share for Series-B CCPS.

9) While so, on 20.03.2019, the appellant converted the Series-A CCPS and

Series-B CCPS issued to Respondent No.1 into equity shares, it applied the fair

value of the equity shares as on the date of conversion i.e. Rs.2,195 per share

instead of the respective fair values at the time issue of the shares. This was

contrary to the applicable pricing guidelines stated in the FEMA Regulations.

However, it was clarified that this was a bonafide mistake due to incorrect legal

advice received at the time by the appellant.

10) As a result of this incorrect conversion share price being applied, the

respondent No.1 has been allotted 80,347 equity shares - 40,833 equity shares on

conversion of 3,466 Series-A CCPS and 36,464 equity shares on conversion of

2,880 Series-B CCPS. If the correct conversion price had been applied, only

28,458 equity shares would have been allotted to respondent No.1. Therefore, an

excess of 51,889 equity shares were allotted by mistake to respondent No.1.

11) The appellant company informed the RBI and sought permission to

cancel / reduce the excess 51,889 equity shares with an appropriate approval from

the Registrar of Companies or National Company Law Tribunal as may be

required under the Companies Act, 2013 vide letter dated 10.10.2019.

12) It is submitted that in response to the appellant's letter as cited above,

the RBI vide their letter dated 26.11.2019 advised the appellant company to

approach Register of Companies for cancellation of shares.

13) It is submitted that appellant company had also intimated the R1

regarding the erroneous conversion price and the R1 issued No Objection Letter

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4|Page dated 13.12.2019 along with the Resolution from the Board of Directors agreeing

for rectification of Register of Members of appellant company for cancellation of

excess 51,889 equity shares.

14) The learned counsel for appellant submitted that the appellant filed

a company petition under Sec.59 of the Companies Act, 2013 before the NCLT,

Bengaluru Bench seeking rectification of Register of Members of the appellant

company by cancelling the excess 51,889 equity shares of Rs.10 each. However,

the learned NCLT dismissed the Company Petition.

15) The learned counsel for appellant prayed this Bench to allow the

appeal and set aside the impugned order and permit the appellant company to

cancel the excess equity shares allotted to R1 on erroneous conversion of Series-

A CCPS and Series-B CCPS.

Respondent's Submission:

16) The learned counsel appearing for the Respondent No.1 filed a short

reply and at para-3 it is stated that "the answering respondent has already given

its consent to the cancellation of the excess shares allotted to it vide letter dated

13.12.2019 along with a copy of Minutes of the Meeting of the Board of the

answering respondent dated 13.12.2019". The respondent prayed to allow the

Company Appeal.

17) Heard the learned counsels appearing for the respective parties

perused the pleadings and documents filed in their support.

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5|Page Analysis / Appraisal:

18) The Appellant filed the Company Petition before the NCLT,

Bengaluru U/s.59 of the Companies Act, 2013 read with rule 70 of NCLT Rules

2016 by seeking rectification of register of members of the appellant company by

cancelling the excess 51,889 equity shares allotted to Respondent No.1 herein on

20.03.2013 and sought direction to the ROC, Bengaluru to effect the cancellation

of 51,889 equity shares excess allotted to Respondent No.1.

19) The learned NCLT was of the view that without approaching the

Registrar of Companies the appellant has filed the present company petition and

observed that the filing of the Company Petition is not maintainable and

accordingly the same is dismissed.

20) It is to be seen that whether the appellant has approached NCLT in

accordance with law or not? Sec.59 of the Companies Act, 2013 deals with

rectification of Register of Members. The said provision is recaptured here at for

better appreciation.

"59. Rectification of register of members - (1) If the name of any person is,

without sufficient cause, entered in the register of members of a company or

after having been entered in the register, is, without sufficient cause, omitted

therefrom, or if a default is made, or unnecessary delay takes place in entering

in the register, the fact of any person having become or ceased to be a

member, the person aggrieved, or any member of the company, or the company

may appeal in such form as may be prescribed, to the Tribunal, or to a

competent Court outside India, specified by the Central Government by

notification, in respect of foreign members or debenture holders residing

outside India, for rectification of the register.

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6|Page (2) The Tribunal may, after hearing the parties to the appeal under sub-section

(1) by order, 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 or direct rectification of the records of the depository

or the register and in the latter case, direct the company to pay damages, if

any, sustained by the party aggrieved."

21) From the above provision of law, it is clear that any aggrieved person

may appeal to the Tribunal for rectification of the register. After filing of the

application, the Tribunal (NCLT) either dismiss the appeal or direct rectification

of the records of the register and has power to direct the company even to pay

damages if any sustained by the party aggrieved. Therefore, the Tribunal has

power to direct the authorities to rectify the Register of the Members by cancelling

the shares. However, the NCLT in the impugned order taken a stand that the

Appellant has not approached the Registrar of Companies.

22) The appellant addressed a letter dated 10.10.2019 to RBI (page-234

of appeal paper Book) and sought permission to cancel / reduce the excess 51,889

equity shares allotted on conversion to said Zephyr Peacock India Fund II Ltd

(Respondent No.1). However, the RBI vide its letter dated 26.11.2019 (page-242

of appeal paper Book) replied and stated that the cancellation of excess shares

allotted will not come under purview of RBI and hence, you may approach

Registrar of Companies for cancellation of shares. Further, the RBI advised the

appellant to intimate them with documentary evidence after cancellation of excess

shares to enable them to acknowledge the concerned FC-GPR pending with them.

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23) Even the respondent No.1 vide its letter dated 13.12.2019 addressed

to the Board of Directors of the appellant company stated that they have no

objection for cancellation of excess 51,889 equity shares. The content of the said

letter is extracted here at. "we hereby give our 'no objection' for rectification of

register of members by way of cancellation of excess 51,889 equity shares allotted

to us by E to E Transportation Infrastructure Pvt. Ltd. On 20.03.2019 pursuant

to conversion of Series-A CCPS and Series-B CCPS held by the company, which

were not in accordance with regulation-11 (1) (b) of TISPRO Regulations, 2017,

whereby the amount paid up on the excess 51,889 equity shares will credited to

the Securities Premium Account". Along with the above letter the respondents

have enclosed copy of the Board Resolution dated 13.12.2019 regarding

cancellation of excess shares.

24) As per the above provision of law, the NCLT has power to order/

direct the concerned authorities to rectify 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 R1 company also through its Board Resolution expressed their No Objection

for cancellation of excess shares.

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25) Having analysed the above legal and factual aspect, this Tribunal

comes to a resultant conclusion that the appellant has made out a prima facie case

to allow the appeal. Accordingly, this Tribunal passed the following orders/

directions: -

(i) The impugned order dated 05.02.2021 passed by the NCLT, Bengaluru

Bench is hereby set aside and the Company Petition being CP

No.38/BB/2020 is hereby restored to its file.

(ii) The matter is reminded back to the NCLT and the learned NCLT is

directed to consider cancellation of 51,889 equity shares allotted to

Respondent No.1 and direct the ROC to carry out necessary rectification

of records relating to share capital and share premium account.

(iii) Further, the Appellant company is permitted to file additional affidavit

before the learned NCLT with regard to change in financial years and

change in statutory filings / forms etc. and the learned NCLT consider

the same.

(iv) We request the learned NCLT to dispose of the Company Petition being

CP No.38 / BB/2020 expeditiously as early as possible by affording an

opportunity to the Appellant.

(v) The appeal is allowed. No order as to costs.

[Kanthi Narahari] [Justice M. Venugopal] Member (Technical) Member (Judicial)

VAP

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