Mr.Balendra Choudhury & Ors vs Assam Medical Corporation Pvt.Ltd & Ors

[Arising out of the Impugned Order dated 03.06.2020 passed by the National Company Law Tribunal, Guwahati Bench in CP No./16/59/213/241/244/GB/2018]

IN THE MATTER OF:

1. Shri Anup Kumar Khemani S/o DD Khemani Address: Flat No. 2, 2nd Floor, Sri Kunj, Amravati Path, Christian Basti, GS Road, Guwahati-781006. 2. Sangeeta Khemani W/o Anup Kumar Khemani Address: Flat No. 2, 2nd Floor, Sri Kunj, Amravati Path, Christian Basti, GS Road, Guwahati-781006. 3. Landspaces Developers Pvt. Ltd. Through its Director, Sunil Agarwal Address: Ground Floor, Golden Woods Apartment, Sunderpur, RG Barua Road, Guwahati-781005 4. Ved Promoters Pvt. Ltd. Through its Director, Saloni Bansal Address: Sanmati Plaza, 4th Floor, GS Road, Ruwahati-781005 5. Venkatesh Associates Pvt. Ltd. Through its Director, Anil Agarwal Address: Ground Floor, Golden Woods Apartment, Sunderpur, RG Barua Road, Guwahati-781005

...Appellants Versus 1. Balendra Choudhury S/o Late Bhabananda Choudhury House No. 73, P.P. Road Rehabari, Guwahati- 781008 2. Shri S.M.B. Baruah S/o Late Ratna Malla Buzar Baruah 2

House No. 75, KRB Road, Bharalumukh, Guwahati-781009 3. M/s Assam Medical Corporation Pvt. Ltd. Through its MD, Dr. SC Kumar Gopinath Nagar, Kalapahar, Guwahati-781016 4. Shri Sunil Agarwal S/o Hanuman Prasad Agarwal Pinaki path, RG Barua Road, Zoo Road, Tiniali, Guwahati-781003 5. Shri Bal Kishan Bansal S/o Rohitash Chandra Bansal Sanmati Plaza, 4th Floor, GS Road, Ashoka Furniture, Guwahati-781005 6. Shri Shanky Agarwal S/o Sunil Agarwal 3rd Floor, Sri Kunj, Amravati Path, Christian Basti, GS Road, Guwahati-781006 7. Shri Anil Agarwal S/o HP Agarwal 18, Pinaki Path, 7th Bye Lane, Zoo Road, Tiniali, Guwahati-781003 8. Kabita Agarwal D/o Jagdish Prasad 18, Pinaki Path, 7th Bye Lane, Zoo Road, Tiniali, Guwahati-781003 9. Nina Agarwal D/o Vishambhar Lal Pinaki Path, RG Barua Road, Zoo Road, Tiniali, Guwahati-781003 10. Saloni Bansal D/o BK Bansal Vidyashree, Pension Para Road, Silpulhuri, Guwahati-781003 11. Shri Sachin Chandra Kumar S/o Late AR Kumar 15, Own House, Rupalim Path, Rukmini Gaon, Guwahati-781022 12. Shri Rajendra Prasad Hansaria S/o Late Satyanarayan Hansaria 1505 Royal Empire, T37 Lokhandwala Road, Andheri West, Mumbai-400053. 13. Shri Abhijit Neog S/o DP Neog

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 3

Banashree, House No. 15, Bye Lane No. 7, Sub lane No. 2, Guwahati. 14. Aruna Bansal W/o BK Bansal Address: Vidyashree, Pension Para Road, Sliphukuri, Guwahati-781003. ...Respondents Present: For Appellant : Ms. Anindita Mitra, Advocate. For Respondents : Mr. Atanu Saikia, Ms. Sujata Nath, Advocates for R- 1 & 2. Mr. Abhinav Hansaria, Advocates for R-3.

WITH Company Appeal (AT) No. 103 of 2020

[Arising out of the Impugned Order dated 03.06.2020 passed by the National Company Law Tribunal, Guwahati Bench in CP No./16/59/213/241/244/GB/2018]

IN THE MATTER OF:

M/s Assam Medical Corporation Pvt. Ltd. Through its MD, Dr. SC Kumar Gopinath Nagar, Kalapahar, Guwahati-781016

...Appellant Versus 1. Balendra Choudhury S/o Late Bhabananda Choudhury House No. 73, P.P. Road Rehabari, Guwahati- 781008 2. Shri S.M.B. Baruah S/o Late Ratna Malla Buzar Baruah House No. 75, KRB Road, Bharalumukh, Guwahati-781009 3. Shri Sunil Agarwal S/o Hanuman Prasad Agarwal Pinaki path, RG Barua Road, Zoo Road, Tiniali, Guwahati-781003 4. Shri Bal Kishan Bansal S/o Rohitash Chandra Bansal Sanmati Plaza, 4th Floor, GS Road, Ashoka Furniture, Guwahati-781005 5. Shri Anup Kumar Khemani

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 4

S/o DD Khemani Address: Flat No. 2, 2nd Floor, Sri Kunj, Amravati Path, Christian Basti, GS Road, Guwahati-781006. 6. Shri Shanky Agarwal S/o Sunil Agarwal 3rd Floor, Sri Kunj, Amravati Path, Christian Basti, GS Road, Guwahati-781006 7. Sangeeta Khemani W/o Anup Kumar Khemani Address: Flat No. 2, 2nd Floor, Sri Kunj, Amravati Path, Christian Basti, GS Road, Guwahati-781006. 8. Shri Anil Agarwal S/o HP Agarwal 18, Pinaki Path, 7th Bye Lane, Zoo Road, Tiniali, Guwahati-781003 9. Kabita Agarwal D/o Jagdish Prasad 18, Pinaki Path, 7th Bye Lane, Zoo Road, Tiniali, Guwahati-781003 10. Nina Agarwal D/o Vishambhar Lal Pinaki Path, RG Barua Road, Zoo Road, Tiniali, Guwahati-781003 11. Saloni Bansal D/o BK Bansal Vidyashree, Pension Para Road, Silpulhuri, Guwahati-781003 12. Landspaces Developers Pvt. Ltd. Through its Director, Sunil Agarwal Address: Ground Floor, Golden Woods Apartment, Sunderpur, RG Barua Road, Guwahati-781005 13. Ved Promoters Pvt. Ltd. Through its Director, Saloni Bansal Address: Sanmati Plaza, 4th Floor, GS Road, Ruwahati-781005 14. Venkatesh Associates Pvt. Ltd. Through its Director, Anil Agarwal Address: Ground Floor, Golden Woods Apartment, Sunderpur, RG Barua Road, Guwahati-781005 15. Shri Sachin Chandra Kumar

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 5

S/o Late AR Kumar 15, Own House, Rupalim Path, Rukmini Gaon, Guwahati-781022 16. Shri Rajendra Prasad Hansaria S/o Late Satyanarayan Hansaria 1505 Royal Empire, T37 Lokhandwala Road, Andheri West, Mumbai-400053. 17. Shri Abhijit Neog S/o DP Neog Banashree, House No. 15, Bye Lane No. 7, Sub lane No. 2, Guwahati. 18. Aruna Bansal W/o BK Bansal Address: Vidyashree, Pension Para Road, Sliphukuri, Guwahati-781003. ...Respondents Present: For Appellant : Mr. Vimal Kirti Singh, Mr. Raj Singh, Mr. Abhinav Hansaria, Ms. Nandita Seth, Advocates. For Respondents : Mr. Atanu Saikia, Ms. Sujata Nath, Advocates for R- 1 & 2.

WITH Company Appeal (AT) No. 104 of 2020

[Arising out of the Impugned Order dated 03.06.2020 passed by the National Company Law Tribunal, Guwahati Bench in CP No./16/59/213/241/244/GB/2018]

IN THE MATTER OF:

Dr. Kalicharan Das Trust Having office at: Dr. K.C. Das Nursing Home, Gopinath Nagar, Guwahati- 781016 Through its trustee, Smt. Neelam Hansaria 1505 Royal Empire, T37 Lokhandwala Road, Andheri West, Mumbai-400053 ...Appellant Versus 1. Balendra Choudhury S/o Late Bhabananda Choudhury House No. 73, P.P. Road Rehabari, Guwahati- 781008 2. Shri S.M.B. Baruah Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 6

S/o Late Ratna Malla Buzar Baruah House No. 75, KRB Road, Bharalumukh, Guwahati-781009 3. M/s Assam Medical Corporation Pvt. Ltd. Through its MD, Dr. SC Kumar Gopinath Nagar, Kalapahar, Guwahati-781016 4. Shri Sunil Agarwal S/o Hanuman Prasad Agarwal Pinaki path, RG Barua Road, Zoo Road, Tiniali, Guwahati-781003 5. Shri Bal Kishan Bansal S/o Rohitash Chandra Bansal Sanmati Plaza, 4th Floor, GS Road, Ashoka Furniture, Guwahati-781005 6. Shri Anup Kumar Khemani S/o DD Khemani Address: Flat No. 2, 2nd Floor, Sri Kunj, Amravati Path, Christian Basti, GS Road, Guwahati-781006. 7. Shri Shanky Agarwal S/o Sunil Agarwal 3rd Floor, Sri Kunj, Amravati Path, Christian Basti, GS Road, Guwahati-781006 8. Sangeeta Khemani W/o Anup Kumar Khemani Address: Flat No. 2, 2nd Floor, Sri Kunj, Amravati Path, Christian Basti, GS Road, Guwahati-781006. 9. Shri Anil Agarwal S/o HP Agarwal 18, Pinaki Path, 7th Bye Lane, Zoo Road, Tiniali, Guwahati-781003 10. Kabita Agarwal D/o Jagdish Prasad 18, Pinaki Path, 7th Bye Lane, Zoo Road, Tiniali, Guwahati-781003 11. Nina Agarwal D/o Vishambhar Lal Pinaki Path, RG Barua Road, Zoo Road, Tiniali, Guwahati-781003 12. Saloni Bansal D/o BK Bansal Vidyashree, Pension Para Road, Silpulhuri, Guwahati-781003

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 7

13. Landspaces Developers Pvt. Ltd. Through its Director, Sunil Agarwal Address: Ground Floor, Golden Woods Apartment, Sunderpur, RG Barua Road, Guwahati-781005 14. Ved Promoters Pvt. Ltd. Through its Director, Saloni Bansal Address: Sanmati Plaza, 4th Floor, GS Road, Ruwahati-781005 15. Venkatesh Associates Pvt. Ltd. Through its Director, Anil Agarwal Address: Ground Floor, Golden Woods Apartment, Sunderpur, RG Barua Road, Guwahati-781005 16. Shri Sachin Chandra Kumar S/o Late AR Kumar 15, Own House, Rupalim Path, Rukmini Gaon, Guwahati-781022 17. Shri Rajendra Prasad Hansaria S/o Late Satyanarayan Hansaria 1505 Royal Empire, T37 Lokhandwala Road, Andheri West, Mumbai-400053. 18. Shri Abhijit Neog S/o DP Neog Banashree, House No. 15, Bye Lane No. 7, Sub lane No. 2, Guwahati. 19. Aruna Bansal W/o BK Bansal Address: Vidyashree, Pension Para Road, Sliphukuri, Guwahati-781003. ...Respondents Present: For Appellant : Ms. Urvika Suri, Advocate. For Respondents : Mr. Abhinav Hansaria, Advocate. WITH Company Appeal (AT) No. 113 of 2020

[Arising out of the Impugned Order dated 03.06.2020 passed by the National Company Law Tribunal, Guwahati Bench in CP No./16/59/213/241/244/GB/2018]

IN THE MATTER OF:

1. Mr. Balendra Choudhury

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 8

S/o Late Bhabananda Choudhury House No. 73, P.P. Road Rehabari, Guwahati- 781008 2. Mr. Sobhan Malla Buzarbaruah S/o Late Ratna Malla Buzar Baruah Aged about 56 years House No. 75, KRB Road, Bharalumukh, Guwahati-781009

...Appellant Versus 1. M/s Assam Medical Corporation Pvt. Ltd. Gopinath Nagar, Kalapahar, Guwahati-781016 2. Shri Sunil Agarwal S/o Hanuman Prasad Agarwal Pinaki path, RG Barua Road, Zoo Road, Tiniali, Guwahati-781003 3. Shri Bal Kishan Bansal Chartered Accountant S/o Rohitash Chandra Bansal Sanmati Plaza, 4th Floor, GS Road, Ashoka Furniture, Guwahati-781005 4. Shri Anup Kumar Khemani S/o DD Khemani Address: Flat No. 2, 2nd Floor, Sri Kunj, Amravati Path, Christian Basti, GS Road, Guwahati-781006. 5. Shri Shanky Agarwal S/o Sunil Agarwal 3rd Floor, Sri Kunj, Amravati Path, Christian Basti, GS Road, Guwahati-781006 6. Sangeeta Khemani W/o Anup Kumar Khemani Address: Flat No. 2, 2nd Floor, Sri Kunj, Amravati Path, Christian Basti, GS Road, Guwahati-781006. 7. Shri Anil Agarwal S/o HP Agarwal 18, Pinaki Path, 7th Bye Lane, Zoo Road, Tiniali, Guwahati-781003 8. Kabita Agarwal D/o Jagdish Prasad 18, Pinaki Path, 7th Bye Lane, Zoo Road, Tiniali, Guwahati-781003

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 9

9. Nina Agarwal D/o Vishambhar Lal Pinaki Path, RG Barua Road, Zoo Road, Tiniali, Guwahati-781003 10. Ms. Ekta Agarwal C/o Mr. Sunil Agarwal R/o Pinaki Path, R.G. Barua Road Zoo Road Tiniali, Guwahati-781003 11. Saloni Bansal Chartered Accountant D/o BK Bansal Vidyashree, Pension Para Road, Silpulhuri, Guwahati-781003 12. Landspaces Developers Pvt. Ltd. Through its Director, Sunil Agarwal Address: Ground Floor, Golden Woods Apartment, Sunderpur, RG Barua Road, Guwahati-781005 13. Ved Promoters Pvt. Ltd. Through its Director, Saloni Bansal Address: Sanmati Plaza, 4th Floor, GS Road, Ruwahati-781005 14. Venkatesh Associates Pvt. Ltd. Through its Director, Anil Agarwal Address: Ground Floor, Golden Woods Apartment, Sunderpur, RG Barua Road, Guwahati-781005 15. Shri Sachin Chandra Kumar S/o Late AR Kumar 15, Own House, Rupalim Path, Rukmini Gaon, Guwahati-781022 16. Shri Rajendra Prasad Hansaria S/o Late Satyanarayan Hansaria 1505 Royal Empire, T37 Lokhandwala Road, Andheri West, Mumbai-400053. 17. Shri Abhijit Neog S/o DP Neog Banashree, House No. 15, Bye Lane No. 7, Sub lane No. 2, Guwahati. 18. Ms. Aruna Bansal W/o BK Bansal Address: Vidyashree, Pension Para Road, Sliphukuri, Guwahati-781003. ...Respondents

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 10

Present: For Appellant : Mr. Atanu Saikia, Ms. Sujata Nath, Advocates. For Respondents : Mr. Abhinav Hansaria, Advocate for R-1.

JUDGMENT

(Hybrid Mode)

[Per: Ajai Das Mehrotra, Member (Technical)]

The four appeals viz Company Appeal (AT) No. 102, 103, 104 and 113

of 2020 have been filed against the common impugned order dated

13.01.2020 passed by the Ld. NCLT Guwahati Bench in

CP/16/59/213/241/244/GB/2018.

2. The impugned order is regarding sale of shares of the Company viz

Assam Medical Corporation Pvt. Ltd. by Dr. Kali Charan Das Trust (in short,

the "Trust") and other shareholders to Agarwal and Khemani groups

(hereinafter referred to as the "Incoming Shareholders"). The Company

Appeal (AT) No. 102 of 2020 has been filed by the incoming shareholders. The

Company Appeal (AT) No. 103 of 2020 has been filed by the Assam Medical

Corporation Pvt. Ltd., whose shares have been sold/transferred. The

Company Appeal (AT) No. 104 of 2020 has been filed by the Dr. Kali Charan

Das Trust, which has sold the shares of Assam Medical Corporation Pvt. Ltd.

to the incoming shareholders. All the three appeals relate to sale and transfer

of 117 shares of Dr. Kali Charan Das Trust, which has been set aside by the

impugned order. The 4th appeal viz Company Appeal (AT) No. 113 of 2020 has

been filed by the shareholders viz Mr. Balendra Choudhury and Mr. SMB

Baruah praying that sale of 135 shares by other shareholders (other than

those held by Dr. Kali Charan Das Trust) should be set aside as the Ld. NCLT

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 11

has erred in confirming this sale, though there is no distinction between these

shares and shares owned by the Trust.

3. The Brief facts of the case as under:

(i) Late Dr Kalicharan Das, a medical practitioner and philanthropist,

established and ran a small nursing home from his residence in or around

the year 1953, which gradually evolved into a larger healthcare institution

serving the residents of Guwahati and surrounding areas.

(ii) Dr Kalicharan Das, along with six other like-minded persons, Dr Susil

Ranjan Roy, Dr Shailendranath Sengupta, Dr Ataur Rahman and Dr Ramani

Kanta Talukdar (medical practitioners), Mr Sukumar Dutta (a pharmacist),

and Mr Jogendra Narayan Baruah (a businessman), incorporated Assam

Medical Corporation Limited on 13.07.1960 as a public limited company with

an initial paid-up capital of ₹5,00,000 divided into 50,000 equity shares of

₹10 each. The Government of Assam donated approximately 11 bighas of land,

measuring approximately 3.6 acres, at Kalapahar, Guwahati for the said

purpose.

(iii) Assam Medical Corporation Limited was subsequently converted into a

private limited company on 18.12.1961 under the name Assam Medical

Corporation Private Limited (hereinafter called the "Company" or "AMC"),

having an authorised share capital of ₹5,00,000 divided into 500 equity

shares of ₹1,000 each.

(iv) A Nursing Home under the name "Amcorp's Nursing Home and

Polyclinic" was established in 1966 on the land donated by the Government

of Assam.

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 12

(v) In the year 1981, Dr Kalicharan Das established the Dr Kali Charan

Das Trust (hereinafter called the "Trust") by executing a Trust Deed dated

11.05.1981. Pursuant thereto, he transferred his entire shareholding

comprising 117 equity shares of the Company, representing approximately

23.4% of the total share capital of the Company, in favour of the Trust. Dr.

Kalicharan Das passed away on 03.03.1983 and thereafter his wife, with

assistance of appellant Mr. Balendra Choudhury, who is son of Mrs. Kiran

Bala Choudhury, elder sister of Dr. Das, managed the Nursing Home. Mrs.

Das passed away on 07.04.1985, and elder sister of Mr. Das inherited the

estate, including 55 shares in AMC. Mrs. Kiran Bala Choudhury passed away

on 29.03.2021, whereafter on 25.06.2004 her 55 shares were transmitted to

the Mr. Choudhury and he became Director of AMC on 30.09.2009 and since

then he is continuously holding this position.

(vi) Over a period of time, the Company witnessed a decline in its financial

condition and the need for additional fund was felt.

(vii) A meeting of the trustees of the Trust was convened on 27.12.2017 and

after deliberations regarding the financial requirements of the Trust and the

nursing home, the trustees decided to sell the shares held by the Trust in

AMC.

(viii) An Agreement for Transfer of Shares (hereinafter called the "STA"),

dated 28.12.2017, was executed between Dr Rajendra Prasad Hansaria,

executing the STA in the capacity of Managing Trustee "for Dr Kalicharan Das

Trust" and Mr. Sunil Agarwal, Mr. Bal Kishan Bansal and Mr. Anup Kumar

Khemani, collectively described in STA as the transferees, for the transfer of

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 13

all 117 shares held by the Trust at ₹4,00,000 per share, that is, total

consideration of Rs. 4,68,00,000/-.

(ix) A notice dated 29.12.2017 was issued convening a meeting of the Board

of Directors on 03.01.2018 to consider and approve transfer of certain shares

lodged for transfer and to consider and approve the resignation tendered by

Mr Vinod Hansaria and Dr Madhav Prasad Bajaj from the directorship of the

company and simultaneously consider and approve appointment of Mr Sunil

Agarwal, CA Bal Kishan Bansal, and Mr Anup Kumar Khemani as directors

in the company and to convene an Extraordinary General Meeting (hereinafter

called the "EOGM") of the company for confirmation of appointment of new

directors and to increase the authorised share capital of the company. No

objection was raised by any director to the said transfer of shares.

(x) A meeting of the Board of Directors was held on 03.01.2018 wherein

the Board approved the transfer of a total of 85 equity shares held by various

existing shareholders in favour of the incoming shareholders, as set out

below, and separately resolved to accept resignations of outgoing

shareholders with effect from that date:

S. Existing Shareholder Shares Incoming Shareholder (Transferee) No. (Transferor)

1 Mr. Vinay Hansaria 10 Mr. Shanky Agarwal

2 Mrs. Kiran Hansaria 10 Landspaces Developers (P) Ltd.

3 Mr. Vinod Hansaria 10 Landspaces Developers (P) Ltd.

4 Mrs. Neelam Hansaria 10 Landspaces Developers (P) Ltd.

5 Mr. Arvind Nevatia 10 Mr. Anup Kumar Khemani

6 Mr. Madhur Nevatia 10 Mrs. Sangita Khemani

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 14

S. Existing Shareholder Shares Incoming Shareholder (Transferee) No. (Transferor)

7 Mrs. Saroj Khemka 15 Ved Promoters Pvt. Ltd.

8 Dr Madhav Prasad Bajaj 5 CA Bal Kishan Bansal

9 Mrs. Pronti Talukdar 5 Mr. Sunil Agarwal

Total 85

(xi) On the same date (03.01.2018), the Board resolved to convene an

EOGM on 24.01.2018 for considering the appointment of Mr. Sunil Agarwal,

CA Bal Kishan Bansal and Mr. Anup Kumar Khemani as Directors of the

Company. The notice dated 03.01.2018 for the convening of the EOGM on

24.01.2018 also contained a proposal for enhancement of the authorised

share capital to ₹1,00,00,000 divided into 10,000 equity shares of ₹1,000

each.

(xii) Another notice dated 19.01.2018 was issued for convening a meeting

of the Board of Directors on 24.01.2018 to confirm the proceedings of the

Board of Directors meeting held on 03.01.2018 and for consideration of the

transfer of shares.

(xiii) At the Board Meeting held on 24.01.2018, Mr. Balendra Choudhury

objected to the proposed transfer of the shares held by the Trust. The Minutes

of the meeting records his objection but states that "after explanation to him,

the following resolutions were adopted by the Board". It is noteworthy that the

content of the explanation given to Mr. Balendra Choudhury was not recorded

in the minutes of the meeting. The Board thereafter approved the transfer of

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 15

the 117 shares held by the Trust, together with the shares held by Dr

Rajendra Prasad Hansaria and Mr Sankar Hazarika, as set out below:

S. Existing Shareholder Shares Incoming Shareholder (Transferee) No. (Transferor)

1 Dr Kali Charan Das Trust 40 Venkatesh Associates Pvt. Ltd.

2 Dr Kali Charan Das Trust 17 Landspaces Developers (P) Ltd.

3 Dr Kali Charan Das Trust 20 Ved Promoters Pvt. Ltd.

4 Dr Kali Charan Das Trust 30 Mr. Anup Kumar Khemani

5 Dr Kali Charan Das Trust 10 Mrs. Sangeeta Khemani

Dr Rajendra Prasad 6 10 Mr. Anil Agarwal Hansaria

Dr Rajendra Prasad 7 10 Mrs. Kabita Agarwal Hansaria

Dr Rajendra Prasad 8 5 Ms. Nina Agarwal Hansaria

Dr Rajendra Prasad 9 20 Ved Promoters Pvt. Ltd. Hansaria

Dr Rajendra Prasad 10 5 Mrs. Sangeeta Khemani Hansaria

11 Mr. Sankar Hazarika 2 Ms. Ekta Agarwal

Total 169

(xiv) An Extraordinary General Meeting (EOGM) of the Company was held

on the same day. During the meeting, the shareholders approved the

appointment of Mr. Sunil Agarwal, CA Bal Kishan Bansal and Mr. Anup

Kumar Khemani as Directors of the Company. The proposals relating to the

increase of the authorised share capital and alteration of the Capital Clause

of the Memorandum of Association were, however, dropped. Lastly, the

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 16

shareholders approved the substitution of Clause 5 of the Articles of

Association relating to the authorised share capital.

(xv) On 16.03.2018, Mr. Choudhury and Mr. Baruah lodged a complaint

with the Deputy Commissioner and the Sub-Registrar, Kamrup (Metro),

requesting that no document relating to the Company be registered. Following

this, the Company received requisitions from three members for convening an

Extraordinary General Meeting to remove Mr. Balendra Choudhury from the

directorship of the Company.

(xvi) Mr. Balendra Choudhury, by letter dated 12.04.2018 addressed to

Chairman & Managing Director of AMC, raised objections as to the transfer

of shares and stated that his objection and observations opposing transfer of

shares were not recorded in the minutes of the meetings held on 03.01.2018

and 24.01.2018, and that he did not agree to the agenda of transfer of shares

and the same was passed without noting his objection. He urged CMD, AMC

not to approve the minutes.

(xvii) By a notice dated 17.04.2018, a meeting of the Board of Directors was

convened for 19.04.2018, with an agenda comprising acceptance of the

resignation tendered by Dr Rajendra Prasad Hansaria from the directorship

of the Company; appointment of CA Saloni Bansal as director in his place;

and approval of certain further share transfers lodged with the Company,

including the transfer of 5 shares by Dr Rajendra Prasad Hansaria to Mrs.

Aruna Bansal. The meeting was rescheduled for 03.05.2018 by a notice dated

23.04.2018.

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 17

(xviii) Mr. Balendra Choudhury, on 27.04.2018 objected to the calling of the

Board Meeting without following the requirements of law, and requested that

the meeting be postponed.

(xix) Item 4 of notice dated 23.04.2018 recorded that the Board was in

receipt of a letter from shareholders namely, M/s. Ved Promoters Pvt. Ltd.

(represented by CA Saloni Bansal), Mr. Shanky Agarwal, and M/s.

Landspaces Developers Pvt. Ltd. (represented by Mr. Shanky Agarwal),

requesting that an Extraordinary General Meeting be convened to remove Mr.

Balendra Choudhury from the Board.

(xx) Mr. Balendra Choudhury, by a further letter dated 30.04.2018,

objected specifically to Item 4 of the said agenda.

(xxi) The Board Meeting convened for 03.05.2018 was not concluded and

stood adjourned, in the first instance to 05.05.2018 and thereafter to

17.05.2018. It was on 05.05.2018 that Mr. Sobhan Malla Buzar Baruah,

through a letter of that date, noted the presence of "many new faces" at the

Extraordinary General Meeting held on 24.01.2018, enquired whether shares

had been issued or transferred to them, and stated that in both cases he was

"willing to acquire more shares of the company as and when offered by the

Board". Notices were thereafter issued for an Extraordinary General Meeting,

first proposed for 01.06.2018 and subsequently for 11.06.2018, with an

agenda for the appointment of CA Saloni Bansal and Mr. Shanky Agarwal as

directors and the removal of Mr. Balendra Choudhury from the Board.

(xxii) Alleging that the transfer of shares had been effected in violation of

Article 15 of the Articles of Association (hereinafter called the "AoA") and that

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 18

the affairs of the Company were being conducted in a manner prejudicial to

the interests of existing shareholders, Mr. Balendra Choudhury and S.M.B.

Baruah instituted Company Petition No. 16/59/213/241/244/GB/2018

before the National Company Law Tribunal, Guwahati Bench (hereinafter

called the "Ld. NCLT") in June 2018. The concerned Article 15 of the AoA reads

as under:

"Article 15: notice of transfer--

Every member or the legal representative of a deceased member who intends to transfer shares (hereinafter called the vendor) shall give in writing to the Board notice of his intention. That notice shall constitute the Board his agent for the sale of the said shares, in one or more lots at the discretion of the Board, to members of the Company at a price to be agreed upon by the vendor and the Board or in default of agreement at a price which the auditor of the Company for the time being shall certify by writing under his hand to be in his opinion, the fair selling value thereof as between a willing vendor and a willing purchaser."

(xxiii) The Ld. NCLT, by its order dated 03.06.2020, held that the 117 shares

belonging to the Trust could not be transferred in the same manner as

transfer of shares of the ordinary shareholders and set aside the transfer of

the said shares and consequential appointment of new shareholders as

Directors, holding as under:

"56. Heard all the concerned parties and perused the record. The respondents No.1, 15 and 16 apart from addressing oral arguments also filed synopsis of their written arguments.

57. The petitioners claimed interim reliefs covered by prayer clauses A- (1) to (XXXIX) and final reliefs covered by prayer clauses B-(1) to (XXXIII) of Para (V) in the petition.

58. In so far as the relief of an order declaring the EOGM scheduled to be held on 01.06.2018 and the decisions taken therein are illegal and void covered by prayer clause III is concerned, the learned advocate appearing for the R1 Company clearly pleaded in their

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 19

reply and also confirmed during the course of arguments that no such EOGM was held on 01.06.2018 and, therefore, the said relief has become Infructuous and no order needs to be passed in this regard.

59. The main grievance of the petitioners in the pleadings as well as at the time of argument is that the R1 Company has illegally- transferred its shares of the promoter Trust M/s. Kalicharan Das Trust to the respondents No.4, 6, 12, 13 and 14 in the minutes of meeting dated 24.01.2018 without considering his objections only with an intention to convert the land of the R1 for construction of real estate project against the aims and objects of the R1 Company It is the contention of the petitioners that the transfer of 117 shares of M/s. Kalicharan Das Trust is contrary to Article 15 of the Articles of Association of the R1 Company.

It is the submission of the petitioners that the R1 Company was Initially started as a small Nursing Home by his late uncle Mr. Kalicharan Das with an object of providing free medical services to the poor and needy people of the city of Guwahati and subsequently, the same was converted into a Limited Company with the help of other like-minded professionals of his uncle Late Dr. Kalicharan Das. The P1 further submits that his uncle Late Dr. Kalicharan Das transferred his shares in the R1 Company to M/s. Kalicharan Das Trust by executing a Deed of Trust and also appointed trustees and, therefore, those shares cannot be transferred to other than the people in Health Care Sector, especially not to Real Estate Companies. Except the grievance of transfer-of. shares of M/s. Kalicharan Das Trust, the advocate appearing for the petitioners did not press for any other reliefs.

The other grievance of petitioners is that the respondents being directors are conducting the day to day affairs of the R1 Company detrimental to the interests of the petitioners as well as to the aims and objects of the Company by committing certain financial irregularities.

60. All the respondents, in one voice, seriously objected to the maintainability of the above petition contending that neither M/s. Kalicharan Das Trust nor its Trustees are parties to the present petition and, therefore, the present petition is not maintainable for non-joinder of necessary parties. The advocate appearing for the R1 and 15 invited attention of this Tribunal to several reliefs claimed by the petitioners in the above petition and contended that all the above relies claimed by the petitioners are basing on mere suspicion without any evidence whatsoever placed before this Tribunal and if all the reliefs claimed by the petitioners are granted, Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 20

it will virtually stop functioning of the R1 Company and its directors and will also prejudice the R1 Company and Its directors in taking any decisions with regard to running of the R1 Company. The advocate appearing for the transferees adopted the arguments of the respondents No.1, 15 and 16. Thus the counsels appearing for all the parties made very brief submissions. In the light of the above background, the issues that fall for consideration are:-

1) Whether the transfer of 117 shares of M/s. Kalicharan-Das-

Trust in Board Meeting held on 24.01.2018 is legal and In accordance with the AOA?

(2) Whether the petitioners are entitled for numerous relies claimed in the petition?

(3) To what relief?

61. In order to answer the above issue No.1, it Is important to read Article 15 of the Articles of Association and also the Minutes of the Meeting dated 24.01.2018, which are extracted hereunder for ready reference as follows:

"Article 15: notice of transfer-

15. Every member or the legal representative of a deceased member who intends to transfer shares (hereinafter called 'the vendor') shall give in writing to the Board notice of his intention. That notice shall constitute the Board his agent for the sale of the said shares, in one or more lots at the discretion of the Board, to mernbers of the Company at a price to be agreed upon by the vendor and the Board or in default of agreement at a price which the auditor of the Company for the time being shall certify by writing under his hand to be in his opinion, the fair selling value thereof as between a willing vendor and a willing purchaser."

The Minutes of the Meeting of the Board Meeting held on 24.01.2018 reads as follows:-

"MINUTES OF THE BOARD OF DIRECTORS MEETING HELD ON 24/1/2018 AT THE REGISTERED OFFICE OF ASSAM MEDICAL CORPORATION PVT. LTD., GUWAHATI-16 DIRECTORS PRESENT:

1) DR. R. P. HANSARIA

2) DR. S. C. KUMAR

3) DR. A. NEOG

4) SRI BALENDRA CHOUDHURY

5) Mr. BAL KIISHAN BANSAL

6) MR. ANUP KUMAR KHEMANI

7) MR. SUNIL AGARWAL SPECIAL INVITEE:

1) MRS. NEELAM HANSARIA

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 21

Dr. R. P. Hansaria proposed the name of Dr. S. C. Kumar to preside over the meeting. Sri Balendra Choudhury seconded the proposal.

Dr. S. C. Kumar accepted and look the chair.

Dr. R. P. Hansaria read out the minutes of the last Board Meeting held on 03/01/2018 and the same was approved.

The Board received the share transfer deeds lodged with the Company, Sri Balendra Choudhury raised an objection on the transfer of shares of Kali Charan Das Trust, after explanation to him, the following resolutions were adopted by the Board:

"RESOLVED THAT the transfer of following shares are be and hereby approved by the Board of Directors:

Sl. No. Transferor No. of shares Transferee

1. Dr. Rajendra Prasad Hansaria 10 Mr. Anil Agarwal

2. Dr. Rajendra Prasad Hansaria 10 Mr. Kabita Agarwal

3. Dr. Rajendra Prasad Hansaria 05 Mrs. Nima Agarwal

4. Dr. Rajendra Prasad Hansaria 20 Ved Promoters Pvt. Ltd.

5. Dr. Rajendra Prasad Hansaria 05 Mrs. Sangita Khemani

6. Kali Charan Das Trust 40 Venkatesh Associates Pvt. Ltd.

7. Kali Charan Das Trust 17 Landspaces Developers P. L

8. Kali Charan Das Trust 20 Ved Promoters Pvt. Ltd.

9. Kali Charan Das Trust 30 Mr. Anup Kumar Khemani

10. Kali Charan Das Trust 10 Mrs. Sangeeta Khemani

11. Sankar Hazarika 02 Mrs. Ekta Agarwal

The meeting ended with a vote of thanks to the Chair."

62. In order to decide the above Issue No.1, it is important to look at the reply filed by the R1 Company. The R1 Company in their reply stated that the shares were transferred in a valid and legal manner and Dr. R. P. Hansaria, Sri Binod Hansaria and Dr. Madhab Prasad Bajaj voluntarily stepped_down_as_directors and Mr. Sunil Agarwal, CA Bal Kishan Bansal and Mr. Anup Kumar Khemani were appointed as directors in the Board Meeting held on 24.01.2018. It is very clear from Article 15 of the AOA that a procedure for transfer of shares is provided. under the AOA. The R1 Company except making the above statement in their reply did not place any evidence before this Tribunal regarding the procedure adopted by them in transferring the shares of the Trust. It is interesting to note that in the minutes dated 24.01.2018, the R1 Company having recorded the objections of the petitioners with regard to transfer of 117 shares of the Trust, miserably failed to record the explanation under which the petitioner was satisfied about his objections. It is very hard to believe that the petitioners Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 22

having satisfied, filed the present petition in the absence of the recording of the explanations in the minutes nor evidence to that effect.

As rightly contended by the petitioners, those 117 shares were held by M/s. Kalicharan Das Trust and they cannot be transferred in a routine manner like transfer of shares of other members, as the sold shares belongs to a Trust created by the Founder Member of the R1 Company Late Dr. Kali Charan Das. The burden of proof with regard to the legal and valid mode of transfer of those shares is upon the respondents and they have miserably failed to discharge their burden. As rightly contended by the petitioners, the R1 Company has to observe all the legal formalities for transfer of shares of a trust, be it private or public.

Therefore, it is very clear from the conduct of the respondents that those shares were transferred in a routine manner, taking advantage of the majority in the Board. The mere undertaking of the transferees not to transfer their shares will not cure the Illegality. Since, the petitioners are questioning the actions of the R1 Company, non-joinder of the Trust nor its Trustees as parties is not fatal and this Tribunal has every power to conduct legal scrutiny. Even otherwise, the provisions of Civil Procedure Code are not applicable except to the extent provided under the Companies Act to the proceedings before this Tribunal. Therefore, the objection of the respondents with regard to non-joinder of parties is not legally sustainable and is rejected.

63. So far as the transfer of shares of other members in the Board Meeting dated 03.01.2018 is concerned, those shares were held by other individual members who have every right to deal in their own right and, therefore, this Tribunal Is not inclined to interfere.

64. Next issue is with regard to appointment of Mr. Sunil Agarwal, CA Bal Kishan Bansal, Mr. Anup Kumar Khemani and CA Saloni Bansal. Since Mr. Anup Kumar Khemani purchased the shares of M/s. Kalicharan Das Trust, his directorship automatically gets cancelled in view of setting aside the transfer of shares of M/s. Kalicharan Das Trust by this Tribunal unless he possesses some other shares other than the shares of M/s. Kalicharan Das Trust.

In so far as appointment of Mr. Sunil Agarwal, CA Bal Kishan Bansal and CA Saloni Bansal is concerned, the appointment of directors and auditors is the exclusive domain of the Board and this Tribunal shall not interfere unless serious prejudice to the public interest of to the affairs of the company is shown.

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 23

65. As rightly contended by the respondents, the petitioners claimed numerous reliefs and all the reliefs, if granted, will virtually halt up the smooth functioning of the R1 Company and cannot be granted. Even otherwise, the petitioners have not placed any substantial evidence before this Tribunal warranting grant of those reliefs nor pressed those reliefs at the time of submissions.

66. In the light of the above facts and circumstances and observations, this Tribunal is of the considered opinion that the petitioners are not entitled for all the reliefs claimed in the petition except to the extent of setting aside the transfer of 117 shares of M/s. Kalicharan Das Trust and accordingly, this Tribunal pass the following orders:-

(i) It is hereby declared that the transfer of 117 shares of M/s. Kalicharan Das Trust in the Board Meeting dated 24.01.2018 is not in accordance with law and is hereby set aside and consequently, the R1 Company is directed to undo the said transfer in all the relevant registers and shall also communicate the same to the concerned statutory authorities.

(ii) Mr. Anup Kumar Khemani is ceased to be the director of the R1 Company from the date of communication of this order unless he possess some other shares other than the 30 shares of M/s. Kallcharan Das Trust.

(iii) The appointment of Mr. Sunil Agarwal, CA Bal Kishan Bansal and CA Saloni Bansal as directors-is-hereby confirmed.

(iv) The rest of the reliefs claimed by the petitioners are rejected.

(v) Both the parties shall bear their own cost."

(xxiv) Aggrieved by different portions of the order dated 03.06.2020, the

Company, Mr. Anup Kumar Khemani and other incoming shareholders, the

Trust, and Mr. Balendra Choudhury, along with Mr. S.M.B. Baruah, have

separately preferred Company Appeal (AT) Nos. 103 of 2020, 102 of 2020, 104

of 2020 and 113 of 2020, respectively, before this Tribunal, thereby giving rise

to the present batch of connected appeals.

4. The original petitioners before Ld. NCLT, namely, Mr. Balendra

Choudhury and Mr. S.M.B. Baruah are Respondents No. 1 and 2 in the first

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 24

three appeals (CA (AT) Nos. 102, 103 and 104 of 2020) and Appellant in the

fourth appeal (CA (AT) No. 113 of 2020). Their oral and written submissions

are as under:

i. The shares of Assam Medical Corporation Pvt. Ltd. (AMC) have been

transferred without following the procedure prescribed in Article 15 of Articles

of Association and without observing the legal formalities for transfer of

shares specified therein. There can be no exception against law.

ii. Section 2(68) of the Companies Act 2013, and the Articles of Association

of the AMC contain restrictions on the right of existing shareholders to

transfer their shares. Article 15 gives pre-emptive right to the existing

shareholders, without exercise of which there cannot be permission to sell the

shares to outsiders.

iii. Mr. Balendra Choudhury and Mr. S.M.B. Baruah, had vehemently

opposed the violation of Articles of Association and had expressed their

willingness to exercise their pre-emptive right under Articles of Association.

iv. The Hon'ble Supreme Court in the case of Claude-Lila Parulekar (Smt.)

v. Sakal Papers (P) Ltd. (2005) 11 SCC 773 has held that board of directors

are strictly bound by the Articles of Association and that board of directions

have no power to act contrary to Articles of Association.

v. Non-joinder of the Trust in their petition before Ld. NCLT is not fatal,

as no relief was claim against the Trust and only conduct/action of the

company AMC were under challenge. They had never challenged the

ownership of 117 shares held by the Trust. Further in any case, the managing

trustee of the Trust was also one of the Respondent. The Ld. NCLT has rightly

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 25

dealt with the objections and has held that non-joinder of Trust is not fatal to

this proceeding.

vi. Objections in the board meetings were not properly recorded, and this

fact was brought to the notice of the chairman and managing director of AMC

by Mr. Choudhury vide letter dated 12.04.2018, which is scanned below:

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 26

vii. Mr. Baruah, vide letter dated 05.05.2018 had offered to acquire more

shares of the company. The said letter is scanned below:

viii. The real estate company had taken over control of AMC with a view to

shutdown the Nursing Home and use it for commercial motive.

ix. In CA (AT) No. 113 of 2020 Mr. Choudhury and Mr. Baruah had

challenged the order of Ld. NCLT stating that there is no difference in the

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 27

shares of Kalicharan Das Trust and the shares held by the individuals and

they should not have been treated separately. The transfer of shares held by

individuals is also in violation of Article 15 of the Articles of Association.

x. It is submitted that the appellants Mr. Balendra Choudhury and Mr.

S.M.B. Baruah, were not personally present in the hearing before the Ld.

NCLT and they had not authorised their advocate to give up substantial legal

right that is, to forego other reliefs prayed for by them. They rely on the

judgment of the Hon'ble Supreme Court in the Case of Himalayan Coop. Group

Housing Society v. Balwan Singh (2015) 7 SCC 373, in this regard.

xi. The Ld. NCLT has erred in confirming the transfer of shares by

individual members to third party, since transfer of shares by individual

shareholders to outsiders also violates Article 15 of Articles of Association.

5. The company Assam Medical Corporation Pvt. Ltd. (AMC) had

challenged the impugned order in Company Appeal (AT) No. 103 of 2020. It is

Respondent in all the other three appeals. The submissions of AMC are as

under:

i. The right of pre-emption as provided under Article 15 of Articles of

Association was waived by Mr. Balendra Choudhury and Mr. S.M.B. Baruah

through their conduct and acquiescence, and consequentially share transfers

made on 03.01.2018 and 24.01.2018 were legal.

ii. Mr. Choudhury had attended the board meeting on 03.01.2018 and the

resolution for sale of shares by individual shareholders to outsiders was

passed unanimously, as also the proposal to appoint the incoming

shareholders as directors.

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 28

iii. Similarly, in the EOGM held on 24.01.2018, the appointment of three

directors, namely, Mr. Sunil Agarwal, Mr. Anup Kumar Khemani and CA Bal

Krishan Bansal (new shareholders) was approved. It was only through their

letter dated 12.04.2018 that Mr. Choudhury had objected to the said transfer

of shares recorded in meeting dated 03.01.2018 and 24.01.2018, and it was

only on 05.05.2018 that Mr. Baruah expressed willingness to purchase shares

if offered in future.

iv. For a case of oppression and mismanagement, there should be a clear

bona fide offer to purchase the shares which was disregarded/refused by the

board. There was no clear offer from Mr. Choudhury or Mr. Baruah or any

other shareholder, and thus there is no case for oppression and

mismanagement.

v. The conduct fulfils all the requirements of waiver as has been held by

the Hon'ble Supreme Court in M/s Motilal Padampat Sugar Mills v. State of

Uttar Pradesh and Ors. (1979) 2 SCC 409, wherein in para 6 it is held as under:

"6.....Waiver means abandonment of a right and it may be either express or implied from conduct, but its basic requirement is that it must be "an intentional act with knowledge". Per Lord Chelmsford, L.C. in Earl of Darnley v. London, Chatham and Dover Rly. Co. [1867] L.R. 2 H.L. 43 There can be no waiver unless the person who is said to have waived is fully informed as to his right and with full knowledge of such right, he intentionally abandons it. It is pointed out in Halsbury's Laws of England (4 d) Volume 16 in paragraph 1472 at page 994 that for a "waiver to be effectual it is essential that the person granting it should be fully informed as to his rights"......"

vi. The sale of shares to outsiders without following Article 15 was not void

but only voidable. The reliance has been placed on the judgment of Radhabari

Tea Co. v. Mridul Kumar Bhattarcharjee (2009) SCC Online Gau.88).

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 29

vii. Mr. Choudhury and Mr. Baruah conceded and restricted their case only

with respect to the transfer of trust shares to the third parties and gave up all

other reliefs and are estopped from seeking these reliefs before this Tribunal.

viii. Grave errors have been committed in the impugned order by applying

different yardsticks to the sale of shares by individuals and sale of trust

shares. The statute does not provide for different procedure to be applied while

dealing with shares or transfer thereof held by individuals or company or

trust. Articles of Association cannot be applied selectively to the shares held

by the trust and not to the shares held by the individuals. The Ld. NCLT has

raised no objection to shares transferred by individual shareholders while

simultaneously setting aside the transfer of shares by the trust.

ix. In any case, whether a trust could have or could not have sold its shares

was a matter to be adjudicated in the civil suit and the Ld. NCLT had no

jurisdiction.

6. The Ld. Counsel for incoming shareholders of Agrawal and Khemani

groups, who had filed Company Appeal (AT) No. 102 of 2020 and are

Respondents in other appeals, have argued as under:

i. They are the bona fide purchasers of the shares. The AMC was in need

of urgent funds and discussions took place between major shareholders of

AMC and incoming shareholders. The funds were required to be infused to

improve financial health of the company. It was resolved that the company

would raise funds by way of a rights issue and for the same valuation of

market value of the shares was to be undertaken.

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 30

ii. The Ld. NCLT has wrongly applied different yardsticks while dealing

with the transfer of shares held by the individual shareholders and that the

legal status of a trust as a shareholder is same as that of any other

shareholder in a company and the Ld. NCLT erred in declaring the transfer of

shares of the trust as null and void while approving the transfer of shares by

other shareholders.

7. We have heard the Ld. Counsels and have perused the records with

their able assistance.

7.2 We note that company AMC was incorporated as a Pvt. Ltd. Company

on 18.12.1961. The Articles of Association and the Memorandum of

Association was drawn under the prevailing Companies Act, 1956. The

relevant provision of Companies Act, 1956 in Section 3 is as under:

"3 ............

(iii) "private company" [means a company which has a minimum paid-up capital of one lakh rupees or such higher paid-up capital as may be prescribed, and by its articles].

(a) restricts the right to transfer its shares, if any;

........."

7.3 The corresponding provision in Companies Act, 2013 Act is Section

2(68), the relevant portion of which reads as under:

"2(68) "private company" means a company having a minimum paid-up share capital as may be prescribed, and which by its articles,--

(i) restricts the right to transfer its shares; ........

(iii) prohibits any invitation to the public to subscribe for any securities of the company;"

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 31

7.4 From a plain reading of aforesaid Section it is apparent that a private

limited company has a right to restrict the 'right to transfer' of its shares

through its Articles of Association.

7.5 Applying the right to restrict transfer of its shares, as prescribed in the

Section 3(iii) of Companies Act, 1956, the AMC had adopted the following

Article 15:

"Article 15: notice of transfer--

Every member or the legal representative of a deceased member who intends to transfer shares (hereinafter called the vendor) shall give in writing to the Board notice of his intention. That notice shall constitute the Board his agent for the sale of the said shares, in one or more lots at the discretion of the Board, to members of the Company at a price to be agreed upon by the vendor and the Board or in default of agreement at a price which the auditor of the Company for the time being shall certify by writing under his hand to be in his opinion, the fair selling value thereof as between a willing vendor and a willing purchaser."

7.6 A bare perusal of the said Article 15 shows that the proper procedure

for sale of shares of AMC is that the member (or the legal representative of the

deceased member) who intends to transfer the shares has to give a notice of

his intention to sell in writing to the board. The board will then act as an agent

for the sale of said shares, which can be sold in one or more lots, to members

of the company at the agreed price (between the seller and the board) or a

price determined by the auditor of the company if no such agreement is

reached. Article 28 of the Articles of Association specifies the exceptions in

which Article 15, along with Articles 13, 14 and 16 are not applicable in case

of transfer by a member to his wife, any other member of his HUF or new

trustee etc. This Article 28 containing exceptions is not applicable to the share

transfers which are subject matter of the impugned order.

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 32

7.7 Article 28 of Articles of Association reads as under:

"28. Exceptions

Articles 13, 14, 15 and 16 hereof shall not apply to a transfer to a person who is already a member of the Company nor to transfer by a member to the name of his wife or issue or any other members of his and undivided Hindu family nor to a transfer nearly for the purpose of effectuating the appointment of new trustees nor to a transfer by executors or administrators to a legatee under the will of or to a husband, wife or next of kin of a deceased member nor to a transfer by a trustee to a beneficiary PROVIDED THAT it is proved to the satisfaction of the Board that the transfer bona-fide falls within one of these exceptions."

7.8 Separating wheat from chaff, in essence this case is whether

compliance to Article 15 of the Articles of Association of the company has been

made in transfer of shares of individuals and the Trust held in the company

AMC to rank outsiders. The company has not followed Article 15 of Articles of

Association "in toto" from the very beginning of these transfers. The sellers

have not given any notice to the Board, the Board was neither asked nor

performed as agent of the selling shareholders. The Board also did not

determine the 'agreed' price of shares neither the auditor discovered price of

subject shares, as required under Article 15.

7.9 We now look at judicial guidance on the pre-eminence and overriding

impact of Articles restricting transfer of shares in a Private Limited company.

7.9.1 It has been held in Lyle & Scott Ltd. v. Scott's Trustees, 1959 AC 763

that there can be restrictive rights on transfer of shares in favour of strangers

if the existing members of the company are willing to buy them. Such

restrictions imposed by the Articles were held to be valid.

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 33

7.9.2 It has been held in the case of V.B. Rangaraj v. V.B. Gopalkrishnan

(1992) 73 Comp. Case 201 SC that the restriction on transferability of shares

as provided in the Articles of private company shall be binding and any

additional rights to transfer contrary to the Article shall not be binding on the

company.

7.9.3 The Hon'ble Supreme Court in the case of Claude-Lila Parulekar (Smt.)

v. Sakal Papers (P) Ltd. & Ors. (2005) 11 SCC 73 in para 25 held as under:

"25. Section 36 of the Companies Act, 1956 makes the memorandum and articles of the company, when registered, binding not only on the company but also the members inter se to the same extent as if they had been signed by the company and by each member and covenanted to by the company and each shareholder to observe all the provisions of the memorandum and of the articles. The articles of association constitute a contract not merely between the shareholders and the company but between the individual shareholders also. The articles are a source of power of the Directors who can as a result exercise only those powers conferred by the articles in accordance therewith. Any action referable to the articles and contrary thereto would be ultra vires."

(Emphasis supplied)

7.9.4 The Hon'ble Supreme Court in the case of Sangramsinh P Gaekwad v.

Shanta Devi Gaekwad (2005) 11 SCC 314 has held in paras 167 and 174, as

under:

"167. In any event, when a notice to the company by a member is vitiated, the same can be withdrawn in law. Furthermore, a transfer in violation of the articles is void (see Palmer's Company Law, 23rd Edn., 22.14).

174. It has further to be borne in mind that a pre-emptive right is granted in favour of a member of a private company so that his right of control is not taken away. Exercise of such pre-emptive rights is particularly needed in relation to those private companies which are essentially incorporated partnerships. (See Gower and Davies' Principles of Modern Company Law, 7th Edn., p. 635.)"

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 34

(Emphasis supplied)

7.10 From the submissions of the company, the trust, incoming

shareholders and the original petitioners it is clear that the procedure

prescribed in Article 15 was not followed. No notice was given by the selling

shareholders to the board of directors, the board was not made an agent in

the sale and no offer for sale has been made to the existing members of the

company. Thus, the entire procedure and manner of sale is contrary to the

Articles and ultra vires. A transfer in complete violation of the Articles is void.

7.11 All the sides are in agreement that there is no difference in the law and

regulations relating to shares held by individual shareholders and those held

by the Trust regarding sale of shares and the Ld. NCLT grossly erred in

treating individual shareholders and Trust on different yardsticks.

7.12 We also note that Mr. Balendra Choudhury and Mr. S.M.B. Baruah had

objected to the sale of shares to strangers. Mr. Choudhury had stated in his

letter dated 12.04.2018 that he has objected to the sale of shares in the

meetings held on 03.01.2018 and 24.01.2018, though objections were not

fully or correctly recorded. Mr. Baruah in letter dated 05.05.2018 had offered

to buy the shares from the outgoing shareholders. In any case, we find that

procedure given in Article 15 was not adopted.

7.13 It is nobody's case that sale of shares made in 2018 were in anyway

covered by the exceptions given in Article 28. The contention the Article 15

was not followed as there was acquiescence of the shareholders in the said

transfer also does not hold good. The company was required to follow the

procedure as prescribed in Article 15. Since the procedure prescribed in

Article 15 has not been followed and pre-emptive rights of existing

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020 35

shareholders have been totally ignored, we cannot hold that the shareholders

have consciously elected to waive their rights and are estopped by their

conduct. In the facts of this case, we hold that the transfer of shares by the

individual shareholders as well as by the Trust is not in accordance with law,

and we hereby set aside the said transfer of shares. The company shall be at

liberty to revisit the sale and transfer of shares by following the procedure

prescribed in Article 15 of Articles of Association respecting existing

shareholders' pre-emptive rights to buy these shares. The order of Ld. NCLT

is modified to the above extent. The company Assam Medical Corporation Pvt.

Ltd. is directed to undo the said transfer and rectify the registers and make

consequential statutory declarations. The directors appointed on the basis of

shareholding acquired through the aforesaid transfers, now cancelled by us,

shall cease to be directors unless they possess some other shares. Rest of the

reliefs have not been pressed and also have become infructuous.

7.14 The aforesaid four appeals are disposed of in terms of above directions.

No order as to costs. Pending application(s), if any, are closed.

[Justice Yogesh Khanna] Officiating Chairperson

[Mr. Ajai Das Mehrotra] Member (Technical)

Place: New Delhi Dated: 05.08.2026 Ram N.

Company Appeal (AT) Nos. 102, 103, 104 & 113 of 2020