Niklesh Tirathdas Nihalani vs Shah Poddar Nihlani Organisers Pvt Ltd & ...

[Arising out of combined judgment and final Order dated 3rd August 2020 passed by the Adjudicating Authority/National Company Law Tribunal, Ahmedabad Bench, Ahmedabad in CANo. 34/59/NCLT/2017 CP No. 24/NCLT/AHM/2018]

IN THE MATTER OF:

Niklesh Tirathdas Nihalani 2-A Ratnamilan Apartment, Ravidham Complex PanjaraPole, GhodDod Road Appellant Surat - 3950007 Versus

1. Shah Poddar Nihlani Organisers Pvt Ltd (R-1 in Company Appeal 34 of 2017 and CP 24 of 2018) 1A, Merushikhar Apt, Opp. Jivan Bharti Rotary Hall, Timaliyawad, Nanpura, Surat - 395001

2. Dinesh Chandra Chandulal Shah (R-2 in Company Appeal 34 of 2017 and CP 24 of 2018) 7B, SiddhShila Apartment Timaliyawad, Nanpura, Surat - 395001

3. Rajeshkumar Balkishan Poddar (R-3 in Company Appeal 34 of 2017 and CP 24 of 2018) 7A, Ratanshyam Apartment Ravidham Complex, GhodDod Road Majura, Surat - 395001

4. Tulsidas Tirathdas Nihalani (R-4 in Company Appeal 34 of 2017 and CP 24 of 2018) 302 A Building, Four Seasons Apt Opp Ginger Hotel, Piplod, Surat- 395007

Company Appeal (AT) No. 167 of 2020 1 of 34 5. Madhav Bhageria (R-5 in Company Appeal 34 of 2017 and CP 24 of 2018) B-375, New Friends Colony New Delhi - 110065

6. Sanjay Poddar HUF (R-6 in Company Appeal 34 of 2017) 35, Reshamwala Market Ring Road, Surat - 395001

7. Rajesh Poddar HUF (R-7 in Company Appeal 34 of 2017) 35, Reshamwala Market Ring Road, Surat - 395001

8. BalkishanPoddar HUF (R-8 in Company Appeal 34 of 2017) 35, Reshamwala Market Ring Road, Surat - 395001

9. Rahul Nihalani (R-9 in Company Appeal 34 of 2017) 302 A Building, Four Seasons Apt Opp Ginger Hotel, Piplod, Surat- 395007

10. Nimmi Nihalani (R-10 in Company Appeal 34 of 2017) 302 A Building, Four Seasons Apt Opp Ginger Hotel, Piplod, Surat- 395007

11. Suken Shah (R-11 in Company Appeal 34 of 2017) 1-A & B, Merushikhar Apt Opp. Jiwan Bharti Rotary Hall Surat - 395001

12. Azimuth Investments Ltd (R-12 in Company Appeal 34 of 2017) 43, Community Centre New Friends Colony New Delhi - 110065

13. Sanjay Poddar (R-13 in Company Appeal 34 of 2017) 35, Rishamwala Market Ring Road, Surat - 395001

Company Appeal (AT) No. 167 of 2020 2 of 34 14. Sunita Poddar (R-14 in Company Appeal 34 of 2017) 35, Rishamwal Market Ring Road, Surat - 395007

15. Agam Shah (R-15 in Company Appeal 34 of 2017) 2-B, Merushikhar Apt Opp. Jiwan Bharti Rotary Hall Surat - 395001

16. Rameshkumar Juneja (R-16 in Company Appeal 34 of 2017) G-01, Unicorn Palazzo OppSwastik woods Apartment Vesu, Surat ... Respondents

Present:

For Appellant : Mr Dhiren R Dave, PCS for Appellant.

For Respondent : MrJigar Kumar Gandhi, PCS for R1.

[Per; V. P. Singh, Member (T)] This Appeal emanates from the combined judgment and final Order

dated 3rd August 2020 passed by the Adjudicating Authority/National

Company Law Tribunal, Ahmedabad Bench, Ahmedabad in Company

Appeal No. 34/59/NCLT/2017 in CP No. 24/NCLT/AHM/2018 whereby

learned NCLT has rejected Company Appeal No. 34 of 2017 filed under

Section 59 of the Companies Act, 2013 as barred by limitation, givenSection

433 of the Act. By the same common Order, the NCLT has dismissed the

Company Petition being CP No. 24 of 2018, filed under Sections 241 and

242 of the Companies Act 2013. The Petitioner has failed to prove any

Company Appeal (AT) No. 167 of 2020 3 of 34 ingredient of operation and mismanagement. The Parties are represented by

their original status in the Company Petition for the sake of convenience.

Brief facts Company Appeal No. 34 of 2017

2. The Appellant, one of the Shareholders of 'M/S Shah PoddarNihlani

Organisers Private Limited &Others'(now on will be referred "SPNOPL')

holding 4000 shares applied under Section 59 of the Companies Act, 2013

challenging the transfer of the shares of the Respondent No 1 Company to

outsiders,i.e.not from the family of existing Shareholders, totally in

disregard of the pre-emptive right available to the existing Shareholders

under Article13 of AOA, on getting the knowledge when the third party

introduced himself as a partner in Respondent No. 1 Company, i.e.

'SPNOPL'.

3. The Respondent No. 1 Company, 'Shah PoddarNihlani Organisers

Private Limited &Others', was constituted by three families, namely, Shah

family, Nihalani family, and Poddar Family the Company's name itself

reflects.

4. Respondent No. 1 Company "SPNOPL" was incorporated by three

families to invest in bigger land jointly with its sole purpose to reap the

fruits jointly. Their family shareholding percentages were 18%, 31.67% and

50.33%, respectively. The Appellant is representing the Nihlani family,

holding 4000 shares, i.e. 8% in the Respondent No. 1 Company.

Company Appeal (AT) No. 167 of 2020 4 of 34

5. Respondent No. 1 Company has not done any business activity since

incorporation except the acquisition of land. The Appellant came to know

from other sources that the Company's land has been transferred to some

other persons by transferringthe Company's shares.

6. The Appellant alleges that there had been an illegal transfer of 3250

shares of Respondent No. 1 from Pratima D Shah to Sanjay Poddar; 1045

shares from Suken Shah to SunitaPoddar; 1000 shares from Sanjay Poddar

to Aagam Shah; 1595 shares from Suken Shah to Ramesh Juneja' and 1055

shares from Dinesh Shah to Aagam Shahin complete disregard of Articles of

Association about the transfer of shares,more specifically Articles 13 to 20 of

AOA. These provisions were not followed by the management and were done

fraudulently. As the Company has no business activities and there were no

plans to sell or dispose of assets. The Directors have no other role to play in

the Company except to do their fiduciary duties, as stated in Section 166 of

the Companies Act, 2013.

7. The Appellant alleges that on account of non-compliance of law and

procedure on the internal rule of management, namely Articles of

Association of the Company; mysteriously, fraudulently and indirectly

transferring shares without following necessary procedures as required

under the Companies Act 2013 read with erstwhile Articles 13 to 20 of the

Articles of Association of the Respondent No. 1 Company.

8. With such acts, they completely changed the Company's shareholding

pattern by introducing outsider persons as shareholders without transfer.

Company Appeal (AT) No. 167 of 2020 5 of 34 By the alleged fraudulent transfer, the shareholding of the Shah family was

reduced from 18% to 4.11%. But the shareholding Nihlani family's and

Poddarfamily's remained static at 31.67% and 50.33%, respectively. As a

result, the newer shareholders (outsiders) acquired 13.89% shareholding in

the Respondent No.1 Company. The Appellant alleges that inducting new

shareholders, i.e. outsiders in the family company and providing them

13.89% shareholding is an act of fraud on the Appellant,as an existing

shareholder of the Company was not offered shares in the exercise of

their pre-emptive right as per Article 13 of the Articles of Association.

Appellant was left with no option in the circumstances hencefiled a

Company Appeal under Section 59 of the Companies Act, 2013 for

rectification of register of members; being CA No.34 of 2017.

9. The said Company Appeal No. 34 of 2017 was listed before the learned

NCLT on 11th October 2017, 25th October 2017 and 5th December 2007.

However, instead of appearing before the NCLT, Respondent No. 2 to

Respondent No.16 issued notices of shareholders meeting on 16th November

2017 and convened EGM and 12th December 2017andsnatched their pre-

emptive rights by altering theArticle of Association.

10. The said Company Appeal was listed 17 times before NCLT, but

Respondents No.2 to Respondent No. 16 never appeared. Instead of

defending before the NCLT in Company Appeal No. 34 of 2017 filed under

Section 59 of the Companies Act, for rectification of register of members,

they convened EGM and with their brutal majority amended the entire set of

Company Appeal (AT) No. 167 of 2020 6 of 34 Articles of Association, in which there is no right offered to fellow

Shareholders to exercise their pre-emptive right before transfer of shares.

11. This reflects that they were very much aware of the consequences of

their illegal acts. They were conscious of and were under the fear that their

wrong deeds,unearthed in Company Appeal No. 34 of 2017 and NCLT and it

may reverse the illegal and fraudulent allotment of shares done by them, so

with the sole intention to regularise the illegalities, the Articles of

Association was amended pending the Company Appeal No. 34 of 2017 for

rectification of register of members.

12. Such an act is nothing but an act of grass oppression and

mismanagement on the minority shareholder, especially the Appellant, who

has already challenged the illegal and fraudulent share transfer before the

NCLT. Hence Appellant was left with no other option but to move before the

NCLT with the Company Petition No. 24 of 2018 filed under Sections 241

and 242 read with Section 244 of the Companies Act, 2013 against alleged

acts of oppression and mismanagement.

13. In all such matters, RespondentNo. 1 Company is only a symbolic

party and not supposed to file a reply unless the Bench/Court specifically

orders it. However, in this matter, no other Respondent except the Company

has filed a reply. Probably no Director or Shareholders wanted to make a

false submission on affidavit in reply as prima facie, no evidence in support

of their misdeeds have been available and produced till date.

Company Appeal (AT) No. 167 of 2020 7 of 34

14. The National Company Law Tribunal heard both the matters jointly

and disposed of by the common impugned Order, challenged in this Appeal.

Respondent No.1 'Shah PoddarNihlani Organisers Pvt Ltd's contention

15. Respondent alleges that the Company was incorporated as a private

limited Company by three families doing business of land organiser and

developer. The name reflectsthe name of the families. All three family

members have one representative as the Director of the Company. The

Company was incorporated on 20th December 2005. The subscribers agreed

on the Memorandum and of the Company. Accordingly, the Board of

Directors of the Company has made all the transfers of shares during the

Financial Year 2012-13 and 2013-14, within the powers provided by the

shareholders in Article 13 of the Articles of Association of the Company as

provided under the original AOA.

16. Under Article 13 of the Board of Directors has the power to select any

desired person in the interests of the Company to admit to membership

whichis willing to purchase the same at the fair price. Accordingly, the

Board of Directors had transferred shares in compliance with Article 13 of

the Article of Associations(in short 'AOA') of the Company,in the interest of

the Company. Therefore, the transfer of shares as claimed is illegal and

made ina non-transparent manner is incorrect. The transfer of shares was

carried out during the Financial Year 2012-13. The Company had disclosed

Company Appeal (AT) No. 167 of 2020 8 of 34 the facts in the returns filed for the Annual General Meeting (in short 'AGM'

held in 2012 and 2013, showing status as of the members' in respective

years Annual General Meeting. The Company had filed all its annual returns

for the Annual General Meeting held in 2012 on 8th January 2013 and for

the year 2013 on 14th August 2014, in which the effect of transfer of shares

has been disclosed. Therefore, the plea taken that the transfer of shares had

taken place in a non-transparent manner is away from the truth and

incorrect. Moreover, the documents submitted by the MCA are public

documents and can be assessed by any person; therefore, the Petitioner

could have very well verified the contents of the annual return from the MCA

website.

17. This Petition was presented before the learned NCLT on 19th

September 2017 under Section by disclosing transfer of sharesunder Section

59 of the Companies Act 2013. Section 59 of the Companies Act 2013 came

into force on12th September 2013, and no period of limitation is provided

for filing a petition under Section 59 of the Companies Act 2013. Section

433 of the Companies Act, 2013 says that the provision of the limitation act

applies to the proceedings or appeals before the Tribunal or the Appellate

Tribunal. The Petition is filed almost after three years after records made

available to the public in the annual return by filing same on the portal of

the Ministry of Corporate Affairs for the Financial Year 2012-13 on 8th

January 2013 and for the Financial Year 2013-14 on 14th August 2013 by

disclosing transfer of shares.

Company Appeal (AT) No. 167 of 2020 9 of 34

18. The Limitation Act 1963 provides that it is an act to consolidate and

amend the law for the limitation of suits and other proceedings and the

purposes connected herewith.Moreover, Article 137 of the schedule to the

Limitation Act, 1963 provides the limitation period of 3 years dealing with

"any other application for which no period of limitation is provided elsewhere

in this division".

19. The Petitioner holding is only 8% of equity shares of the total paid-up

share capital of the Company, and he is not eligible to file a Petition under

Sections 241, 242 read with Section 244 of the Companies Act, 2013.

Moreover, if hypothetically it is considered that the outcome of CP No. 34 of

2017 is decided in favour of the Petitioner as claimed, even then the

purchaser is not going to be the shareholders of the Company and right of

the shares will go to the original shareholders, not to the petitioners, in that

case also the Petitioner shareholding is not going to be raised beyond 8%.

Hence, he is not eligible to file a Petition under Sections 241, 242 and 244 of

the Companies Act, 2013.

20. We heard the arguments of the learned Counsels for the parties and

perused the record. Based on the contention of the parties following issues

arise for our consideration:

a. Whether the Application filed under Section 59 of the

Companies Act, 2013 is barred by limitation?

Company Appeal (AT) No. 167 of 2020 10 of 34 b. Whether transfer of shares without providing the pre-emptive

right to the existing shareholders was permitted as per the

Article of Association and Memorandum of Association of the

Respondent No 1 Company?

c. Whether the amended Articles of Association of Respondent

No.1Company extinguishing the existing shareholders' pre-

emption right is valid?

d. Whether the transfer of shares to outsiders, in violations of pre-

emptive rights of the Appellant under Article 13 of AOA,

amounts to Oppression and Mismanagement under Sections

241 and 242 of the Companies Act,2013?

Discussion and findings on Issues 1,2,3&4

21. Admittedly,Company Appeal No. 34/59/NCLT/AHM/2017 was filed

u/s 59 of the Companies Act 2013 to rectifythe Register of Members on 19th

September 2017. After that,Appeal was listed before the National Company

Law Tribunal on 11th October 2017, 25th October 2017 and 5th December

2017. Pending this Appeal, suddenly,Respondents convened EGM dated

12th December 2017, seeking replacement of the entire set of Articles of

Association of the Company with the new set of AOA.Consequently, the

Shareholders' pre-emptive rights, in case of transfer of shares, were

removed. The Appellant contends that this was a deliberate attempt with its

sole motive to frustrate the outcome of the Company Appeal No. 34 of 2017.

The learned Counsel for the Appellant argues that amendment in the AOA is Company Appeal (AT) No. 167 of 2020 11 of 34 made to view that if the transfer of shares to the outsiders,i.e. outside the

family, is set aside by the NCLT, then the Respondent may affect those

transfers again under the pretext of the amended Articles of Association.

22. The learned Counsel for the Appellant also argued that he had moved

an Application before the NCLT seeking a stay on EOGM, but the time got

wasted. As a result, EOGM was over, and IA becomes infructuous.

23. Respondent No. 1, in its response to Appeal, has filed an affidavit

wherein it is stated that;

Para 11 "I further see that the Board of directors of the Company has made all the transfer during the financial year 2012-13 within the powers provided by the shareholders in the article 13 of the Articles of Association of the Company same can be verified from at page number 86 of the original Application submitted by the applicant, same is reproduced for understanding.

Article 13 "save as hereinafter provided no shares shall be transferred to a person who is not a member of company so long as any member or who is desirable in the interest of the company admitted to membership is willing to purchase the same at the fair price selected by directors as one whom it is desirable in the interest of the company admit to membership is willing to purchase the same at the fair price."

24. Respondent contends that as per Article 13 of the Articles of

Association of the Company, the Board of Directors hadthe power to select

Company Appeal (AT) No. 167 of 2020 12 of 34 any desired person in the interest of the Company to admit to membership

which is willing to purchase the same at the fair price.

25. Respondent No. 1 has further stated in its reply that after taking

extreme care, considering all the Stakeholders' overall benefit, the

Company's Board of Directorshad transferred the shares. At the time of

incorporation, the subscribers, with their mutual consent, have vested

powers in the hands of the Directors, who represented the respective

families to transfer shares in the interest of the Company to a Member of the

Company or any other person selected by the Board of Directors. Since the

Board of Directors could not find a suitable person, thus the saving clause

underArticle 13 of AOA comes into play,and shares were transferredunder

powers vested in the Directors of the Company.

26. Respondent No. 1, in its reply, has further stated that the

extraordinary general meeting(in short 'EOGM') was called on the request of

the Shareholders of the Nehlani family for altering Articles of Association in

tandem with the provisions of the newly enacted Companies Act,2013 for

better corporate governance, by sending 21 days' notice to all the

shareholder's including the applicant. After getting the notice, the Petitioner

had filed an interim Application (IA No. 395 of 2017) before the NCLT

seeking a stay on holding EOGM, but it was not granted.

27. Based on the pleadings, it is undisputed that the amendment in the

Articles of Association of the Company was made during the pendency of

Company Appeal (AT) No. 167 of 2020 13 of 34 Appeal before NCLT, filed under Section 59 of the Companies Act 2013.

However, the Respondent Company pleaded that the amendment was

incorporated to align AOA in line with the newly incorporated Companies

Act 2013.

28. Before analysing further, it is necessary to go through the relevant

Articles of Association with the amendment incorporated.

29. The Appellant has filed the copy of the order sheet of NCLT of

theCompany Appeal No. 34/59/NCLT/AHM/2017 dated 25th October 2017,

which shows that learned NCLT admitted the Appeal and after thattime was

provided to the Respondents to file a reply. Respondent No. 1Company gave

anundertaking that Company will not affect the transfer of shares until the

next date of hearing.

30. On perusal of the order sheet of the NCLT dated 5th December 2017,

it appears that the NCLT had extended the validity of the Order dated 25th

October 2017 till further orders.

31. However, after making an appearance in Company Appeal No.

34/59/NCLT/AHM/2017 and giving an undertaking that the Company is

not going to affect the transfer of shares, the Articles of Association was

amended in the EOGM dated 12th December 2017. It is also an admitted

fact that the Appellant had moved an IA seeking a stay of EOGM.But, the

learned NCLT, keeping in consideration the undertaking of Respondent No.

1, had not stayed the EOGM. Thus, Respondentcan notdefend that the Company Appeal (AT) No. 167 of 2020 14 of 34 Appellant had filed an IA seeking a stay of EOGM, but it was not granted.

Therefore, undisputedly the entire set of Articles of Association has been

amended during the pendency of the Appeal before NCLT, filed under

Section 59 of the Companies Act 2013.

32. The amended Articles of Association provides that the shares in the

capital of the Company shall be under the control of the Directors,who

may issue, allot or otherwise dispose of the same, or any of them to

such persons, in such proportion and on such terms and conditions and

either at a premium or at par and at such terms as they may from time

to time think fit.

33. Prior to amendment,Article13 specifically provided that"no shares

shall be transferred to a person who is not a member of the company".

34. The learned Counsel for the Respondent contends that original

Article 13 itself provides a saving clause. It says that no shares shall be

transferred to a person who is not a member of Company so long as any

member or any person selected by directors as one whom it is desirable in the

interest of the Company to admit to membership is willing to purchase the

same at the fair price. '

35. Respondent No. 1 contends that the saving clause is generally used in

a repealing act to preserve rights and claims otherwise lost.

Company Appeal (AT) No. 167 of 2020 15 of 34

36. Respondent further argued that Article 13 of the AOA of the Company

authorises the Board to select any person who is desired in the interest of

the Company to admit to membership,and is willing to purchase the same at

afair price. The subscribers to the AOA have vested such powers in the

hands of Directors.

37. The Appellant has annexed the original Articles of Association (pages

81 to 95 of the Appeal Paper). Accordingly, the relevant part of 'AOA' that

deals with the transfer and transmission of shares is on pages 83 and 84 of

theAppeal Paper Bookis reproduced as under:

"TRANSFER AND TRANSMISSION OF SHARES

Restriction on transfer of share

13. Save as hereinafter provided no share shall be transferred to a person who is not a member of Companyso long as any Member or any person selected by the Directors as one whom it is desirable in the interest of the Company to admit to membership is willing to purchase the same at the fair value.

Directors' discretion to decline registration of any transfer

14. The Directors may at any time in their absolute and uncontrolled discretion and without assigning any reason whatsoever, decline or acknowledge any proposed transfer of shares and their power or discretion to refuse such transfer shall not be affected by the fact that the proposed transferee is already a registered member of the Company. Without prejudice to the generality of the aforesaid power the Directors Company Appeal (AT) No. 167 of 2020 16 of 34 may in particular so decline in any case in which the Company has a lien upon the shares [for any of them] or whilst any shareholder executing the transfer is either alone or jointly with any person or persons indebted to the Company on any account whatsoever or whilst any moneys in respect of the shares desired to be transferred [or any of them] remain unpaid or unless the transfer is approved by the Board. The registration of the transfer shall be conclusive evidence of the approval of the transferee by the Board.

Transfer of shares how to be made

15. Except where the transfer is made pursuant to Article 20 the person proposing to transfer any share [hereinafter called "proposing transferor"] shall give notice in writing [hereinafter called "the Notice"] to the Company that he desires to transfer the same. Such notice shall specify the sum he fixes as fair value of the shares and shall constitute the Directors as agent for the sale of the shares to any member of the Company or person selected as aforesaid willing to purchase the shares [hereinafter called the "Purchasing Member"]at aprice so fixed or at the option of the purchasing member at the fair value to be fixed in accordance with the Article 17 hereinafter appearing. A transfer notice may include several cases and in such case it would operate as if it were a separate notice of each share. A transfer notice shall not be revoked except with the sanction of the Directors.

Shares comprised in the transfer notice how to be dealt

16. Except where the transfer is made pursuant to Article 20, the shares comprised in any transfer notice shall be dealt with as under:

Company Appeal (AT) No. 167 of 2020 17 of 34 [a] The Board shall forthwith give notice to all the members

of the Company and specify the price of the shares to be sold and invite each of them to state in writing within 7 days from the date of the said notice whether he is willing to purchase any and if so what maximum number of the said shares.

[b] After the expiration of said 7 days the Board shall allocate the said shares comprised in the transfer notice to or amongst the members or member who shall have expressed their or his willingness to purchase as aforesaid, but so that in case of competition, they shall rank for acceptance paripassu in proportion to shares held by them and if any shares cannot be apportioned, such shares shall be offered to them in Order determined by lots and directors shall cause such lots to be drawn accordingly.

[c] If shares are not taken up by the person to whom they are offered in accordance with the foregoing provisions and the Company finds a purchasing member within the space of three months after the expiration of the said 7 days it shall give notice thereof to the purchasing member and proposing transferor who shall be bound upon payment of their value as fixed in accordance with Article 17 hereof to transfer the shares to such purchasing member or members. Fair value of the shares to be fixed by the Auditor

17. The fair value of the shares shall be the fair value fixed by the Directors. If the purchasing member wants that the fair value of the shares notified for the transfer shall be fixed by the Auditor of the Company, the Directors shall refer the matter to the Auditors of the Company and Auditors shall certify in writing the sum which in their

Company Appeal (AT) No. 167 of 2020 18 of 34 opinion is the fair value and while so certifying, the Auditors shall be considered to be acting as experts and not as arbitrators and accordingly the provisions of the Indian Arbitration Act shall not apply.

Procedure when proposing transferor makes default in transferring

18.[1] In any case where the proposing transferor after having become bound as aforesaid makes default in transferring, the Directors may receive the purpose money and the proposing transfer shall be deemed to have appointed any one Director or the Secretary of the Company as his agent to execute transfer of shares to the purchasing members and upon the execution of such transfer, the Company shall hold the purchase money in trust for proposing transferor. The receipt of the Company for the purchase money shall be a good discharge to the purchasing member and after his name being entered in the Register of Members in purported exercise of the aforesaid power, the validity of the proceedings shall not be questioned by any person.

[2] If share Certificate/Certificates in respect of the shares transferred as mentioned above is/are not delivered to the Company by the former holder of such share/shares distinguishing it in such manner as they may think fit from the certificate/certificates not so delivered.

Right of the proposing transferor when the Company does not find a purchasing member

19. If the Directors shall not within the space of the said three months find a purchasing member Company Appeal (AT) No. 167 of 2020 19 of 34 after giving notice in the aforesaid manner, the proposing transferor share any time within three months afterwards be at liberty subject to Article 14 hereof to sell and transfer the share to any person and at a price not less than the fair value as fixed in accordance with Article 17 hereof."

(verbatim copy]

38. Original Article 13 of AOA lays the conditions forthe transfer of

shares. These are;

a. That no shares shall be transferred to a person who is not a

member of the Company;

b. So long as any member or any person selected by the

directorsas one who is desirable in the interest of the

Company;

c. Admitted to membership,is willing to purchase the same at

afair value.

39. Clause 17 of the original Articles of Association lays down the

procedure for fixing the fair value of shares. It provides that the fair value of

shares shall be the fair value fixed by the Directors. Further, that the

Auditor of the Company shall fix the fair value of the shares notified for the

transfer, the Directors shall refer the matter to the Auditors of the Company.

Auditors shall certify in writing the sum which, in their opinion, is the

fair value. While so certifying, the auditors shall be considered to be acting

Company Appeal (AT) No. 167 of 2020 20 of 34 as experts and not as Arbitrators and accordingly, the provisions of the

Indian Arbitration act shall not apply.

40. Based on the above discussion, it is clear that the Respondent No 1

Company was constituted by three families, namely Shah, Nihalani and

Poddar, as the name reflects. In case of transfer of shares of the Company,

the Articles of Association provided pre-emptive rights to the shareholders.

However, the alleged transfer of shares was made to the outsiders, i.e. not to

the Company's existing shareholders and without giving them the right

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

Appellant, being aggrieved by the said transfer of shares and getting the

knowledge of the transfer, had filed Appeal U/S 59 of the companies act

2013 before the NCLT. However, during the pendency of the Appeal, the

Respondents called EOGM and replaced the entire sets of Articles of

Association of the Company and removed the pre-emptive right given to the

existing shareholders. Therefore, the transfer of shares to outsiders was not

permitted under the Articles of Association of the Company. Therefore,it is

evident that the Respondents have transferred shares in complete violation

of the Articles of Association of the Company. Respondent's contention

cannot be accepted that the Articles of Association itself provided the right

to transfer shares outside the family in the interest of the Company because

no procedure was adopted for the transfer of shares as provided under

Articles 13 to 19 of the Association Articles of Association of the Company.

Article 13 of the Articles of Association permits the transfer of shares at a

Company Appeal (AT) No. 167 of 2020 21 of 34 fair price. How the fair price is to be obtained is also stated in the Articles of

Association. However, no evidence is produced with regard to obtaining the

fair value of shares by the Board of Directors. Hence, even on the stand

taken in the affidavit of the Company that the shares have been transferred

as per Article 13 is unsustainable because the Company has failed to

produce evidence of obtaining fair value as stated in Articles 14 to 20 of the

Articles of Association.

41. The Articles of Association provides that "if the Board of Directors

were not able to find a suitable person" Articles 14 to 20 of Articles of

Association mandates to find out the suitable person from fellow

shareholders by giving them pre-emptive right to purchase shares on fair

value. It is admitted that they have not complied with Articles 14 to 20 of the

Articles of Association.

Limitation point

42. Respondent No. 1 contends that the entire transfer of shares as

claimed is illegal and carried out in a non-transparent manner during the

Financial Year 2012-13, and the Company had disclosed the facts in the

returns filed for the AGM held in years 2012 and 2013. However, the

documents submitted with the MCA are public documents and can be

assessed by any person.Therefore, the Petitioner could have very well

verified the contents of the annual return from the MCA website.

Company Appeal (AT) No. 167 of 2020 22 of 34

43. Section 59 of the Companies Act 2013 came into force on12th

September 2013, and no limitation is provided for filing a

Petition/Appealunder Section 59 of the Companies Act. However, Section

433 of the Companies Act 2013 says that the provisions of the limitation act

are applicable to the proceedings or appeals before the Tribunal or the

Appellate Tribunal. Section 433 came into effect on1st June 2016. This

Petition was presented before the NCLT on 19th September 2017, i.e. after

three years of transfer of shares and records submitted to the Registrar of

Companies on 14th August 2014. Article 137 of the schedule to the

Limitation Act, 1963 provides the limitation period of 3 years dealing with

"any other application for which no period of limitation is provided elsewhere

in this division".

44. Respondent No. 1 further placed reliance on the judgement of the

Hon'ble Supreme Court AIR 1977 SC 282,Kerala state electricity board v T K

Kmhaliumma.

"In the case of Kerala State Electricity Board v. T.P. Kunhaliumma, (1976) 4 SCC 634 at page 636 Hon'ble Supreme Court held:

"7. The view of the Kerala High Court is that Article 137 of the Limitation Act, 1963 has the same meaning as Article 181 of the Indian Limitation Act, 1908.

8. Article 181 of the Indian Limitation Act, 1908 was as follows:

"Description of Period of Time from which Company Appeal (AT) No. 167 of 2020 23 of 34 Application limitation period begins to run

Applications for which Three years When the right to no period of limitation is apply accrues provided elsewhere in this schedule or by Section 48 of the Code of Civil Procedure"

9. In the Kerala State Electricity Board casethe High Court held that in view of the decision of this Court in Town Municipal Council, Athani v. Presiding Officer, Labour Court, Hubli[(1969) 1 SCC 873 : (1970) 1 SCR 51] the same construction should be put upon Article 137 as had been put upon Article 181. In the Athani Municipal Council case [(1969) 1 SCC 873 : (1970) 1 SCR 51], the workmen applied to the Labour Court under Section 33C(2) of the Industrial Disputes Act for computation of benefit in respect of overtime. The Labour Court accepted the Application of the workmen. The Athani Municipal Council challenged the decision of the Labour Court in a writ petition. On Appeal to this Court it was contended that the jurisdiction of the Labour Court was barred by the provisions of Minimum Wages Act, 1948 and second the applications to the Labour Court were timebarred under Article 137 of the Limitation Act 1963. This Court held as follows: The alteration in the 1963 Limitation Act in Article 137, namely, the inclusion of the words "other proceedings" in the long title to the 1963 Limitation Act, the omission of the preamble and the change in the definition so as to include Petition in the word "application" do not show any intention to make Article 137 applicable to proceedings before bodies other than courts such as quasi-judicial tribunals and executive bodies. The word "other" in the first column of the article giving the description of the application "any other application for Company Appeal (AT) No. 167 of 2020 24 of 34 which no period of limitation is provided elsewhere in this division" indicates that the interpretation of Article 181 in the 1908 Limitation Act on the basis of ejusdem generis should be applied to Article 137. The Application was presented to the Labour Court, a tribunal which was not a court governed by the Civil or Criminal Procedure Codes, and, therefore, the applications are not governed by Article 137 of the Limitation Act, 1963.**

18. The alteration of the division as well as the change in the collocation of words in Article 137 of the Limitation Act, 1963 compared with Article 181 of the 1908 Limitation Act shows that applications contemplated under Article 137 are not applications confined to the Code of Civil Procedure. In the 1908 Limitation Act there was no division between applications in specified cases and other applications as in the 1963 Limitation Act. The words "any other application"

under Article 137 cannot be said on the principle of ejusdem generis to be applications under the Civil Procedure Code other than those mentioned in Part I of the third division. Any other application under Article 137 would be Petition or any application under any Act. But it has to be an application to a court for the reason that Sections 4 and 5 of the 1963 Limitation Act speak of expiry of prescribed period when court is closed and extension of prescribed period if applicant or the Appellant satisfies the court that he had sufficient cause for not preferring the Appeal or making the Application during such period.

21. The changed definition of the words "applicant" and "application" contained in Sections 2(a) and 2(b) of the 1963 Limitation Act indicates the object of the Limitation Act to

Company Appeal (AT) No. 167 of 2020 25 of 34 include petitions, original or otherwise, under special laws. The interpretation which was given to Article 181 of the 1908 Limitation Act on the principle of ejusdem generis is not applicable with regard to Article 137 of the 1963 Limitation Act. Article 137 stands in isolation from all other articles in Part I of the third division. This Court in Nityananda Joshi case has rightly thrown doubt on the two-Judge Bench decision of this Court in Athani Municipal Council case where this Court construed Article 137 to be referable to applications under the Civil Procedure Code. Article 137 includes petitions within the word "applications". These petitions and applications can be under any special Act as in the present case."

45. Based on the above caselaw, it is clear that Article 137 using the

phrase "Any other Application" under Article 137 would be a Petition or

any Application under any Act. Thus it is clear thatArticle 137 of the

Limitation Act was applicable for any application under any Act. Therefore,

even if no limitation is provided for filing an Application under Section 59 of

the Act, the limitation will be three years from when the right to apply

accrues. In the instant case,Respondent No. 1 is claiming that the Appellant

was in the knowledge of the transfer of shares from 14th August 2014, i.e.

when the records of transfer shares were presented before the Registrar of

Companies. At the same time,this Petition was presented before the NCLT

on 19th September 2017, i.e. after the expiry of three years of transfer of

shares and records submission of records to the Registrar of Companies.

Company Appeal (AT) No. 167 of 2020 26 of 34

46. It is pertinent to mention that limitation starts from the time when the

right to apply accrues.Appellant claims that he could gather information of

transfer of shares only on getting knowledge from the third party when it

introduced himself as a partner in Respondent No. 1 Company, i.e.

'SPNOPL'. Whereas Respondent No. 1 contends that the Appellant knew the

transfer of shares from the date when the records relating to the transfer of

shares were submitted to the Registrar of Companies, i.e. from 14th August

2014.

47. The Appellant's contention about the knowledge of the alleged transfer

of shares is supported by an affidavit, not contradicted by any other

Shareholder Director/Directors. Therefore, Respondent No. 1 Company was

not in a position to dispute the Appellant's contention regarding the

knowledge of the alleged transfer of shares.

48. Limitation starts from the date of knowledge of the acts done by the

wrongdoers and correspondence with the Company. The Appellant is a

Shareholder and not doing any business. Therefore, it has a right to rely on

the 'Indoor Management' doctrinethat Directors must be doing their duty

piously and responsibly as per Section 166 of the Act. It is further pleaded

that limitation does not apply to fraud.

49. However, it is undisputed that the Respondent No. 1 Company is a

family Company and Articles of Association further laid down the restriction

on the transfer of shares of the Company to the outsiders only when the

Company Appeal (AT) No. 167 of 2020 27 of 34 existing Shareholders refused to exercise their pre-emptive rights of

acquiring shares at the fair market value.

50. Based on the above discussion, the Appellant could not have imagined

the transfer of shares of the Respondent No.1 Companyagainst the

Company's Constitution, enshrined in the Articles of Association. Moreover,

while the Petition under Section 59 was pending in the instant case, the

entire set of Articles of Association was replaced with the new set of 'AOA'.

Consequently, the right of pre-emption given to the existing shareholders

was extinguished. In such a scenario, knowledge of the alleged transfer of

shares from the record of the ROC could not have been expected.

51. The learned NCLT has rejectedthe Petition filed under Section 59 of

the Companies Act 2013 as time-barred. Section 17 of the Limitation

Actprovides the computation of the period of limitation in case of fraud or

mistake. Section 17 is reproduced as under;

"Section 17. Effect of fraud or mistake

17. Effect of fraud or mistake - (1)Where, in the case of any suit or Application for which a period of limitation is prescribed by this Act,--

(a) the suit or Application is based upon the fraud of the defendant or Respondent or his agent; or

(b) the knowledge of the right or title on which a suit or Application is founded is concealed by the fraud of any such person as aforesaid; or

Company Appeal (AT) No. 167 of 2020 28 of 34

(c) the suit or Application is for relief from the consequences of a mistake, or

(d) where any document necessary to establish the right of the plaintiff or applicant has been fraudulently concealed from him;

the period of limitation shall not begin to run until the plaintiff or applicant has discovered the fraud or the mistake or could, with reasonable diligence, have discovered it, or in the case of a concealed document, until the plaintiff or the applicant first had the means of producing the concealed document or compelling its production:

Provided that nothing in this section shall enable any suit to be instituted or Application to be made to recover or enforce any charge against, or set aside any transaction affecting, any property which--

(i) in the case of fraud, has been purchased for valuable consideration by a person who was not a party to the fraud and did not at the time of the purchase know, or have reason to believe, that any fraud had been committed, or

(ii) in the case of mistake, has been purchased for valuable consideration subsequently to the transaction in which the mistake was made, by a person who did not know, or have reason to believe, that the mistake had been made, or

(iii) in the case of a concealed document, has been purchased for valuable consideration by a person who was not a party to the concealment and, did not at the time of

Company Appeal (AT) No. 167 of 2020 29 of 34 purchase know, or have reason to believe, that the document had been concealed.

(2) Where a judgment-debtor has, by fraud or force, prevented the execution of a decree or Order within the period of limitation, the court may, on the Application of the judgment-creditor made after the expiry of the said period extend the period for execution of the decree or Order:

Provided that such Application is made within one year from the date of the discovery of the fraud or the cessation of force, as the case may be.

52. In the instant case, the Appellant claims that he was unaware of the

transfer of shares and came to his notice from the person who introduced

himself as a Partner/Shareholder. The Appellant's contention about the

knowledge of the alleged transfer of shares is supported by an affidavit not

contradicted by any other Shareholder/Director of the Company.

Accordingly, Respondent No. 1 Company was not in a position to dispute the

Appellant's contention regarding the knowledge of the alleged transfer of

shares.

53. Respondent No. 1 contends that the Appellant knew the transfer of

shares from the date when the records relating to the transfer of shares were

submitted to the Registrar of Companies, i.e. from 14th August 2014.

54. The Appellant contends that Directors are the Trustees of the

Company and are supposed to act fairly as per Section 166 of the

Companies Act 2013. However, in the present matter,Directors have

Company Appeal (AT) No. 167 of 2020 30 of 34 admitted all the averments of non-compliance of law and procedure and

opted not to file any reply.

55. In the instant case, it is admitted that all the Directors and

Shareholders have abstained from defending their deeds, thereby admitting

the entire averments made before NCLT and NCLAT. Therefore, this is a case

ex-party qua all the Directors and Shareholders. The law of limitation starts

from the date of knowledge of the acts complained, especially in fraud or

suppression of facts.

56. Based on the above discussion, webelieve that the learned National

Company Law Tribunal's finding that the Petition filed under Section 59 of

the Companies Act 2013 is barred by limitation is erroneous.

57. It is also evident that during the pendency of the Appeal under Section

59 of the Companies Act 2013 for rectification of register of members before

the NCLT, EGM was convened on 12th December 2017, the Respondents

amended an entire set of Articles of Association of the Company with the

brutal majority in the Board of Directors of the Respondent No.1 Company.

Moreover, in a new set of Articles of Association, Respondents deliberately

removed the shareholders' pre-emptive rights in case of transfer of shares.

This was with the sole motive to frustrate the outcome of the Company

Appeal No. 34 of 2017, and even if the transfer is set aside, they may give

effect to those transfers again.

Company Appeal (AT) No. 167 of 2020 31 of 34

58. Admittedly, the Respondent No.1 Companyconsists of 3 families,

namely Shah, Nihalani and Poddar, with their respective shareholdings of

18%, 31.67%, and 50.33%. However, the Respondents with their brutal

majority the Board of Directors transfer the Company's shares to the

outsiders, against the original Articles of Association of the Company. This

has caused a reduction in the Appellant's shareholding in the Respondent

No.1 Company. This appears to be a deliberate act with the sole motive to

frustrate the Company Appeal No. 34 of 2017 filed under Section 59 of the

Companies Act 2013.

59. Therefore, in the circumstances stated above, the transfer of shares

without providing the pre-emptive right to the existing shareholders against

the Article of Association and Memorandum of Association of the

Respondent No 1 Company is not sustainable. Therefore, the said

amendment in the Articles of Association by the EOGM dated 12th December

2017 is declared oppressive, discriminatory deserves to be set aside.

60. Based on the above discussion, the Appeal filed against the common

impugned Order in Company Appeal 34 of 2017 under Section 59 of the

Companies Act 2013 dated 3rd August 2020 and CP No.

24/NCLT/AHM/2018 u/s241 and 242 of the Companies Act,2013

accordingly deserves to be allowed.

ORDER

Company Appeal (AT) No. 167 of 2020 32 of 34

Appeal filed against the impugned Order in Company Appeal No. 34

of 2017 under Section 59 of the Companies Act 2013 dated 3rd August 2020

is allowed with the directions as mentioned below.

Further, the Appeal against the judgement passed inCP No.

24/NCLT/AHM/2018u/s241 and 242 of the Companies Act,2013is allowed,

and the impugned judgement is set aside with the following directions. No

order as to costs.

1. Accordingly, transfer of 3250 shares of Respondent No. 1

fromPratima D Shah to Sanjay Poddar; 1045 shares from Suken

Shah to SunitaPoddar; 1000 shares from Sanjay Poddar to

Aagam Shah; 1595 shares from Suken Shah to Ramesh Juneja'

and 1055 shares from Dinesh Shah to Aagam Shah which are

in complete disregard of Articles of Association is cancelled.

Accordingly, we declare the transfer of shares as void ab initio.

2. Accordingly, Respondent No. 1 Company is directed to rectify

the register of Members within 30 days from the date of Order

and submit compliance before the Registrar of Companies.

3. The share Application money received from the transferee of

shares shall be refunded within one month from the date of this

Order.

4. It is further directed that if the transfer of shares is necessary

and the Board of directors considers it essential, this can be

Company Appeal (AT) No. 167 of 2020 33 of 34 done after adopting the due process under Articles 13 to 20 of

the original Articles of Association of the Company.

5. Amendment in the Articles of Association about the transfer of

shares, based on the EOGM dated 12th December 2017, is also

declared illegal and oppressive against the interestof the

shareholder'sof the Company.

6. Therefore, the amendment in the Articles of Association in

pursuance of a resolution of the EOGM dated12th December

2017 about the transfer of shares shall not be given effect.

[Justice Jarat Kumar Jain] Member (Judicial)

[V. P. Singh] Member (Technical) NEW DELHI 2nd August 2021

pks

Company Appeal (AT) No. 167 of 2020 34 of 34