Vintage Hotels (P) Ltd. & Anr vs Ahamed Nizar Moideen Kunhi Kunhimahin

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI Company Appeal (AT) No. 408 of 2018 [Arising out of Order dated 16.10.2018 passed by the National Company Law Tribunal, Bengaluru Bench, Bengaluru in C.P. No. 1 of 2016 (T.P. No. 96 of 2016].

IN THE MATTER OF: M/s Vintage Hotels Private Limited Rep. by its Managing Director, No. 9, Mission Road, Bangalore - 560027 Karnataka. ...Appellant No. 1

Mr. Kunhibi Layinchirapurakkal Saithumada Managing Director, M/s Vintage Hotels Private Limited Padhoor House, Thekkil PO Kasaragod, Kerala - 671541. ......Appellant No. 2

Versus Mr. Ahamed Nizar Moideen Kunhi Kunhimahin Flat No. M-77, 7th Floor, Diamond District Apartments, Old Airport Road, Kodihalli, Bangalore Karnataka - 560008. ...Respondent

Present:

For Appellant: Mr. M.S. Krishnan, Sr. Advocate with Mr. Mayilsamy.K. Advocates

For Respondent: Mr. Judy James, Advocate

Venugopal M. J

Background

The Appellants have filed the present Company Appeal being aggrieved

with the order dated 16.10.2018 passed by the 'National Company Law Tribunal',

Bengaluru Bench, Bengaluru in C.P. No. 1 of 2016 (T.P. No. 96 of 2016] filed by

the Respondent whereby and whereunder the Company petition was allowed by

issuance of setting aside the letter dated 30.10.2015 and resultantly certain

directions were issued.

2. The 'National Company Law Tribunal', Bengaluru Bench, Bengaluru while

passing the impugned order dated 16.10.2018 after bearing in mind the facts

and circumstances of the case and also by taking into consideration of Law came

to the conclusion that the action of Appellants / Respondent in refusing to

effect impugned shares in favour of the Respondent/ Petitioner was arbitrary

and unjustifiable one and consequently allowed the Company Petition by issuing

the following directions:-

"1) We hereby set aside

letter dated 30.10.2015 directing the

respondents to register the transfer of

20,000 equity shares of Mr. T.Shahul 2 Company Appeal (AT) No. 408 of 2018 Hameed (Registered Folio No. 14) in the

name of the Petitioner with effect from

lodgement of share transfer request on

13.08.2015;

2) Directed the respondents

to rectify the register of shareholders by

incorporating the name of the Petitioner

in place of Mr. T. Shahul Hameed in

respect of 20,000 equity shares

(Registered Folio No. 14);

3) Directed the respondents

to register the transfer of 12,500 equity

shares of Mr. P.A. Ibrahim Haji

(Registered Folio No. 06) in the name of

the Petitioner with effect from

lodgement of share transfer request on

13.08.2015);

4) Directed the respondents

to rectify the register of shareholders by

incorporating the name of the Petitioner

in place of Mr. P.A. Ibrahim Haji in

3 Company Appeal (AT) No. 408 of 2018 respect of 12,500 equity shares

(Registered Folio No. 06), etc."

5) The Petitioner is

directed to submit all necessary

documents as sought by the Company,

within a period of three weeks from the

date of receipt of copy of this Order,

and thereafter, the Company is

directed to comply the directions as

mentioned above, within a period of

three weeks thereafter.

6) The petitioner is

entitled for all consequential benefits

by virtue of transfer of above shares.

7) No order as to costs."

Appellant's Contentions

3. The Learned Counsel for the Appellants submits that the impugned order

passed by the 'National Company Law Tribunal', Bengaluru Bench, Bengaluru

dated 16.10.2018 is bad in Law and further that the Tribunal had decided the

matter erroneously without reference to the admitted documents and not taking

into consideration of the pleadings of the case.

4 Company Appeal (AT) No. 408 of 2018

4. The Learned Counsel for the Appellants contends that the Tribunal had

ignored the statutory provisions under Section 56 of the Companies Act, 2013,

the mandatory requirement for a person to maintain a petition viz. that the duly

executed 'Transfer Deed' is to be accompanied with the 'Original Share

Certificate' while seeking transfer of shares. Moreover, inspite of such valid

submission of documents, the company does not have power to register the

transfer of shares.

5. It is the stand of the Appellants that the 'Transfer Form' submitted had

not disclosed the 'share certificate no.', 'folio no.', 'distinctive numbers of the

shares' purportedly purchased. As a matter of fact, the 'Transfer Deed' had not

mentioned the name and address of the 'Transferee'. Also, that the said Deed

was not attested by any witnesses, being a mandatory requirement. In fact,

'Original Share Certificates' were not enclosed to the purported 'Share Transfer

Form'. Even the purported affidavit said to have been executed by the 'Original

Share Holder' does not contain the details of the 'share certificate no.', 'folio no.',

'distinctive numbers of shares'.

6. The plea taken on behalf of the Appellants is that the Tribunal had not

considered the letter dated 30.10.2015 which was communicated to the

Respondent by the Appellant mentioning non-receipt of share certificate, which

is mandatory for 'transfer of shares'. Apart from that, the Tribunal failed to

consider the Rule 6 of the Companies (Share Capital and Debentures) Rules,

2014 which speaks of 'issue of renewed or duplicate share certificate'.

5 Company Appeal (AT) No. 408 of 2018

7. In the absence of share certificate enclosed to the share transfer deed and

the share transfer deed duly filled up which is a mandatory requirement under

Section 56 of the Companies Act, 2013, the Company could by no stretch of

imagination assume that any shares were transferred. In the present case, the

share transfer form submitted is blank and does not disclose the description of

the shares (distinctive nos., number of shares, folio no., name of the transferee

and his address).

8. The Learned Counsel for the Appellants comes out with an argument that

the Tribunal had failed to appreciate the law laid down in 'Muniyamma' V.

'Arathi Cine Enterprises Pvt. Ltd.', ILR, 1992, Karnataka page 1262 wherein

it was observed that unless share transfer form duly stamped and executed by

the transferor was submitted along with original share certificate, the transfer

cannot be registered by the Company.

9. The Learned Counsel for the Appellants points out that in the decision of

Hon'ble Supreme Court in 'Bajaj Auto Ltd.' V. 'N.K. Firodia' 1971 41

Company Cases at page 1 it is observed that "If the Articles permits the

Directors to decline to register a transfer of shares without stating the reasons,

the Court would not draw unfavourable inferences against the Directors because

they had not given reasons. In other words, the Court will assume that the

Directors acted reasonably and bonafide and those alleging to the contrary would

have to prove and establish the same by evidence".

6 Company Appeal (AT) No. 408 of 2018

10. The Learned Counsel for the Appellants strenuously points out that the

'Transferor' in the present case, should have obtained duplicate share certificate

as envisaged under Rule 6(2)(a) of the Companies (Share Capital and

Debentures) Rules, 2014 and thereafter sold the shares.

11. The Learned Counsel for the Appellants takes a stand that the sole

intention of the Respondent is to dismantle the Company as he was creating

several problems for the Appellant Company and their Directors for number of

years and that for the welfare of the Appellant Company, the letter dated

30.10.2015 was issued.

12. It is represented on behalf of the Appellants that the Tribunal had not

considered Article 5 of the 'Articles of Association' of the Company and Section

56 of the Companies Act, 2013. Also, it is projected on the side of the Appellants

that the impugned order is a perverse and arbitrary, biased one and also against

the principles of natural justice. The interest of the Appellant Company and its

shareholders had not been protected and that the impugned order had resulted

in miscarriage of justice.

13. The Learned Counsel for the Appellants brings to the notice of this

Tribunal that the 'transferor' had not reported about the loss of the original share

certificate to the company at any point of time and in fact the 'transferor' had

himself admitted the same in 'Share Purchase Agreement' dated 10.04.2015 and

7 Company Appeal (AT) No. 408 of 2018 30.06.2015. In fact, in the said 'Share Purchase Agreement' dated 30.06.2015

as well as in the said agreement dated 10.04.2015 it is mentioned as under: -

"the seller hereby

declares that the original share

certificate in respect of above-

mentioned share has been lost and

hereby requested to the Company to

issue new share certificate in the

name of the Purchaser."

14. In this connection, the Learned Counsel for the Appellants submits that a

reading in the aforesaid undertaking would categorically establish the fact that

the "Transferor" had not earlier applied for issuance of duplicate share certificate

with the Company nor informed the loss of the share certificate with the

Company and indeed, he had entered into 'Share Purchase Agreement' without

the 'Original Share Certificate' or 'Letter of Allotment of Shares' with the

Respondent.

15. The Learned Counsel for the Appellants contends that a 'Transferor' had

not lodged any police complaint regarding the loss of share certificate and even

the paper publication was with respect to the alleged purchase made by the

Respondent.

8 Company Appeal (AT) No. 408 of 2018 The Appellants Decisions

16. In the decision of Hon'ble Supreme Court in 'Manna Lal Khetan and

Others' V. 'Kedar Nath Khetan and Others' reported in 1977 2 Supreme Court

cases at page 424 at special page 429 wherein in paragraph 16 it is observed as

under: -

"16. The provision contained

in Section 108 of the Act states that a

company shall not register a transfer of

shares.............unless a proper

instrument of transfer duly stamped and

executed by or on behalf of the transferor

and by or on behalf of the

transferee........has been delivered to the

company along with the certificate relating

to the shares or debentures...........or if no

such certificate is in existence along with

the letter of allotment of the shares.

There are two provisos to Section 108 of

the Act. We are not concerned with the

first proviso in these appeals. The second

proviso states that nothing in this section

9 Company Appeal (AT) No. 408 of 2018 shall prejudice any power of the company

to register as shareholder or debenture

holder any power of the company to

register as shareholder or debenture

holder any person to whom the right to any

shares in, or debentures of the company

has been transmitted by operation of law.

The words "shall not register" are

mandatory in operation of law. The words

"shall not register" are mandatory in

character. The mandatory character is

strengthened by the negative form of the

language. The prohibition against transfer

without complying with the language is

worded to emphasised by the negative

language. Negative language is worded to

emphasise the insistence of compliance

with the provisions of the Act. (See State

of Bihar v. Maharajadhiraja Sir

Kameshwar Singh of Darbhanga': 1952

SCR 889, 988-989; K Pentiah v. Muddala

Veeramallappa (1961) 2 SCR 295, 308

10 Company Appeal (AT) No. 408 of 2018 and unreported decision dated April 28,

1976 in Criminal Appeal 279 of 1975 and

Additional District Magistrate, Jabapur v.

Shivakant Shukla (1976) 2 SCC page 521

Negative words are clearly prohibitory and

are ordinarily used as a legislative device

to make a statutory provision imperative."

17. In the decision of Hon'ble Supreme Court in 'Claude-Lila Parulekar'

(SMT) V. 'Sakal Papers (P) Ltd. and Ors.' (2005) 11 Supreme Court Cases at

page 73 at special page 74 it is observed that the 'Articles of Association'

constitute a contract not merely between shareholders and company but

between individual shareholders also and further that the 'Articles' are a source

of power of Directors, who can as a result exercise only those powers conferred

by the 'Articles' in accordance therewith and added further, any action referrable

to the 'Articles' and contrary thereto would be ultra vires.

18. Also, in the aforesaid decision, it is observed that Section 108 of the

Companies Act, 1956 is of 'mandatory nature' and also at page 100 of the said

decision at paragraph 58 it is observed as under: -

"58. The power to act by

majority qua executors and authorizing

someone to act as a shareholder on

11 Company Appeal (AT) No. 408 of 2018 another's behalf are distinct. There is

no question of transferring shares by

signature of a majority. Whatever the

agreement between the executors was

inter se, the agreement could not

override the provisions of the

Companies Act; and under Section 108

the Company is bound to recognise only

those transfers for the purpose of

registration which are executed in

terms of that section. It is true that they

were in fact executors, and that, with

regard to the beneficiaries mentioned in

the Will, they would be trustees of the

stock, but the Company does not take

notice of any trust, and must act in

accordance with the Act of Parliament,

under which it is constituted, with

regard to placing persons upon the

register. (See Barton v. London and

North Western Rly. Co.)

16(1889)24QBD 77: 62 LT 164(CA)."

12 Company Appeal (AT) No. 408 of 2018

19. In the decision of Hon'ble Supreme Court in 'John Tinson & Co. Pvt.

Ltd. & Ors.' V. 'Surjeet Malhan (Mrs) and Another' (1997) 9 Supreme Court

Cases at page 651 at special page 654 wherein at paragraph 7 it is observed as

under:-

"7. The next question is

whether the transfer of the shares held by

Mr B.K. Malhan is valid in law. In that

behalf clause (8) of the Articles of

Association is relevant. It is now a well-

settled legal position that Articles of

Association of a private company is a

contract between the parties. Clause (8)

reads that: "No transfer of any share in the

capital of the company shall be made or

registered without the previous sanction of

the Directors...." It is an admitted position

that no previous sanction has been

obtained from the Directors for transfer of

the shares held by Mr. Malhan. Shri Lekhi

contends that Mr. Malhan being the only

Director, since his father had already

resigned and he had entrusted the shares

13 Company Appeal (AT) No. 408 of 2018 to the appellant, Bhagat, there is a resigned

and he had entrusted the shares to the

appellant, Bhagat, there is a transfer in the

eye of law. We are unable to agree with the

learned counsel. The concept of previous

sanction of the Directors connotes that there

should be a written resolution accepting the

transfer from Mr. Malhan in favour of

Bhagat and such previous sanction should

be preceded by handing over of the shares.

In this case, such an action was not done

and, therefore, even the transfer of the

shares held by Mr Malhan in favour of the

appellant is not valid in law. The Division

Bench of the High Court, therefore, was

right in granting the decree as prayed for."

Respondent's Submissions

20. The Learned Counsel for the Respondent contends that the Respondent

purchased 20,000 and 12,500 shares from (i) Shahul Hameed and (ii) PA Ibrahim

Hazi on 10.04.2015 for a total consideration of Rs. 39,15,000/- and on 30.06.2015

for a total consideration of Rs. 24,46,875/- respectively in accordance with Law.

Further, the 'Transferors' on 10.04.2015 and 30.06.2015 through their respective 14 Company Appeal (AT) No. 408 of 2018 'Indemnity Bonds' given to the Respondent had requested the Board to issue

'Duplicate Share Certificates' and also affirmed that the 'Original Share Certificates'

were confirmed to be lost and untraceable.

21. The Learned Counsel for the Respondent submits that the Respondent

through request dated 13.08.2015 and reminders dated 15.09.2015 and

29.10.2015 requested the Board to register the transfer of shares in his name, in

accordance with Law. Indeed, the Respondent in his correspondences sought the

Board's intervention and further asked the Board to suggest any further legal

compliances to effect the transfer of shares to which the Board never bothered to

reply and that the Board refused to issue 'Duplicate Share Certificates' in

accordance with Rule 6(2) of the Companies (Share Capital and Debentures) Rules,

2014 inspite of the requests made by the transferors.

22. According to the Respondent on 30.10.2015, the Board after considering the

request of the Respondent mischievously rejected the request for transfer of shares

by providing frivolous and vague reasons viz. that the Respondent had not attended

certain Board Meetings, and that he had alleged allegations of criminal nature

against the Directors of the Board and finally, Share Certificates were not enclosed

with the 'Share Transfer Form' as required under Article 6 of the 'Articles of

Association' dated 31.12.1991. In fact, the Board with a mischievous design had

ignored the requests of the transferors made on 10.04.2015 and 30.06.2015 and

rejected the request for transfer. The Board, has approached this Tribunal with an

uncleaned hand.

15 Company Appeal (AT) No. 408 of 2018

23. The Learned Counsel for the Respondent brings to the notice of this Tribunal

that the 'Articles of Association' was radically and materially altered and that a

search report was directed by this Tribunal on 27.03.2019 and 16.05.2019 to be

filed along with a copy of the 'Articles of Association'. From the search report, it

came to light that the 'Articles of Association' never underwent any change and that

the ''Articles of Association' submitted in support of the present Appeal never existed

and that the Appellants had no option but to admit that no such document ever

existed.

24. According to the Respondent, the Board should have communicated the

'Notice of Refusal' to both the 'Transferor' or 'Transferee' in terms of ingredients of

Section 58(1) of the Companies Act, 2013 read with Article 6 of the 'Articles of

Association'. However, in the present case, no notice of refusal was ever

communicated to the transferors and, therefore, the Appellants had partially

admitted to the transfer of shares qua the transferor and in part refused to rectify

the register of shares qua the Respondent which smacks of malafides. Also, that

the Board had rejected the requests of transfer of shares without even investigating

the evidence produced.

25. It is the contention of the Learned Counsel for the Respondent that the Board

should have followed the procedure as per Rule 6(2)(a) of the Companies (Share

Capital and Debenture) Rules in accordance with Law before refusing to register the

shares in the name of Respondent by citing private disputes between the

Respondent and his family members. Besides this, the specified procedure as per 16 Company Appeal (AT) No. 408 of 2018 Rule 6(2)(a) of the Companies (Share Capital and Debentures) Rules, 2014 for lost

or destroyed share certificates mentions the following before issuance of a duplicate

share certificate i.e. (i) furnishing supporting evidence and (ii) indemnity and (iii)

payment of out of pocket expenses incurred by the company in investigating the

evidence produced.

26. The Learned Counsel for the Respondent points out that the Respondent was

deprived of his rightful share in the rental income (approx. Rs. 30 Lakhs per month

received by the Company accrued in the past five years).

Bird's-Eye View

27. In every transfer of 'Shares' there is a change of owner of shares in all relevant

records and it is necessary to complete the formalities relating to 'Shares Transfer'

without which transfer is incomplete. In the decision 'Lyle & Scott Ltd.' (1960) 30

Company cases 30 (HL) the Court held that 'transferring a share involves series of

steps (i) an Agreement to sell (ii) Execution of Deed and transfer and (iii) registration

of transfer. 'Shares' are 'Goods' as defined in 'Sale of Goods Act' and can be

transferred like any other movable property subject to the provisions contained in

the 'Articles of Association' and the Companies Act. The word 'Transfer' employed

in Section 108 of the Companies Act, 1956 Act refers to a transfer between persons

pursuant to a voluntary act. Only when the 'transferee's' name is registered in

Company's register, right to property is perfected.

17 Company Appeal (AT) No. 408 of 2018

28. A company can register the transfer on such terms as to the 'Indemnity' as

the Board may consider fit. In case of undelivered instruments or lost instruments

registration is possible if the 'Transferee' agrees to give 'Indemnity Bond' or security

on such terms as the Board may decide. By getting his name registered in the

'Register of Members', the 'Transferee' only perfects his title to the shares and is

entitled in his own right to claim all the privileges which were previously claimed by

the 'Transferor' in his name as per decision 'Kellick Nixon Ltd.' V. 'Dhanraj Mills

(P) Ltd.' (1983) 54 Comp cas 432 (Bom).

29. At this stage, this Tribunal worth recalls and recollects the decision 'Colonial

Bank' V. 'Hepworth' (1887) 36 ChD 36 at p 54 wherein it is observed that till the

transfer of shares is actually registered, the transferee's title to the share is actually

inchoate and the legal title remains vested in the transferor.

30. This Tribunal aptly points out the decision 'Hindustan Dorr Oliver Ltd.' V.

'A.K. Menon' (1994) 80 Comp cas 384 (Bom) wherein it is observed that an owner

of shares can follow the shares even into the hands of a bonafide purchaser for

value. The term 'transfer' is used in regard to inter vivos transfer as per decision

'Hemendra Prasad Barooah' V. 'Bahdur Tea Co. P. Ltd.' (1991) 70 Comp cas p

792 (Guwahati).

31. Till the stage of execution of 'transfer' all that is made is to pass an equitable

interest in the shares to the 'Transferee'. In reality, there is no completion of legal

assignment. Even when the 'Board of Directors' accepts the transfer and passes it

18 Company Appeal (AT) No. 408 of 2018 for registration of transfers in records, the 'transfer' is not completed. Until the

actual entry of transferee's name was effected in the company's register, the

'transferor' remains the legal holder of shares as per decision 'Copal Varnish Co.

Ltd.' In re reported in (1917) Ch.D 349.

Assessment

32. It comes to be known that the Respondent / Petitioner in C.P. No. 1 of

2016 (T.P. No. 96 of 2016] had averred that he is an existing shareholder and

also one of the Directors of the First Appellant / First Respondent Company. It

transpires from the contents of affidavit of 'T. Shahul Hameed' dated 10.04.2015

that he was holding 20,000 equity shares of Rs. 100/- each of the First Appellant

(M/s Vintage Hotels P. Ltd.), Bangalore and that he had transferred the aforesaid

shares to 'Mr. Ahamed Nizar Moideen Kunhi Kunhimahin' of Kerala and further

that the 'Share Certificates' were lost or mislaid and were not in his possession.

33. Further, the deponent of 'Affidavit' (T. Shahul Hameed) had averred that

he had searched or caused searches to be made for the said certificates, but even

after careful and diligent search, he was unable to find out or trace the same

and, therefore, made a request to the First Appellant / First Respondent to issue

duplicate share certificates in lieu of the original share certificates in the name

of 'Mr. Ahamed Nizar Moideen Kunhi Kunhimahin'.

34. Added further, the 'Share Purchase Agreement' executed on 10.04.2015

between 'Mr. Ahamed Nizar Moideen Kunhi Kunhimahin' (purchaser) and T.

Shahul Hameed' (seller) shows that the seller being a shareholder of the First 19 Company Appeal (AT) No. 408 of 2018 Appellant / Company holding 20,000 equity shares of Rs. 100/- each presently

valued at Rs. 195.75/- per share and he desired to sell his aforementioned

shares and that the intention of the parties was that upon the consummation of

the sale and the purchase of the shares pursuant to the agreement, the

purchaser shall own the extent of share purchased in the share capital of the

Company together with all the rights, economic value and benefits pertaining

thereto. In fact, the covenant of the share purchase agreement dated 10.04.2015

proceeded to mention that the seller had agreed to sell to the purchaser and the

purchaser had agreed to purchase from the seller the shareholding in the

company for the purchase consideration. The purchase consideration was Rs.

39,15,000/- which was paid through cheque bearing No. 212425 drawn on

Federal Bank, Kasaragod branch.

35. More importantly, the aforesaid share agreement specifies that the seller

had agreed to submit to the First Appellant / First Respondent the share transfer

form duly executed and stamped after the expiry of seven days from the date of

execution of the agreement. It was declared that 'original share certificate' in

respect of the above-mentioned shares were lost and it was requested to the

company to issue new share certificate in the name of purchaser (Respondent /

Petitioner). The purchaser had agreed to sign the transfer form enabling the

seller to submit the same to the First Appellant / First Respondent.

36. It is brought to the fore that an 'Agreement' was executed on 30.06.2015

between the Respondent / Petitioner (purchaser) and 'P.A. Ibrahim Hazi' (seller)

20 Company Appeal (AT) No. 408 of 2018 towards the sale of 12,500 equity shares of Rs. 100/- each for a total

consideration of Rs. 24,46,875/- which was paid through cheque No. 212432

dated 30.06.2015 drawn on Federal Bank, Kasaragod branch. Besides this, on

27.03.2015, an affidavit was executed by the transferor wherein a request was

made for an issuance of duplicate share certificates in the name of the

Respondent / Petitioner, since the original share certificates were lost or mislaid

or not in possession and further that was unable to find out or trace the same.

37. That apart, on 13.08.2015 the Respondent / Petitioner addressed a

communication to the Board of Directors of the First Appellant / First

Respondent where a plea was made to transfer shares of 20,000 (regd. Folio no.

14) purchased from T. Shahul Hameed' and 12,500 equity shares purchased

from 'P.A. Ibrahim Hazi' (Regd. Folio No. 06) by duly enclosing the completed

share transfer form in Form No. SH-4 together with share transfer agreement

etc. and later reminders dated 15.09.2015 and 29.10.2015 were issued.

38. There is no two opinion of the fact that Article 5 of the 'Articles of

Association' enjoins that 'Original Share Certificates' is to be enclosed with

'Share Transfer Form'. At the same time, it cannot be brushed aside that the

'Transferors' had furnished 'Sworn Affidavits' / Indemnity Bonds mentioning in

clear cut terms that the 'Original Share Certificates' were lost and that a plea

was made to the company for issuance of duplicate share certificates directly to

the Respondent / Petitioner.

21 Company Appeal (AT) No. 408 of 2018

39. It is to be pointed out that the power to issue 'Duplicate Shares' is with

the Board of Directors of the Company and the same may be issued if such

certificate is established to have been lost or destroyed or torn or mutilated or

was defaced and is surrendered to the Company. Further, the refusal order of

the Board of a Company to issue 'Duplicate Shares' can be assailed before the

Tribunal when the powers of the Board was improperly exercised, although there

is absence of provision in the Companies Act for a 'Tribunal' to issue necessary

directions to the Board of a Company to issue the 'Duplicate Shares' in question.

40. It cannot be forgotten that Section 46 of the Companies Act provides that

the 'Register of Members' is the prima facie evidence of any matters that the Law

directs or authorises to be entered in the Register. Further, the Companies Act

treats the 'Register of Members' only as prima facie evidence and not the

conclusive evidence of the entries therein as per decision 'Reese River Silver

Mining Co. Ltd.' V. 'Smith' (1869) LR HL 64.

41. In the decision 'Ramdas Chakrabati' V. 'Official Liquidator, Cotton

Ginning Company' reported in ILR 1887(9) All 366 it is held that a 'Register'

may not be considered conclusive evidence, particularly if other papers filed by

the plaintiff contradict the 'Register', even though the defendant does not let in

any evidence.

42. In this connection, it is worth to point out that Section 88 of the Companies

Act, 2013 enjoins that every Company shall keep and maintain register of

members for each class of equity and preference shares, the register of debenture

22 Company Appeal (AT) No. 408 of 2018 holders and register of any other security holders. According to Rule 3(1) of the

Management Administration Rules, 2014 every Company limited by shares shall,

from the date of registration, maintain a register of its members in Form No.

MGT-1.

43. The First Appellant / First Respondent/Company through its

communication dated 30.10.2015 addressed to the Respondent / Petitioner had

rejected the request for transfer of the shares in question specifying reasons: -

(i) that the Respondent / Petitioner, as

one of the Directors of the Company

have a fiduciary duty to act in

accordance with the best interest of the

company and further that created all

kinds of hurdles in the working of the

company and indented flimsy excuses

and avoided attending Board meeting

even though some of these board

meetings had been postponed based on

his express requests; and

(ii) that the Respondent / Petitioner had

made serious allegations of criminal

nature against the Company's other

Directors and in such circumstances

23 Company Appeal (AT) No. 408 of 2018 acquiring additional shares is deemed

detrimental to the interests of the

Company. Furthermore, it was

mentioned that the share certificates

were not enclosed with the share

transfer form as required under Article

6 and as such the right of the transfer

to make the transfer is yet to be

established and by exercising the

power conferred under 'Articles of

Association' of the Company, the

request to register the transfer of share

was declined.

44. It is to be noted that the power to refuse registration of shares can be

exercised by the Directors of the Company if the 'Articles of Association' do

contain specific powers for such refusal. However, the rider is the reasons for

refusal to register the shares must be legitimate, notwithstanding the fact that

'powers of refusal' are conferred in the 'Articles of Association'.

45. It is to be borne in mind that if the Directors had assigned reasons for

their refusal to register 'Transfer of Shares' then, the Tribunal is empowered to

evaluate / scrutinise as to whether the said reasons are legitimate and that

24 Company Appeal (AT) No. 408 of 2018 where the Directors had committed mistake(s) and in fact, their action(s) can be

displaced / set at naught to avoid serious miscarriage of justice.

46. In Law, a Company has no inherent power to refuse the transfer of shares

and its registration so as to leave the matter in the hands of Company or its

Directors at will. To put it succinctly, the discretionary power to refuse 'Transfer

of Shares' is not to be resorted to in a deliberate, arbitrary, fraudulent, ingenious

or capricious fashion. As a matter of fact, the Directors are to exercise their

discretion in good faith and to act in the interest of company. The Directors are

to give due weightage to shareholder's right to transfer his share.

47. The 'Tribunal' has wide powers in dealing with an 'Appeal' to refuse to

register the transfer of shares. Section 58(5) of the Companies Act, 2013 says

that the Tribunal may, after hearing the parties, may dismiss or order directing

the transfer or transmission shall be registered by the Company and the

Company shall comply with such order within ten days. Further, the 'Tribunal'

has power to direct rectification of the register or direct the Company to pay

damages to any party 'aggrieved'.

48. The specific case of the Appellant is that in the 'Share Transfer Form' SH-

4 furnished by the Respondent, the distinctive number of the share was not

mentioned, corresponding certificate numbers were not mentioned, witness

signature and name was not found, the Transferee's details was not mentioned.

Further, the 'Allotment Letter' or the 'Original Share Certificate' was not enclosed

25 Company Appeal (AT) No. 408 of 2018 with the share transfer form. Continuing further, the Transferor signature is to

be attested by the 'Notary Public' and in the present case the same is absent.

49. On the side of Respondent, it is contended that the Board of Directors had

not issued the duplicate share certificates even though request was made by the

transferors on 10.04.2015 and 30.06.2015. Further, the Respondent cannot

have details without the original certificates and the notice of refusal was given

only to transferor and not to both the 'Transferor' and 'Transferee'.

50. It is the version of the Respondent that the Appellants' 'Grounds of Appeal'

and the 'Questions of Law' are based on non-existent 'Articles of Association'

dated 18.02.1992 which is a forged and fabricated document with a view to

mislead this Tribunal in reversing the findings of the impugned order. For the

fraudulent acts committed by the Company and its Directors an investigation is

to be ordered and a direction for filing of criminal complaint under the provisions

of the Companies Act is to be issued, in the interest of justice.

51. In the instant case the Respondent had furnished the Indemnity Bonds /

Sworn Affidavit to the effect that they had lost the original share certificates and

that the first Appellant / Company was requested for issuance of 'Duplicate

Share Certificates' to the Respondent / Petitioner since the shares were sold.

When the original share certificates were lost / mislaid / untraceable, it is not

prudent for the Appellants to insist upon the production of original share

certificates in question to effect the transfer of shares, as opined by this Tribunal.

Besides this, the other reasons projected on behalf of the Appellants that just

26 Company Appeal (AT) No. 408 of 2018 because the Respondent / Petitioner had filed numerous criminal / civil cases

and that he was not attending the 'Board Meetings' and he would create

problems for smooth functioning of affairs of the Company will not hold water

and they are unworthy of acceptance in the considered opinion of this Appellate

Tribunal.

52. Even after the requests made on 10.04.2015 and 30.06.2015, the Board

of Directors of the Company had not issued the 'Duplicate Share Certificates'

and this is clearly an adverse circumstance which goes against the Appellants.

The non-reporting of the loss of the share certificates by the 'Transferor' either

with the First Appellant / Company or to the concerned police before the transfer

of shares to the Respondent will not affect the case of the Respondent /

Petitioner.

53. Be that as it may, in view of the foregoing discussions and taking into

consideration of the facts and circumstances of the present case in a holistic

fashion, especially in the teeth of rejection of transfer of shares through letter

dated 30.10.2015 mentioning two reasons therein, this Tribunal without any

simmering doubt holds that they are clearly unsustainable in the eye of Law and

hence, the said letter dated 30.10.2015 was set aside in the impugned order, by

the National Company Law Tribunal, Bengaluru Bench, Bengaluru. In short,

the impugned order of the Tribunal dated 16.10.2018 whereby and whereunder

the directions issued as mentioned in para 2 of this judgement is free from legal

infirmities. Consequently, the Appeal fails.

27 Company Appeal (AT) No. 408 of 2018 Result

In fine, the Appeal is dismissed. No costs. I.A. No. 2017/2018 is closed.

54. The Respondent / Petitioner is directed to furnish all necessary / relevant

documents required by the First Appellant / Company within three weeks from

the date of receipt of copy of this judgement. Subsequently, the First Appellant

/ Company is directed to fulfill with the directions issued in the impugned order

of 'National Company Law Tribunal', Bengaluru Bench, Bengaluru in C.P. No. 1

of 2016 (T.P. No. 96 of 2016) within three weeks thereafter.

[Justice Venugopal. M] Member (Judicial)

[Dr. Alok Srivastava] Member (Technical)

NEW DELHI

12th November, 2020

ss

28 Company Appeal (AT) No. 408 of 2018