Panday Minerals Private Limited and Others vs Sanjay Sukhwal and Others

Sangeet Lodha, J.�This Company Appeal under Section 10F of the Companies Act, 1956 (for short "the Act") is directed against judgment and order dated 19.3.14 passed by the Company Law Board, Northern Region Bench, New Delhi (''the Board''), whereby the petition preferred under Section 111(4) read with Section 108 of the Act by the respondent for setting aside the transfer of 2500 shares held by him in the name of the Appellant No. 2-Laxmi Narayan Pandey, stands allowed and accordingly, the Appellant Company has been directed to enter aforesaid shareholding of 2500 shares in the name of the respondent in the Register of Members within 30 days.

The relevant facts are that the Appellant Company, a company registered under the provisions of the Act, is engaged in the business of manufacture, fabricate, design, engrave, assemble, refine, treat, cut, mine, crush grind, polish, process, wash, wax import & export and sale of minerals. The subscribed and paid up share capital of the Appellant Company at the time of incorporation was Rs. 1,00,000 divided into 10,000 equity shares of Rs. 10/- each, which was subsequently increased to Rs. 3,00,000/- divided into 30,000 equity shares of Rs. 10/- each on 2.4.09 and was further increased from Rs. 3,00,000/- to Rs. 9,00,000/- divided into 90,000 equity shares of Rs. 10/- each.

The respondent acquired shareholding of 2500 equity shares of Rs. 10/- each of the Appellant Company in the year 2001. The respondent was also Director of the Appellant Company, however, he was removed from the office of Director by the Appellant Company w.e.f. 30.9.09.

The respondent filed a petition under Section 111(4) read with Section 108 of the Act before the Board alleging that the Appellant No. 2 & 3 herein who are Director and Shareholders of the Appellant Company conspired to play fraud with relation to his shareholding in the Appellant Company and got illegally transferred the shares held by him in the name of the Appellant No. 2 herein without execution of the share transfer deeds and without payment of any consideration. It was averred in the petition that the respondent herein came to know of the fraud committed by the Appellant No. 2 & 3 in respect of the transfer of the aforesaid equity shares on perusal of the inspection report dated 18.12.12 prepared by Mr. Lokesh Sharma, Company Secretary, available on MCA Portal. It is alleged that the respondent also lodged a complaint regarding fraud and misappropriation committed by the Appellant No. 2 & 3 with the police, however, same was not registered and therefore, the petitioner filed the complaint before the Magistrate concerned, who in its turn has referred the matter under Section 156(3) Cr.P.C. for investigation to the police and accordingly, an FIR has been registered against the Appellant No. 2 & 3.

By way of petition filed before the Company Law Board as aforesaid, the respondent prayed that the Appellant Company may be directed to restore 2500 shares held by the petitioner and to rectify the Register of Members of the Company accordingly.

The petition was contested by the appellants herein by filing a reply thereto. Precisely, the stand of the Appellant Company before the Board was that the respondent who is nephew of the Appellant No. 2 herein was inducted as Director of the Company on 19.12.01 inasmuch as, he was in dire need of the work. It was averred that the Appellant No. 2 treated the respondent as his son and not only taught him nuances of mineral business but also reposing complete faith, permitted him the access to company''s property money and papers. It was alleged that the respondent betraying the family relations as also fiduciary relationship with the Company abused the powers entrusted to him and after acquiring knowledge and skill of trade, secretly and clandestinely started his own business by way of floating his own company in the name and style of Sanjay Minerals, Udaipur. Regarding the alleged illegal transfer of the shares it was averred that when the respondent was caught red handed committing fraud with the Appellant Company, he handed over his 2500 shares of book value Rs. 25,000/- to the Appellant No. 2 herein and requested him that the amount be adjusted and settled against the personal loan of Rs. 1,70,000/-, which he had taken from the Appellant No. 2 on 1.4.10 and he may deal with the shares as he might thought proper. At the same time, in para No. 5.6 of the reply, it was averred by the Appellants herein that the shares in question was sold by the petitioner to the respondent No. 2 towards the settlement of his liability of loan taken from the Appellant Company. The averments made by the respondent in the petition regarding the transfer of his shares without execution of share transfer deed was replied by the appellants herein in terms that the shares were duly transferred in the name of the Appellant No. 1 herein in compliance of legal formalities.

A rejoinder to the reply was filed on behalf of the respondent before the Board taking the stand that in absence of offer and acceptance of transfer of the shares on the basis of alleged ledger entries, without anything on record showing consent of the petitioner authorising transfer of the shares and in absence of execution of transfer deeds as mandated by Section 108 of the Act, the transfer of shares effected is illegal. The respondent also denied that he owes a personal loan of Rs. 1.7 lacs from Appellant No. 2 herein rather, he claimed that M/s. Pandey Minerals, a proprietorship firm of the respondent No. 2 owes a sum of Rs. 10,37,666/- to him.

After due consideration of the rival submissions, the Board arrived at the finding that there was absence of consideration by cash/cheque for sale of shares and no transfer deed was executed by the respondent in favour of the Appellant No. 2 herein for such transfer of shares. The Board observed that the settlement of debt/outstandings in process of business activities of the Appellant Company is separate from transfer of shares by the respondent to the Appellant No. 2. The Board found that alleged transfer of shares without execution of the transfer deed by the respondent in favour of the Appellant No. 2 is bad in law being in defiance of the statutory requirement of Section 108 of the Act. Accordingly, while allowing the petition preferred by the petitioner, the Board has struck down the transfer of 2500 shares of the respondent in favour of the Appellant No. 2 herein and the Appellant Company has been directed to show aforesaid shareholding of 2500 shares in the Register of Members in the name of the respondent within a period of 30 days and further to correct the Returns/Forms filed with Registrar of Companies within 45 days. Hence, this appeal.

Learned counsel appearing for the appellants contended that the Board has fallen into manifest error of law in allowing the petition filed on behalf of the respondent under Section 111 (4) read with Section 108 of the Act. Learned counsel submitted that the fact that original share certificates were handed over by the respondent No. 2 to the Appellant No. 2 is not in dispute. Learned counsel submitted that there was a specific stand of the Appellants before the Board that the respondent had executed transfer deed and handed over the original certificates which were lying in the office of the Company. Learned counsel submitted that while determining the question of execution of the transfer deed, the Board was required to consider surrounding circumstances details whereof were specifically set out in the reply to the petition filed. Learned counsel submitted that the overall conspectus of factual matrix leaves no room for ambiguity that the persons who has defrauded the company and his close relatives by siphoning the fund and taking away the record can conveniently tamper/destroy record of transfer of shares or transfer deeds. Learned counsel submitted that the transfer of the shares was effected on 1.4.10 and the petitioner was removed from the office of Director in the month of September, 2010, however, he approached the Board by filing the petition in the year 2013 and thus, the conduct of the petitioner also shows that the petition was filed only for harassing the appellants. Learned counsel submitted that the strict yardstick of written or expressed agreement are not expected where the business of the Company is managed by members of the family. Learned counsel submitted that the finding arrived at by the Board without considering the relevant material on record, is ex facie perverse. Learned counsel submitted that on the facts and in the circumstances of the case, the Board having arrived at the conclusion that the transfer has been effected without execution of the transfer deed, should have issued direction to pay a sum of Rs. 25,000/- to the respondent being consideration of 2500 shares instead of directing restoration of the shares in favour of the respondent.

I have considered the submissions of the learned counsel for the appellants and perused the material on record.

Indisputably, the respondent was having shareholding of 2500 equity shares in the Appellant Company. It is also not in dispute that no transfer deed or any other documentary evidence was placed on record before the Board showing the consent of the respondent for alleged transfer of the shares held by him in favour of the Appellant No. 2. As a matter of fact, the specific stand taken by the respondent in the petition regarding the transfer of shares being effected by the Appellant Company without there being a transfer deed executed by the respondent in favour of the Appellant No. 2 was not specifically denied by the respondent. The respondent had taken the stand in the reply to the petition filed that it is a matter of record that the alleged shares were duly transferred in the name of the respondent No. 2 in compliance of the legal formalities, however, no material was placed on record to show that the legal formalities as mandated by provisions of Section 108 of the Act were complied with. There is no allegation in the reply filed that the transfer deeds were executed by the respondent in favour of the Appellant No. 2 and the same were taken away/stolen by him from the company''s office. Even otherwise, regarding the personal loan of the respondent, which is specifically denied by the respondent, the Appellant Company adjusting the shares of the respondent towards the personal loan and effecting the transfer of the shares on record without there being a duly stamped and executed instrument of transfer delivered to the Company, is ex facie violative of mandatory provisions of Section 108 of the Act and cannot be sustained.

It is pertinent to note that it was not a specific stand of the appellants before the Board that the transfer deed was executed by the respondent was lying with the Appellant Company and was later taken away by the respondent unauthorisedly. Thus, entire edifice of the contention raised by the learned counsel appearing for the appellants regarding the existence of the transfer deed and the same being taken away by the respondent from the office of the Company, is absolutely without foundation.

In this view of the matter, in the considered opinion of this court, the finding arrived at by the Board which remains a finding of fact, cannot be said to be capricious or perverse so as to warrant interference by this court in exercise of its appellate jurisdiction under Section 10F of the Act, which could be exercised only if any question of law arises out of the decision or order of the Board.

In the result, the appeal fails, it is hereby dismissed.