CP No. 91 of 2005. Case: Aasia Properties Development Ltd. Vs Juhu Beach Resorts Ltd. and Ors.. Company Law Board

Case Number:CP No. 91 of 2005
Party Name:Aasia Properties Development Ltd. Vs Juhu Beach Resorts Ltd. and Ors.
Counsel:For the Appellant: Dushyam Dave, senior advocate (Ramesh Singh, Suman Jyoti Khaitan, P Sudheer and Prantik Hazarika with him) and For the Respondents: Sudipto Sarkar, N. Mukherjee, Sundaram, Abhishek and T Devitre senior advocates (Ms. Hemlata Jain, Mahesh Aganval, Ms. Bindi Dave and A.N. Haksar with them)
Judges:S. Balasubramanian, Chairman
Issue:Companies Act, 1956 ('the Act') - Sections 397, 398, 150, 283(1)(g), 301; Limitation Act - Section 18
Citation:140 ComCas 18, 74 SCL 153, 2007 (1) CLJ 315, 75 CLA 220
Judgement Date:September 19, 2006
Court:Company Law Board
 
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Order:

S. Balasubramanian, Chairman, (At New Delhi)

  1. The petitioner herein above, holding two-third of the paid-up capital of Juhu Beach Resorts Ltd. ('the company') has filed this petition under section 397/398 of the Companies Act, 1956 ('the Act') seeking for a declaration that certain transfer of shares registered in 1983 as null and void and also that further transfers effected subsequently also as null and void and consequently offer all these shares to the petitioner and for appointing a nominee of the petitioner on the Board and also for declaring that the management agreement entered into between the company and the 29th respondent as null and void.

  2. The facts in brief are: The company was incorporated as a private limited company in the year 1974. In 1978, the paid-up capital of the company consisted of 1,900 equity shares of Rs. 100 each. Poonamchand Shah group acquired 633 shares representing l/3rd of the capital and K Raheja group acquired balance 1,267 shares constituting two/third of the paid-up capital of the company. Shah group had two directors and K Raheja group had three directors. The company had a sub-lease of a large and valuable piece of land at Juhu Beach, Mumbai. In 1981, the director of the petitioner, Shri Ashok P Hinduja (Shri Ashok) was appointed as a director on 26th June, 1981. The petitioner acquired 633 equity shares from K Raheja group to become a 1/3rd shareholder. Since Shah group was not interested in continuing with the company, it transferred their entire holding of 633 shares to B Raheja group (10th to 13th respondents). The main dispute raised in the petition relates to the dates of transfer of shares from K Raheja group to the petitioner and Shah group to B Raheja group. While the claim of the petitioner is that it became a shareholder on 30th August, 1982 before B Raheja group became a shareholder on 15th January, 2003, it is the contention of the respondents that B Raheja group became a shareholder only on 28th January, 1983, Article 38 of article of association ('AoA') of the company provides for pre-emption rights to existing members in case of transfer of shares. Therefore, the date of becoming a shareholder becomes relevant for application of the provisions of this article. On the basis that the petitioner had become a shareholder earlier to B Raheja group, the petitioner has staked a claim that no shares could have been transferred to B Raheja group without offering to the petitioner in terms of the pre-emption right and as such the petitioner has sought for cancellation of the transfer of shares to B Raheja group and offering the same to the petitioner. Likewise, alleging that subsequent transfer of shares without following the procedure of pre-emption rights, should be declared to be invalid and offered to the petitioner. The petitioner has also alleged that its nominee Shri P Ashok, who was appointed as a director, had been removed as a director and as the petitioner holds l/3rd shares in the company, proportional representation should be directed.

  3. Shri Dave, senior advocate, appearing for petitioner submitted: Initially, the paid-up capital of the company comprised of 1,900 equity shares of Rs. 100 each. The petitioner joined the company on the understanding that the company would be managed in the guise of a quasi partnership and that is why Shri Ashok was appointed as a director even earlier to the petitioner becoming a shareholder. When the petitioner, which was then known as Mecca Properties, joined the company as a shareholder, there were two groups, namely, Shah Group holding 633 shares, K Raheja Group holding 1,267 shares. K Raheja Group transferred 633 shares to the petitioner on the understanding that each group would continue to hold l/3rd of the paid-up share capital of the company and that they would jointly finance and participate in the business of the company. Thus, the petitioner joined the company with the legitimate expectation of equal shareholding and equal participation in the management. The worth of the company is over Rs. 70 crore but the Rahejas, in exclusion of the petitioner, are enjoying the benefits. Induction of B Raheja group was completely against the original understanding and by committing frauds and manipulating the records, B Raheja group has been inducted as a shareholder. There was an oral agreement that if any of the original three groups were to exist the company, the shares would be offered to the other group in line with article 38 of the AoA and this agreement has been breached by inducting B Raheja group. The grievance of the petitioner is that even though it had become a shareholder on 30th August, 1982, as is evident from the entries in the share transfer register maintained in the company, yet, the company has shown as if the petitioner became a shareholder only on 28th January, 1983 in the register of members. The manipulation done by the company is to deprive the petitioner of the pre-emption right in respect of transfer of shares held by Shah group of 633 shares to B Raheja group on 15th January, 1983. Since the petitioner had actually become a shareholder on 30th August, 1982, when Shah group transferred their shares on 15th January, 1983, in terms of the pre emptive rights in article 38 of the AoA, the petitioner would have opted to buy out the entire shares of Shah group and, thus, would have been holding two-third of the shares, i.e., 66.66 per cent shares in the company at that time. If they had acquired the shares of Shah group and had become holder of 66,66 per cent, in view of the subsequent allotment and transfer of shares impugned in the petition, the petitioner would now be holding 88 per cent shares in the company.

  4. The learned counsel further submitted: All along the petitioner believed that it had become a shareholder only on 28th January, 1983. Only when the petitioner carried out an inspection of the records of the company sometime in September/October 2004, it came to know that the respondents had played a fraud on the petitioner by manipulation of share records. The company maintains a register known as shares transfer register as prescribed in article 37 of the articles of association ('AoA'). In that register, it is indicated that the petitioner had become a member of the company on 30th August, 1982 and that the transfer was approved in a Board meeting on the same day. In folio 24 of register of members, it is shown that Bindu Raheja who had transferred the shares to the petitioner had been shown to have ceased to be a member on 30th August, 1982. Likewsie, in Folio 26, Meena S Raheja is shown to have ceased to be a member on 2nd June, 1982. She had transferred 200 shares in favour of the petitioner and 100 shares in favour of L Raheja. While the name of L Raheja has been entered in the register as a member on 2nd June, 1982, the 200 shares transferred in favour of the petitioner is shown as registered only on 28th January, 1983. The register does not show any lodgment of transfer by Shri Suresh L Raheja on 2 June, 1982 nor the minutes on 30th August, 1982 or 28th January, 1983 show any approval of registration of the said transfer. Similarly, one Shri G C Nichani who had transferred the shares to the petitioner is shown to have ceased to be a member on 30th August, 1982. If the transferees had ceased to be members by 30th August, 1982, then the petitioner should have become member on that day as either the name of the transferee or the transferor should be in the register of members on any day as in terms of section 150 of the Act, every share should stand in the name of a shareholder. The folio No. 29 in respect of the petitioner in the register of members shows erasure marks on all the dates by which 30th August, 1982 has been changed to 28th January, 1983. Similarly, the folios relating to the transferors also show erasure marks on all the dates whereby 30th August, 1982 has been changed to 28th January, 1983. The very fact that the folio number assigned to the petitioner is preceding the folio numbers assigned to respondents 10 and 13 of B Raheja group would indicate that they had become shareholders before these respondents. Further, in the share transfer register, the correct consideration paid by the petitioner of Rs. 100 per share has been shown against entries dated 30th August, 1982, but the entries against transfer on 28th January, 1983 show the very said transfers at the rate of Rs. 200 per share.

  5. The learned counsel further, submitted: From the narration of facts, it is abundantly clear that even though the petitioner had become shareholder on 30th August, 1982, the respondents/company had manipulated the records to show as if the petitioner became a shareholder only on 28th January, 2003. The reason for being so is obvious. In terms of article 38 of AoA, no share can be transferred to a non member so long as any member is willing to purchase the same at face value. In the present case, the admitted position is that B Raheja group became a shareholder only on 15th January, 1983 by acquiring shares from Shah group. Since the petitioner had become a shareholder on 30th August, 1982, Shah group could not have transferred their shares to B Raheja group without offering the same to the petitioner. Just to deprive the petitioner of its pre-emptive rights under article 38, the respondents, the company have manipulated the records to show as, if the petitioner became a shareholder subsequent to 15th January, 1983. The petitioner came to know of the fraud only in October 2004 when it took an inspection of the register of transfers. In Dhananjay Pandey v. Dr. Bias Surgical and Medical Institute (P.) Ltd. [2005] 65 CLA 164 (CLB), this Board has held that a person can be a shareholder even if he is not in a position to show any evidence of having become a shareholder in the company, if the same could be established from the records of the...

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