Case: Rathnam P.V Vs. The Premier Automobiles Limited &amp; Others

The application was for confirmation/recognition of transfer of 3498 equity shares of Rs.100/each fully paid up in Elmot Engineering Company Private Limited (ECPL) (in liquidation) (hereinafter referred to as the company in liquidation. The prayer in the company application was for the followingConfirmation/recognition of transfer to the applicant 3498 Equity Shares of Rs.100/each fully paid up bearing distinctive Nos.2723 to 2875, 3526 to 5145, 5346 to 6955 and 6981 to 6995 in Elmot Engineering Company Private Limited (in liquidation), the Respondent Company, made before order of winding up i.e. 22.03.1990, but after filing of petition for winding up of the Respondent Company, under Section 536(2) of the Companies Act, 1956."2. The said company in liquidation was ordered to be wound up by order dated 22 March 1990 of the Company Court. The present application was made on 25 September 2009 by the appellant for seeking confirmation/recognition of 3498 equity shares of Rs.100/each fully paid up in the company in liquidation, made before order of winding up (i.e. 22 March 1990) but after filing of the winding up petition.3. The appellant filed this company application with the following case:3.1 The appellant was appointed as Director of the company under liquidation at its extraordinary general meeting held on 3 March 1990 in which meeting 3498 shares of the company were transferred in favour of the appellant and thus, became majority shareholders holding 3498 out of 6995 equity shares in the company in liquidation. It is also the case of the appellant that the company in liquidation was one of the Elmot Group of Companies and that Mr. C.V.K Rao and Mrs. R.K. Rao were the only directors on the Board of companies in the Elmot group. The company became sick by 1981. Mr.C.V.K. Rao resigned in 1983 as Managing Director and all other directors resigned by the end of 1985. By that time, the losses incurred by the company were 8.5 times that of the paid up share capital of 6.995 lacs. Hence, Mr.C.V.K. Rao was desperate to sell and transferred all the shares in the company at Rs.10/per share to Mrs. V. Sharada Proprietress of VM FinanceLeasing Company (VMFL) on 13 February 1988 which was payable in three equal instalments and gave physical possession of all properties including statutory registers/records/documents and accepted pledge of the same shares as security for the deferred payment.3.2. Having not received the first instalment, Mr.C.V.K.Rao filed Suit No.357 of 1988 for recovery of the consideration. The company under liquidation was closed down on 22 April 1988. The winding up petition came to be filed by Premier Automobiles Ltd. for recovery of dues from the company on 20 June 1988. The consent terms were filed in the winding up petition on 29 March 1989 to pay in all Rs.1,63,000/in monthly instalments of Rs.15,000/but since not even one instalment was paid till February 1990, this Court passed order dated 22 March 1990 for winding up of the company under liquidation. Thus, all efforts made by Mr.C.V.K. Rao and his group to revive the company under liquidation failed. The appellants further case is that the appellant was not aware about the winding up proceedings but because of the grave financial problems, Mr.C.V.K. Rao decided to introduce the appellant to accept the responsibility of revival of the Elmot Group of Companies. It is stated that Mr.C.V.K. Rao is a son of the only sister of the paternal grandfather of the appellant. Upon the appellants election as a director of the board of the company under liquidation after removal of three directors of M/s. VM FinanceLeasing Company, Mr.C.V.K. Rao was to file the necessary forms regarding appellants election as director of the company in question. The appellants further case is that by letter dated 1 October 1990, the appellant informed the Official Liquidator about his election as director on the board of the company under liquidation. It is also the case of the appellant that Mr.C.V.K. Rao and Mrs. R.K. Rao in their statements recorded by the Official Liquidator confirmed that the appellant wasof the affairs of the company under liquidation. The appellants case about transfer of shares as set out in the affidavit in support of the company application is already quoted in para 6 of the judgment under appeal.3.3. The appellants case is that the appellant has not received any salary or any other form of compensation from the company under liquidation but on the contrary, the appellant paid a total amount of Rs. 2,87,039/to 16 employees of the company under liquidation only because 3498 shares were transferred to the appellant and the appellant was elected as director of the company under liquidation. It is also the appellants case that after coming to know of the order of winding up, the appellant decided to revive the other companies in the group in preference to the company under liquidation and on revival of Elmot Alternators Private Ltd. (EAPL), the Rao Group wanted to marginalize the shareholding of the appellant in EAPL which led to serious disputes and that the Rao group is now attempting to do the same in the company under liquidation through the sham revival proposal before this Court, for the purpose of acquiring the property of the company under liquidation comprising 10 acres of land with nearly 1,33,700 sq.ft. of built up area.4. The company application came to be resisted by the affidavit in reply filed by Mr. A.V.K.Rao, a shareholder of the company under liquidation and the managing director of M/s. Elmot Alternators Pvt.Ltd. (EAPL). It is contended therein that all the shares of the company under liquidation are held by the family members of Mr.A.V.K.Rao directly or indirectly. Mr.A.V.K. Rao is the son of Mr.C.V.K. Rao and Mrs. R.K. Rao. It is the case of Rao group that Mr.C.V.K. Rao and Mrs.R.K. Rao settled 17 trusts which hold 4505 equity shares of the company under liquidation including 3498 equity shares, which are subject matter of the present litigation. Mr.A.V.K. Rao claims to be the sole beneficiary of the shares held by the above trusts shares. The parents of A.V.K. Rao are trustees of seven of these trusts and the other relatives are trustees of other ten trusts. The date of vesting of the trusts shares was 10 November 1995. It is further defence of Mr.A.V.K. Rao that when he alongwith M/s. Elmot Alternators Private Limited filed Company Application No.212 of 2008 for recalling the winding up order dated 22 March 1990, during pendency of the said application, the appellant herein intervened, contending that he is the owner of 3498 equity shares of the company under liquidation. That claim was disputed by Mr.A.V.K. Rao. Mr.C.V.K. Rao also filed affidavit dated 6 December 2008 in the said company application explaining the facts. In view of the said claim made by the appellant in the said company application in the year 2008, the suit has been filed by Mr.A.V.K. Rao against the appellant and others in Ranga Reddy District Court at L.B.. Nagar, Hyderabad being Suit No.224 of 2009 for a declaration that Mr.A.V.K.Rao is the sole and absolute owner of 3498 equity shares of the company under liquidation and that the appellant is wrongfully in possession of the share certificates pertaining to those shares, but the purported transfer of 3498 shares is without consideration, without execution of valid transfer documents/deeds and without approval of transfer by Board of Directors and, therefore, invalid. It is also contended that the appellant herein executed affidavit dated 29 July 1996 deposing that Mr.A.V.K.Rao is the sole beneficiary of the very same trusts which held 3498 shares in the company under liquidation. It is also contended that the appellant has not produced any evidence of his having filed before the Registrar of Companies form No.32 relating to his appointment as director of the company under liquidation.5. The appellant thereafter filedto which affidavit incame to be filed by Mr.A.V.K. Rao.6. The aforesaid company application No.212 of 2008 filed by Mr.A.V.K. Rao (respondent No.3 herein) for revival of the company under liquidation, came to be disposed of with liberty to file a fresh company application. The order refers to the suit which Mr.A.V.K.Rao proposed to file and such a suit ultimately came to be filed in Ranga Reddy District Court at Hyderabad and numbered as Suit No.244 of 2009. The said order readsThe applicant seeks an order recalling/revoking and or setting aside the order dated 22.3.1990 ordering the winding up of the company. Mr.Munshi, the learned Advocate appearing for the applicant, states that in view of the leave granted by this Court under Section 446 in Company Application No.222 of 2009, this application ought to be adjourned by six weeks. This is on the basis that any orders that may be passed in the proposed suit in respect of the balance 50% shares in liquidation would be relevant to this application. I see no reason to adjourn this application on that basis. If any orders are passed in the proposed suit, which would entitle the applicant to any reliefs or even otherwise, the applicant is at liberty to file a fresh company application on that basis as well as on the basis set out in the above company application itself. In other words, the dismissal of the company application will not affect or prejudice the applicants rights in any manner. The company application accordingly stands dismissed."7. Company application No.222 of 2009 was filed by Mr.A.V.K. Rao for permission under section 446 of the Companies Act for commencing suit against the Liquidator and other parties before the Principal District Judge, Ranga Reddy District Court at L.B. Nagar, Hyderabad. The learned Company Judge allowed the application granting permission under section 446 of the Act and passed the followingBy consent, the Company Application is placed on board and heard finally.2. The applicant seeks reliefs to commence the suit against the Liquidator and other parties before the Principal District Judge, Ranga Reddy District at L.B.Nagar. Essentially, the reliefs are claimed not against the official liquidator, but against the persons shown on the record of the company as the holders of the shares in respect of the suit which is proposed to be filed. The civil application is made absolute in terms of prayer clause (a).3. Mr. Munshi, the learned Advocate for the applicant, states that no reliefs will be claimed against the Official Liquidator per se, except consequential directions in the event of the applicant succeeding in respect of his claim to the said shares. The Official Liquidator therefore, will be a formal party to the suit and will submit to the orders of the Court. However, all the papers and proceedings shall always be served upon the Official Liquidator. Liberty to the Official Liquidator to apply. In view of the same, it will not be necessary for the Official Liquidator to appear in the proceedings unless otherwise directed by this Court.4. It is further clarified that this order and the pendency of any suit that may be filed pursuant thereto, shall not be a ground by itself for the Official Liquidator not proceeding with the liquidation proceedings."8. After hearing company application giving rise to this appeal, the learned Company Judge referred to the rival contentions and then rejected the application seeking confirmation/recognition of the transfer of shares in favour of the appellant purportedly made on 3 March 1990 in the followingHaving considered the rival versions in their entirety, I am of the opinion that it is not as if the interveners have raised the issue of holding of meeting on 03.03.1990, passing the resolution there at with regard to transfer of 3498 shares, drawing up the minutes on loose papers, but it is the Applicant who has pleaded all this in his affidavit in support. Once it is doubtful whether there was any transfer of shares and once I am of the opinion that the Applicant is raising the issue with regard to his rights as transferee of shares, shareholder of the Company under liquidation after a lapse of more than 18 years from the date of the alleged meeting, then, all the more this Company Application cannot be entertained. I have only highlighted the controversy between the parties and it is not as if this Court is disinclined to consider the request because of pendency of a civil suit. The reasons that have been assigned for approaching this Court after such a long duration having not found to be satisfactory, that I am of the view that the Applicant is disentitled to any reliefs as prayed in this Company Application.41. After this material is perused by me, I am of the opinion that there is no explanation for the lapse on the part of the Applicant in not pressing the claim earlier. If the claim was indeed admitted and beyond doubt, then, there was no reason for the Applicant to maintain silence for all these years. In any event, the claim is not admitted, but disputed one. That there is dispute is clear from the contents of the affidavit in support and particularly the affidavits that have been filed in reply and rejoinder. There is a civil suit pending with regard to the transfer of shares. It is in these circumstances that I am of the opinion that the Applicant cannot be granted any relief in this Company Application.42. Once the above view is taken, there is no necessity of referring to all decisions that have been brought to my notice. I am proceeding on the basis that the transfer of shares is a matter which can be dealt with and is covered by section 536(2) of the Companies Act, 1956 and same principles which apply with regard to the dispositions of property would apply and govern the transfer of shares or alteration in the status of the members. However, finding that the claim is belated, there being unexplained and erroneous delay in raising it, so also, it being highly disputed, that it will not be possible to grant any relief on this application. If the claim was not belated as referred to above, possibly all other aspects could have been gone into and then a view in favour of the Applicant on other aspects could have been taken. However, finding that the parties are involved in litigation in relation to the very transaction and that it is not a case of admitted transfer of shares on the own showing and going by own version of the Applicant, that the Company Application fails. It is dismissed. In the circumstances, there will be no order as to costs."9. It is the aforesaid order of the learned Company Judge made on 13 October 2011 which is under challenge in this appeal.

Reasoning:
15. Having heard the learned counsel for the parties and having given our anxious consideration to the rival submissions and having regard to the rival versions about the circumstances and the manner in which the appellant claims to have become owner of 3498 equity shares in the company under liquidation, we are of the view that the company application raises serious disputed questions of fact which can only be decided after a fulfledged trial and after considering the oral evidence of the parties. Admittedly, Suit No.244 of 2009 filed by Mr.A.V.K. Rao (respondent No.3 herein) in the Ranga Reddy District Court at L.B. Nagar, Hyderabad centers around the same controversy about the alleged transfer of 3498 equity shares in the company under liquidation in favour of the appellant.We must, however, say that the defence of the respondents in the present case is to the effect that 3498 shares of the company under liquidation were not transferred till 22 March 1990 when the company was ordered to be wound up but the appellant implored respondent No.4 Mr.C.V.K. Rao to go alongwith the appellant in a scheme of showing backdated transfer of 3498 trust shares in favour of the appellant. This was to be done to enable the appellant to represent to M/s. Alcon Engineering for the purposes of obtaining finance. The defence of the respondents also is that when this was done, the shares were held by the trusts of which respondent No.3 Mr.A.V.K. Rao was the sole beneficiary and at the relevant time in 1990 Mr.A.V.K. Rao was a minor. It is further case of the respondents that when Mr.C.V.K. Rao refused to give the appellant possession of the share certificates pertaining to the equity shares held in the company by the 17 trusts, the appellant in his own handwriting wrote out transfer of all shares belonging to the said trusts (of which respondent No.3 Mr.A.V.K. Rao is the sole beneficiary inspite of the fact that respondent No.3 was a minor in the year 1990). According to respondent No.4, though he was still hesitant to go through with this scheme, the appellant convinced him to go alongwith it, pointing out that the appellants possession of these share certificates was harmless for the following reasonsNone of the trust shares could be transferred to anyone, as his son is the sole beneficiary of these trusts;(b) the trustees of the 14 trusts which owned the 3498 shares whose certificates were to be handed over to the appellant were not parties to this transaction;(c) no transfer forms were signed and no valuable consideration was ever paid; and(d) the first transfer was executed in the name of his son.27. In short, it is the case of respondent No.4 in the affidavit in reply that there was no board meeting of the company held on 3 March 1990 as alleged by the applicant (appellant) nor was there any transfer of 3498 equity shares of the company in liquidation by the appellant before the Company Court passed the order of winding up on 22 March 1990.28. Having regard to the aforesaid stand of the respondents as set out in para 8 of the reply affidavit of respondent No.4, it appears that according to the defence of respondent Nos.3 to 5, the alleged transfer of shares took place after Elmot Engineering Co. Pvt. Ltd. (that is the company in question) was ordered to be wound up on 22 March 1990. If that be so, it is obvious that the power under section 536(2) would not be available to the Company Court for approving or confirming the transaction which would be void ab initio. Obviously, upon passing of the order of winding up by the Company Court, the Official Liquidator shall, by virtue of his office, become the Liquidator of the Company, as provided in section 449 of the Act and the properties of the company including the shares would vest in the Official Liquidator and there can be no question of approving or validating any purported transfer of shares which might have taken place after passing of the order of winding up. The decision of the Supreme Court in Pankaj Mehras case (supra) also clearly indicates that the power under Section 536(2) is to be exercised in respect of transaction after presentation of winding up petition and before the date of winding up order.29. The question whether the alleged transfer of 3498 shares in the company under liquidation had taken place before 22 March 1990 as alleged by the appellant or after 22 March 1990 as averred by the respondents is itself a seriously disputed question of fact and that question is already pending trial before the District Court at Ranga Reddy, Hyderabad. We are, therefore, of the view that the learned Company Judge was fully justified in not granting any relief to the appellant in the background of such seriously disputed questions of fact. If the District Court at Ranga Reddy, Hyderabad allows the suit filed by respondent No.3 being suit No. OS 244 of 2009, then obviously, the question of validating the transfer of 3498 shares in favour of the appellant can never arise. However, in case the District Court at Ranga Reddy, Hyderabad dismisses the suit and holds that the alleged transfer of shares had, in fact, taken place prior to 22 March 1990 then only the question would still survive for the appellant to move this Court for sanction /validating the transfer during pendency of the winding up petition No.645 of 1988.30. Since the Courts have already taken the view in Bir Chand vs. John Bros., AIR 1934 Allahabad 161, H.L.Seth vs. Wearwell Cycle Company (India) Ltd. and others, 46(1992) Delhi Law Times 599,  Pankaj Mehra and another v. State of Maharashtra and others, (2000)2 SCC 756   and Navjivan Mills Ltd. (1986)59 Company Cases 201, that disposition of property of the company during the interregnum period between the date of presentation of winding up petition and the date of passing of the winding up order can be validated at any time, the company application filed by the present appellant should not have been rejected on the ground of limitation but of course, the applicant would have to give explanation for any reasonable delay in making such an application under section 536(2) of the Act.