CORPORATE LAW CORNER

Section 58 of the
Companies Act, 2013 – Transfer of shares – Refusal of registration and appeal
against this

Petitioner’s father
had purchased 100 shares of respondent company paying full sale consideration
(through a share broker from its first registered joint holders ‘M’ and ‘D’).
However, petitioner’s father being ignorant of the procedure, kept shares with
him on as-is-where-is basis. Petitioner later approached respondent company
requesting for transfer of physical shares into petitioner’s name. Respondent
company returned original transfer form and original shares stating shares as
bad delivery on account of signature mismatch and directed petitioner to
re-lodge shares with transferor’s attestation. Petitioner stated that
whereabouts of transferor were not known and so he could not submit required
documents. Petitioner filed petition u/s 58 seeking directions to respondents
to transfer share certificate from its first registered holder to him and
further to allot bonus shares and all other benefits in his favour

Whereas
since notice was sent to original transferor / shareholders, ‘M’ and ‘D’, but
notices could not be served and further no complaint was lodged regarding theft
/ loss of share certificate/s, respondent was directed to register transfer of
shares in favour of petitioner provided petitioner furnished indemnity for
amount to be fixed by the respondent

FACTS

One RM, the father of the petitioner
(P), had purchased 100 shares of HF Limited (HF) by paying full sale
consideration through a share broker from its first registered joint holders
‘M’ and ‘D’.

RM being ignorant of the procedure, kept
the shares with him on as-is-where-is basis. P later approached HF and the
transfer agent of HF requesting for transfer of physical shares into P’s name
along with original transfer form and physical share certificates.

HF returned the original transfer form
and original shares stating ‘the shares as bad delivery on account of signature
of transferor mismatch’ and directed P to re-lodge the shares with transferor
attestation, transferor bank attestation on savings bank account, transferor
PAN, address proof of transferor, etc. P requested for transferor attestation
and no objection letter to transfer the shares in favour of P but there was no
response from the transferor which was also informed to HF.

P submitted that the whereabouts of the
transferor were not known, as such he was not in a position to submit / enclose
documents for transferring the shares.

The Registrar and transfer agent (RT)
contended as under:

P has lodged for transfer of shares in
his name after a lapse of 20 years.

RT contended that upon verification it
was found that there was a signature mismatch of the original transferor and
that as requested by HF the petitioner has not complied with the bank
attestation of the signatures of ‘M’ and ‘D’ on the transfer deed, attested
copy of PAN Card and address proof of transferor.

RT relied on section 108(e) of
the Companies Act, 1956 r/w/s 56 of the Companies Act, 2013 which deals with
transfer of shares not to be registered except on production of the instrument
of transfer. The requirement is that the transferee should have presented the
documents for share transfer duly stamped within 60 days from the date of
execution and accompanied by proper instrument of transfer.

Upon verification of share transfer
instrument and accompanying documents which were filed after 20 years, there is
a signature mismatch. In the absence of proper documents, P has no right to
claim for registration of shares. Hence, Tribunal urged to dismiss the
petition.

HELD

The Tribunal observed as under:

i)   The shares in question were lodged for
transfer and HF had raised an objection regarding mismatch of signature of the
transferor (‘M’ and ‘D’).

ii) P is not able to contact the original
transferors and they are not residing in the address available as per the
records of HF.

iii) The Tribunal noted that nobody lodged any
complaint with HF or RT for loss of original share certificate. It goes to
establish that there was transfer of shares and therefore original transferors
have not lodged any complaint. Had there been any complaint about loss of
original share certificate at the instance of the transferors, then there is a
reasonable ground for HF to refuse to transfer the shares in the name of the
petitioner. Till date there has been no complaint by the original shareholders
about loss of the share certificate. When such is the case and to avoid future
disputes if any, HF can direct P to give an indemnity in respect of the shares
to be transferred in his name. Therefore, the Tribunal directed P to furnish an
indemnity bond of an amount which can be fixed by HF for effecting transfer.

iv)        The Tribunal relied on the decisions of
the Company Law Board, Eastern Region Bench, Kolkata, in the matter of SMC
Global Securities Ltd. vs. ITC Ltd. [2007] 75 SCL 509. Similarly,
counsel for petitioner further relied on the decision of the Company Law Board,
Southern Region Bench, Chennai, in the matter of Altina Securities (P)
Ltd. vs. Satyam Computer Services Ltd. [2007] 75 SCL 56. The Company
Law Board held that since the transferor has not shown any interest in spite of
notices, the company was directed to register the impugned shares in favour of
the petitioner on the authority of the order. The CLB observed that since the original transferor has not raised
any objection, the Company Law Tribunal be directed to register the shares in
the name of the purchaser. Thus, when the transferor has not raised any
objection, the Company Law Board directed the company to register the shares,
including the bonus shares, if any.

v)      In the light
of the decisions cited and in the circumstances of the case, NCLT allowed the
petition filed by the petitioner and directed HF to transfer 100 shares in
favour of P subject to P giving requisite indemnity bond within a period of 30
days from the date of the order.

3. Arenja Enterprise Pvt. Ltd. vs. Edward
Keventer (Successors) Pvt. Ltd. Company Appeal (AT)(Insolvency) No. 528 of 2020 Date of order: 16^th October,
2020

Section 5(8)(f) of the
Insolvency and Bankruptcy Code, 2016 – Allotment of built-up area under a
settlement decree did not constitute a financial debt – No sum was raised for
allotment of such area from the allottee under the real estate project – There
was no financial debt due and such an allottee could not be regarded as a
financial creditor

FACTS

A Co and E Co signed a Memorandum of
Understanding (‘MOU’) dated 22^nd June 1989 over a parcel of land,
followed by two other supplementary MOU’s dated 20^th November, 1989
and 22^nd November, 1989. During the year 1992, some dispute arose
between the parties. In accordance with the terms of the MOU, A Co paid a sum
of Rs. 2 crores in September, 1989. As per one of the MoUs signed in November,
1989, the amount of Rs. 2 crores was to be refunded to A Co and its associates
by 28^th February, 1990.

As the MOU dated 22^nd June,
1989 was not re-instated by E Co, it became void.

A Co filed a suit for specific
performance along with other reliefs against E Co in the year 1992. The parties
reached a settlement on 10^th April, 1996 pursuant to which E Co
agreed to develop a group housing complex on a plot of land measuring 22.95
acres. Out of this, A Co was entitled to 34,000 square feet residential covered
/ built-up area along with proportionate super area. As per the terms of the
settlement, if the sanction of plans is not obtained within a period of three
years from the date of signing of the settlement, E Co would give further
built-up area of 1,700 square feet for each delayed year for a maximum period
of three years. On 10^th April, 2002, 5,100 square feet of additional
land was added as per the settlement decree on account of the delay.

Separately, E Co did not refund the
amount of Rs. 2 crores by 28^th February, 1990. A Co filed a suit in
Delhi High Court in the year 1992 and in line with the decision of the Court, E
Co returned the said amount in the month of January, 1995.

A Co filed an execution application in
the year 2008 before the District Court and the same was rejected. Subsequently,
A Co challenged the rejection before the High Court of Delhi. The High Court vide
order dated 6^th August, 2019 stayed the execution proceedings on the
grounds that they were premature in nature.

A change of land use took place in the
year 2018 and A Co alleged that there was a default. By not allotting the
39,100 square feet of built-up area of the land, E Co had committed a default.
A Co claimed that it was a financial creditor as the receivable area from E Co
constituted a financial debt in terms of section 5(8)(f) of the Code.

A Co filed an application before the
NCLT u/s 7 of the Code, instituting insolvency proceedings against E Co, the
financial creditor. NCLT dismissed the application on the grounds that A Co was
not a financial creditor and there was no existence of a ‘financial debt’. A Co
filed an appeal with the NCLAT.

Before the NCLAT, it was argued by A Co
that the amount of Rs. 2 Crores which had been given to the corporate debtor
had the commercial effect of borrowing after the due date, i.e., from 28^th
February, 1990 till its refund in 1995. Further, default occurred on 9^th
August, 2018 when the change of land use happened and three years was granted
as per the settlement decree for approval of building plans and further three
years with delay penalty.

E Co, the corporate debtor, claimed that
the debt, as alleged by the appellant, is not a ‘financial debt’ as defined u/s
5(8)(f) of the Code as no sums were raised from / paid by A Co. Financial debt
can only be money raised and paid and not for any other claims. Further,
allotment as per the settlement agreement to the financial creditor was in
lieu of the claim of the financial creditor against the corporate debtor
for utilisation of Rs. 2 crores beyond the due date. The allotment was therefore
made in lieu of monetary compensation for interest-free utilisation of
Rs. 2 crores for five years beyond the due date of 28^th February,
1990.

HELD

NCLAT heard both the
parties at length. It was observed that the Explanation attached to section 5(8)(f)
of the Code provided that any amount raised from an allottee under a real
estate project shall be deemed to be an amount having the commercial effect of
borrowing. Explanation (ii) to section 5(8)(f) provides that the expressions
‘allottee’ and ‘real estate’ project shall have the meanings respectively
assigned to them in the Real Estate (Regulation & Development) Act, 2016.

NCLAT held that A Co
was not an ‘allottee’ under a real estate project. The allotment of additional
area was made as monetary compensation for interest-free utilisation of Rs. 2
crores for five years beyond the due date, i.e., 28^th February,
1990. Further, A Co could have claimed a financial debt as an ‘allottee’ only
when the amount raised from it as an ‘allottee’ would have been used for a real
estate project. In the facts and circumstances of the case, A Co is neither an
‘allottee’ nor is any amount ‘being raised’ or ‘raised’ from it, that may be
construed to have the effect of borrowing. Thus, there was no ‘financial debt’
in favour of A Co.

The fact that
execution of the decree was determined by the High Court to be premature meant
that it could not be said that there was a ‘default’ in terms of the Code.

The appeal was, thus,
set aside and dismissed. The order passed by NCLT was upheld by the NCLAT.

Money is a bubble that never pops. It’s a consensus
hallucination

—  Naval
Ravikant

Misfortune finds the weak spot

 —  Kalidasa,
AbhiGyaanShakuntalam