Cav Judgment & Order:
1. Heard Mr. R. Dubey learned counsel for the appellant as well as Mr. R.K. Pandey learned counsel for the respondent No. 1.
2. Aggrieved by the order dated 27.05.2016, passed by the learned Member, Company Law Board, Kolkata Bench, Kolkata, this appeal under section 10F of the Companies Act, 1956 has been filed. By the said order the learned Company Law Board had issued a direction allowing the petitioner to re-submit the duly executed transfer deeds along with share certificates with the respondent No. 1 Company within 4 weeks and on receipt of the same, the respondent No. 1 Company was directed to register the transfer of Preference Shares in favor of the petitioner Company within 10 days from the date of receipt of the request for the transfer of Preference Shares.
3. Be it stated that on the basis of submissions made by the learned counsels for the appellant as well as respondent No. 1, this Court by an order dated 27.07.2016, has recorded that the other respondents may not be necessary for the purpose of the disposal of the appeal. Hence, no notices were issued on respondent Nos. 2, 3 and 4 and the appeal has been listed for hearing. Both the learned counsels for the appearing parties have reconfirmed that the matter may be heard without notice to the other respondents. Hence, it is deemed fit to strike out the names of Respondents No.2, 3 and 4 at the risk of the appellant.
4. In the form of three paper-books, the appellant has submitted the copies of (1) CP No. 89/ 2011, (2) Affidavit- in- reply dated 14.06.2011, (3) the rejoinder affidavit dated 11.08.2011, (4) Sur-rejoinder affidavit dated 10.08.2012 (5) Sur-sur rejoinder affidavit dated 13.02.2013 (6) Additional rejoinder dated 09.04.2013 (7) Additional affidavit dated 05.09.2
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13, (8) IA 1084/14, (9) Affidavit dated 25.12.2014 of Respondent No.1 in reply to IA 1084/14, (10) Rejoinder affidavit dated 13.01.2015 by Appellant in IA 1084/14, (11) Order dated 21.09.2015 passed by the learned Company Law Board, (12) Affidavit dated 18.11.2015 by appellant, producing documents. Both sides agree that as the entire set of pleadings before the Company Law Board (CLB) in connection of CP 89/2011 is available on record, there is no necessity to call for the records of the said CP No. 89/2011 and the learned counsel for both the parties have preferred to argue the matter on the basis of materials on records.5. The facts relevant to this appeal is that for setting up the appellant’s factory for manufacturing polyester yarn, the appellant availed finance from various banks and financial institutions by issuing 81,46,250 Redeemable Preferential Shares having face value of Rs.100/- each. Out of those, 30,00,000 such Redeemable Preference Shares were issued to the erstwhile Industrial credit and Investment Corporation of India Limited (ICICI). The said shares are the subject matter of the present appeal.6. In this regard, a Subscription Agreement dated 08.04.1996 was signed between the appellant and the ICICI and accordingly, 8,67,000 Redeemable Cumulative Convertible Preference Shares (RCCP) was issued to the said ICICI under Share Certificate No.4 dated 07.12.1996 bearing Distinctive No. 3338001 to 4205000. A similar agreement was signed on 08.04.1996 for issuing 20,58,000 RCCP for the interest which accrued on project finance availed. Thereafter in the year 1994, the appellant entered into a Subscription Agreement with ICICI for allotting 75,000 Cumulative Convertible Preference Shares (CCP) under Share Certificate No. 004 dated 23.09.1994 bearing Distinctive No. 650001 to 725000.7. In course of time the appellant company was declared as a Non-Performing Asset (NPA) by various banks and financial institutions. On 21.07.2004, ICICI submitted Corporate Debt Reconstruction (CDR) proposal, by virtue of which the interest which had accrued till 31.01.2004 was waived. Accordingly, the appellant offered to pay to ICICI a sum of Rs.32.50 crore in full and final settlement under One Time Settlement (OTS). The said proposal was accepted by the ICICI on 21.12.2004, and they agreed to accept the said sum in terms of the CDR package. A letter to that effect was issued by the ICICI on 01.03.2005.8. On 18.02.2006, ICICI transferred the said debt to Standard Chartered Bank by virtue of an agreement dated 16.12.2005 and a notice of assignment was issued by the Standard Chartered Bank on 31.03.2006.9. Thereafter, the terms of CDR settlement were modified and the lenders had agreed to accept 25% of the amount by cash and remaining 75% by way of 8% Optionally Convertible Cumulative Debentures (OCCD). The same was conveyed by a letter dated 25.11.2008 issued by the IDBI, the consortium leader. In this regard the Standard Chartered Bank also issued their letter dated 23.04.2009.10. To make the long story short, the appellant after entering into the said CDR agreement, paid the agreed dues. However, the 30,00,000 (thirty lakh) preference shares, referred earlier, which were retained by the ICICI was sold to the respondent No. 1 and on refusal of the Appellant to register the share transfer, the appellant had filed CP No. 89/2011 under section 111A of the Companies Act, 1956 before the learned CLB, Kolkata Bench.11. The parties are at loggerhead after since the point of time when the said preference shares (RCCP and CCP) were sold by the ICICI to the respondent No.1. The further sequence of events would unravel with the submissions made by the learned counsel for the parties.12. The learned counsel for the appellant projects and submits as follows:- a. The CDR proposal had envisaged the waiver of the entire interest till 31.03.2004. Thus, the 20,58,000 RCCP, which is covered by Subscription Agreement dated 08.04.1996 was rendered forceless and it got scrapped and/or diluted because as per the agreement dated 08.04.1996, those RCCP were issued against interest.b. It is further projected that on assignment of loan by ICICI to Standard Chartered Bank, no part of loan was pending with ICICI as the said 30,00,000 RCCP and CCP shares were linked with the loan. Thus, the ICICI, having assigned the loan, had no right over the said RCCP and CCP shares or any part thereof.c. Therefore, the ICICI could not have sold and transferred 3000000 Preference shares to the respondent No. 1.d. It is submitted that the ICICI sold those 30,00,000 RCCP and CCP having face value of Rs.100/- each for Rs.3,90,000/- at a price of Rs.0.13 paisa per share.e. It is submitted that having illegally purchased the said thirty lakh preference shares, the respondent No. 1 approached the appellant on 14.05.2010, for transfer of the said 3000000 shares in their favor. However, as per the Appellant Company, the respondent No.1 could not have purchased the said preference shares, the said request was refused and, as such, the respondent No. 1 had filed a petition before the Company Law Board, Kolkata Bench under section 111 (A) of the Companies Act, 1956. The said petition was registered as CP No. 89/2011. The said petition was allowed by the order dated 27.05.2016, which is challenged in this appeal.f. It is further submitted that during the interregnum, by a notice dated 19.11.2010, the appellant had called an Annual General Meeting on 16.12.2010 for deduction/ cancellation of all Preference Shares including those issued to ICICI, which were sold to the respondent No. 1. By a special resolution passed on 16.12.2010, all the RCCP and CCP shares, including 30,00,000 shares issued to ICICI bank were cancelled.g. In the meanwhile, the appellant approached this Court under section 100 of the Companies Act, 1956 for cancellation of RCCP and CCP shares. The said proceeding was registered as CP No. 7 of 2011. This court by order dated 13.12.2011, permitted advertisement of CP No. 7 of 2011 and the same was published in the newspaper on 27.01.2012. In terms of the said notice, the 14 (fourteen) days notice period expired on 09.02.2012 and till then no one including the ICICI or the respondent No. 1 filed any objection to the said petition. However, in April 2012, the respondent No. 1 had filed an application to intervene in CP No. 7 of 2011. The said petition was dismissed by order dated 17.08.2012, inter-alia, observing that the name of respondent No. 1 was not appearing in the list of share holders of the appellant company and the right of respondent No. 1 has yet to be crystallized, as such, the respondent No. 1 cannot be impleaded. The said order was assailed before the Hon'ble Apex Court by filing SLP No. 28115 of 2012.h. In the meanwhile by order dated 18.12.2012, this Court allowed CP No. 7 of 2011, permitting the cancellation of all 81,46,250 preference shares, inclusive of 3000000 Preference Shares in issue. The said order was implemented and the Registrar of Companies confirmed the cancellation of shares. Challenging the said order dated 18.12.2012 the respondent No. 1 filed a second SLP before the Hon'ble Apex Court being SLP No. 7459/2013.13. The learned counsel for the appellant has submitted that the preference shares were issued to the ICICI as a part of the loan availed from them, which was again project finance and, as such, the ICICI could not have transferred those shares to Standard Chartered bank and similarly, the Standard Chartered bank could not have sold those shares to the respondent No. 1. It is submitted that the entire transaction of transfer of preference shares was illegal and the shares valued at Rs.100/- per share was sold for almost free at Rs. 0.13 paisa per share.14. It is further submitted that in any case, the 20,58,000 RCCP shares were issued in lieu of accrued interest and, as such, with the acceptance of the CDR proposal by the ICICI on 21.07.2004 nothing survived on the said RCCP shares.15. It is also submitted that as this Court had allowed the cancellation of all Preference Shares, the respondent No. 1 cannot maintain a claim in respect of those 30,00,000 shares being cancelled and there was a consequential reduction of all 81,46,25,000 Redeemable Preference Shares. It is further submitted that the appellant was justified in requesting the return of 30,00,000 shares sold to the respondent No. 1. Hence, when the refusal was by assigning was caused it cannot be alleged that the refusal to transfer those shares was without sufficient cause and, as such, the Company Law Board had no power under section 111 (A) to direct the appellant to register and transfer the said shares, more so when these 30,00,000 preference shares had already been cancelled which was approved by this Court.16. It was submitted that for the said reasons, the impugned order was not sustainable both on facts and in law and, as such, the same was liable to be allowed by setting aside the impugned order dated 17.05.2016.17. Per contra, the learned counsel appearing for the respondent No.1 by relying on the affidavit-in- opposition filed on 22.05.2017, has submitted as follows:-a. It is stated that there is no clause in the loan agreement or the two Subscription Agreement dated 08.04.1996 in respect of RCCP and CCP Preference Shares to link it to the loan package. By referring to various clauses thereto, it is submitted that the loan agreement was independent of the two Subscription Agreement dated 08.04.1996.b. There was no transfer or delivery of preference shares held by ICICI together with the assignment of loan by ICICI to Standard Chartered Bank.c. It is submitted shares, by the nature of the instrument is transferable by mere delivery. Hence, in the absence of any clause which curtailed the right of transfer of those preference shares, there cannot be a clog on the right of the Respondent No.1 to purchase the same from ICICI.d. It is submitted that both Subscription Agreements were dated 08.04.1996 and, as such, the 20,58,000 RCCP shares were issued in lieu of accrued interest, as crystallized on 08.04.1996 and it was not the interest from 08.04.1996 to 31.01.2004, which was waived. Thus, the waiver of interest as on 31.01.2004 did not include the interest for which 20,58,000 RCCP shares were issued. It is further submitted that there is no reference to the 30,00,000 (thirty lakh preference shares) in the letters dated 21.07.2004, 18.12.2004, 21.12.2004, 01.03.2005, exchanged between the appellant and the banks and financial institutions.e. In course of hearing on 25.04.2017, the learned counsel for the respondent No.1 had submitted a compilation of (i) Copy of reply filed by Standard Chartered Bank in C.P. No. 89/2011 before the learned CLB., (i) Copy of application filed by Standard Chartered Bank in C.P. No. 89/2011 before the learned CLB., and (iii) Copy of the application filed by ICICI in C.P. No. 89/2011 before the learned CLB. BY relying on the same, it is submitted that the subject matter of assignment of debt by ICICI to Standard Charter Bank did not include the preference shares and, as such, the Standard Chartered Bank did not get any right whatsoever in respect of the said 30,00,000 (thirty lakh) preference shares.f. It is submitted that the preference shares are freely transferable commodity and, as such, in the absence of any conditions attached thereto, the appellant Company, being a public limited company cannot have any restriction on the transfer of its said shares.g. It is submitted that the shares were transferred in physical form and was accompanied with valid transfer forms and, as such, the refusal of transfer gave the respondent No.1 the cause of action to approach the CLB, which is the appropriate forum to agitate the grievances as provided in Section 111A of the Companies Act, 1956.h. It is submitted that before the preference shares including those transferred to the respondent No.1 was cancelled, those shares existed in the books of the appellant and duly reflected in its annual accounts.i. It is submitted that the preference shares purchased for valuable consideration by the respondent No.1 could not be and was not a part of CDR proposal, as such, there is no whisper about those preference shares in the CDR proposal and the appellant did not raise any grievance when the mutual CDR proposal between the appellant and the ICICI was sent to the CDR cell on 21.07.2004 and those preference shares were not made a part of assignment of debt by ICICI to Standard Chartered Bank on 18.02.2006, which was intimated to the appellant. Hence, it is now not open for the appellant to project as if the said 30,00,000 (thirty lakh) preference shares was a part of CDR package.18. At the outset, it would be pertinent to bring on record that this Court by order dated 18.12.2012 passed in Co.P. 7/2011 had stated as follows–“3. … This Court vide order dated 17.08.2012 passed in the present proceeding rejected the prayer of the applicant Company (i.e. appellant herein) holding that the right of the applicant over the shares in question was yet to be crystallized during the pendency of the proceeding before the Company Law Board and at that stage it was difficult to recognize the applicant company as either share holder or the creditor of the petitioner company.”With the said observation, the respondent No.1 herein was not allowed to intervene in the said Co.P. 7/2011.19. Having perused the materials on record, it is observed that the appellant’s side could not show from the records that the assignment deed, which contained a list of securities, contained those RCCP and CCP (i.e. preference shares). The learned CLB has also arrived at the same finding.20. The appellant’s side has also not been able to successfully demonstrate that the said 30,00,000 (thirty lakh shares) were pledged as security for the loan availed from the ICICI. Unless it is satisfactorily shown that the said shares formed a part of security, only then the plea of the appellant that the said shares was a part of ‘corporate debt restructuring’ i.e. CDR can be entertained, and not otherwise.21. There is no infirmity in the opinion of the learned CLB that the respondent No.1 had exit from the CDR way back in 2006 by assigning the debt to the Standard Chartered Bank and thereafter, it was not concerned with the CDR. Therefore, having retained the 30,00,000 (thirty lakh) preference shares, the ICICI was within its right to sell the same to the respondent No.1. This court does not find any infirmity in the sale.22. There is no material on record to show that the 30,00,000 (thirty lakh) preference shares (RCCP and CCP) were not subscribed by ICICI and that those preference shares were offered as security for the loan. Therefore, if the shares had been purchased for value in the first place, either as a source of finance or by any other means of finance, there is no provision in the Companies Act, 1956 or in the Contract Act, 1872 to prohibit the owner of such shares to deal with the same and/or to sell it. Therefore, the inevitable conclusion of this Court is that the validity of the sale of those 30,00,000 (thirty lakh) Preference shares (i.e. RCCP and CCP) is not impeachable on the basis of materials on record.23. Moreover, this court cannot be influenced by the value in which the said preference shares were sold because in a sale transaction, only the contracting parties may at all be the one aggrieved and it was certainly not open to the appellant to challenge the sale on account of low value.24. In view of the foregoing discussions, this Court does not find any infirmity in the impugned order dated 05.05.2017 (signed on 27.05.2017) passed by the learned Company Law Board, Kolkata Bench in C.P. No. 89/2011. Hence, the same is upheld and resultantly, this appeal stands dismissed. The interim stay of the impugned order stands vacated.25. The parties are left to bear their own cost.