Case BriefsTribunals/Commissions/Regulatory Bodies

Securities Appellate Tribunal (SAT): A Division Bench of Justice Tarun Agarwala, (Presiding Officer) and Dr C. K. G. Nair (Member), affirmed the order passed by BSE, where they held that the forfeiture of shares made by the appellant-Company was not in accordance with the provisions of the Articles of Association of the Company.

The appellant entered into a Business Transfer Agreement (BTA) with Primus Retail Private Limited wherein they agreed to transfer their business undertaking including the assets and liabilities as well as the trademarks and licenses to the appellant for a total consideration of Rs 100 crore. However, Primus failed to perform its obligation under the BTA and the creditors of Primus filed a Company Petition before the High Court of Karnataka. The High Court passed an order of winding up and appointed an Official Liquidator. The appellant too intimated Primus that the BTA had been rendered void and they forfeited the shares allotted to them and further directed to reissue them to other parties in due course subject to statutory approvals and compliances. Based on this resolution the appellant had filed an application before the BSE for recognizing the forfeiture of the shares by the appellant-Company.

However, BSE stated that there was no request received from the Official Liquidator with regard to the cancellation of shares or if the Official Liquidator was aware of the forfeiture of the shares and the subsequent application made by the appellant to BSE at all. BSE informed that the delisting cannot be done through forfeiture of the shares and can only be done in accordance with the Companies Act. There was also no provision in the BTA for forfeiture of shares allotted to Primus on account of non-performance of the obligation by Primus, but the Articles of Association of the appellant-Company provided for forfeiture of the shares subject to certain compliances.

The Court referred to Clause 29, 30 and 31 of Schedule I of Table A of the Companies Act and held that a notice is required to be given to the shareholder giving them an opportunity for payment of the call money. Thus, before any forfeiture can be made an appropriate service of notice is a condition precedent to be fulfilled. Therefore, if there is any, irregularity either in the contents of the notice or in the service of notice as required under Clause (30) the same would be fatal to the validity to the forfeiture. The Supreme Court in Public Passenger Service Ltd. v. M.A. Khadar (1967) 36 Comp Cas 1 had held that a defective notice of forfeiture of shares renders the subsequent forfeiture invalid. Further, there was nothing to indicate that due notice was given to Primus or to the Official Liquidator before the resolution was passed by the Board of Directors of the appellant-Company. Once shares were allotted and registered in the name of Primus, the appellant-Company had no power to forfeit the shares on the ground of failure of consideration. Therefore, there was no infirmity in the order passed by the BSE.[Madhusudan Securities Ltd. v BSE Ltd., 2019 SCC OnLine SAT 166, decided on 09-09-2019]

Case BriefsForeign Courts

Court of Appeal for the Democratic Socialist Republic of Sri Lanka: The petition of a liquidator was entertained by Samayawardhena, J. and was eventually dismissed due to lack of locus standi. 

The petitioner was the liquidator of Dart West Asia Holdings Ltd., he filed an application for issue of certiorari against the order of Commissioner General of Labour directing the Director of the said company to pay EPF and Gratuity to a former employee of the aforementioned company. 

At the argument, learned senior counsel for the respondent inter alia took up a preliminary objection regarding the standing of the petitioner to file an application. He further contended that the petitioner wanted to give an impact that the said company is still under liquidation. 

The Court observed that, winding up procedure is now concluded and the final account of the liquidator has also been sent to the Registrar General of Companies. Hence, declared that such winding up was voluntary and after the affairs of the company were fully wound up, Final General Meeting was held. Court highlighted the provisions of Companies Act, 2007 which provided that the Registrar General of Companies upon receiving the final accounts shall forthwith register them and on the expiration of three months, the company is dissolved automatically.

Court further held that from the application of petitioner it was clear that the application was filed several months after the company was dissolved. The contention of the petitioner that he was still a liquidator was not maintainable and the writ was disposed because the petitioner didn’t have any locus standi once the company was dissolved. [Chandanie Rupasinghe Weragala v. Deputy Commissioner, CA. Writ No. 429 of 2015, decided on 02-05-2019]

Case BriefsHigh Courts

Bombay High Court: A Division Bench comprising of A.S. Oka and M.S. Sonak, JJ. dismissed an appeal filed against the order of the Company Judge wherein he had directed the appellant- Bank to pay the dues of the workmen that shall be recovered by it as directed therein.

During the liquidation proceedings of one Zadona Electronics Ltd., the appellant and the Union representing the workmen of ZEL filed certain consent terms regarding the settlement of workmen dues. As per the terms, the Bank deposited over rs, 41 crores with the official liquidator to be distributed among over 800 workmen. Out of it, a sum of over Rs 50 lakhs was paid to 12 workmen whose claims were wrongly adjudicated as priority claims. On re-adjudication, the orders for recovery of such sum from the said 12 workmen was made and the recovery was in progress. However, as a result of such payment, there was a proportionate shortfall in the amounts to be disbursed to the remaining employers. The main issue before the Company Judge was whether the payment to remaining workmen should be deferred until the said recovery or whether the tank should make good the shortfall. The Judge decided for the latter. Aggrieved thereby, the Bank filed the instant appeal.

The High Court observed that as between the interests of the workmen and Bank, the Judge correctly exercised discretion in favour of the former. The court was satisfied that the order impugned was made in furtherance of Section 529-A of Companies Act, 1956. The object behind the provision was reiterated “since resources of companies constitute a major segment of the material resources of the community and common good demands that the ownership and control of the resources of every company are so distributed that in the unfortunate event of its liquidation, workers, whose labour and effort constitute an invisible but easily perceivable part of the capital of the company are not deprived of their legitimate right to participate in the product of their labour and effort. Therefore, the provision to accord a priority status to the workmen’s dues.” Furthermore, it was held that no prejudice would be caused to the Bank as it was entitled to receive the payment from the amount recovered from the said 12 workmen. In light of the above, the appeal was dismissed. [Kotak Mahindra Bank Ltd. v. Official Liquidator of Zadona Electronics Ltd.,2018 SCC OnLine Bom 4205, decided on 17-10-2018]