India: Case Laws: Posh Exports Private Ltd. v. The Registrar of Companies

Posh Exports Private Ltd. v. The Registrar of Companies

Posh Exports Private Limited ("Petitioner Company") was incorporated as a private limited company. The board of directors in the meeting came to know that the documents compulsorily required to be filed by an Indian company under Companies Act, 1956 ("CA 1956") had not been filed with the RoC by the Petitioner Company and therefore, decided to take steps in the present petition and seek revival of the Petitioner Company. The board of directors also undertook to make the statutory compliances and file the requisite statutory records and the balance sheets in accordance with CA 1956. When the documents i.e., annual returns and balance sheets, etc., were sought to be filed on website of MCA, the directors came to know that name of the Petitioner Company has been struck of for the failure to file requisite statutory documents. The Petitioner Company contended that the balance sheets of the company were prepared from time to time, however, it was only recently discovered that none of the balance sheets and the statutory records have been filed with RoC. It was contended that the accountant did not co-ordinate and further the learned counsel for the petitioner company submitted that the part time accountant of the company who was dealing with the aforesaid work was no more an employee of the company.

The petition was allowed in view of the fact that this non-compliance was due to the non-coordination of the part time accountant and thus the petition was allowed subject to payment of costs. Consequently, it was decided to restore the name of the Petitioner Company on the register of the RoC subject to Petitioner Company filling all the statutory documents and returns for the outstanding period along with the prescribed fees in accordance with CA 1956.
[Note: Restoration of a struck off company was allowed by the courts under Section 560 of CA 1956]

Bajaj Auto Ltd v. Western Maharashtra Development Co. Ltd.

The present case dealt with Section 111A of CA 1956 and section 58 of CA 2013 (both relating to free transfer/transferability of shares). The parties to the Protocol Agreement (Clause 7) referred their dispute relating to transfer of shares to arbitration. The real controversy that revolved around clause 7 was whether it impinges on the free transferability of shares of a public company as contemplated under section 111A of CA 1956. Clause 7 of the Protocol Agreement inter alia provided that if either party desires to part with or transfer its shareholding or any part thereof in the equity share capital, such party shall give first option to the other party for the purchase of such shares at the agreed price. The party desiring to part with or transfer its shareholding or any part thereof, is required to give written notice to the other party specifying its intention to do so and the rates at which it is willing to transfer / part with the same. The arbitral award declared the said Clause 7 as inoperative in the present case. Being dissatisfied with the arbitral award, the respondent company challenged the same before the learned Single Judge on various grounds as were also covered under the Arbitration petition.

After hearing the parties, the learned Single Judge, negated all the contentions of the respondent, save and except one, on the basis of which the award was set aside. In a nutshell, the ground on which the award was set aside by the learned Judge was that Clause 7 of the Protocol Agreement entered into between the parties which gave the right of first refusal to the appellant to purchase the shareholding of the respondent, was not contrary to section 111A of the CA 1956. The learned Judge held that the effect of Clause 7 of the said agreement was to create a right of pre-emption between the appellant and the respondent for the purchase of each other's shares. The conclusion made by the single Judge was that because shares of a company are movable property and the right of the shareholder to deal with his shares and / or to enter into contracts in relation thereto (either by way of sale, pledge, pre-emption, etc.), is nothing but a shareholder exercising his property rights. Such contracts voluntarily entered into by a shareholder for his own shares giving rights of pre-emption to a third party / another shareholder, cannot constitute a restriction on free transferability as contemplated under CA 1956. The court held that in fact, such contracts (either by way of sale, pledge or pre-emption) are entered into by a shareholder in exercise of his right to freely deal with and / or transfer his own shares and that two Joint Venture partners among themselves having provision of right of first refusal is tenable. Thus, appeal was allowed.

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