E To E Transportation Infrastructure Pvt. Ltd. vs Zephyr Peacock India & Ors.

Per: Kanthi Narahari Member (T)

The present appeal is filed by the Appellant against the Impugned Order dated 5^th February 2021 passed by the NCLT, Bengaluru Bench whereby the Company Petition of the appellant has been dismissed. Aggrieved by the same the present appeal is preferred.

Sri Antony R. Julian, Advocate appearing for the appellant submitted the brief facts. He submitted that the appellant company was incorporated as a private limited company, limited by shares under the Companies Act, 1956 with the ROC, Bengaluru and the main object of the appellant company as stated in its Memorandum of Association is to carry on the business of providing infrastructure facilities, developing, designing, execution of works pertaining to Metropolitan Transportation Authorities, Railway, Roadways and Airports etc.

The authorised share capital of the appellant company is Rs.52, 12,46,390 divided into 5,21,24,639 equity shares of Rs.10 each. The issued subscribed and paid up share capital of the appellant company as on 31.03.2019 is Rs.24,35,510 divided into 2,43,551 equity shares of Rs.10 each.

The R1 company is a private company limited by shares incorporated under the Laws of Mauritius. The R1 is a shareholder of the appellant company currently holding 80,937 equity shares of Rs.10 each.

The appellant company issued two types of shares, i.e. equity and series A CCPS and Series B CCPS shares to the entities as mentioned in page-5 and 6 of the appeal paper Book. The respondent No.1 is classified as a person resident outside India. The respondent No.1 was issued 10 equity shares and 3,466 Series-A CCP shares both at Rs.27,788 per share. The appellant company required to comply with foreign exchange management (transfer or issue security by a person resident outside India), regulations 2000. In accordance with the said regulations the details of investment made by the first respondent were reported to RBI by filing Form-FC-GPR on 28.04.2012 along with a Valuation Report dated 15.03.2012. The fair value of the equity shares of the appellant company was valued at Rs.8,112/- per share on the date of issue Series-A CCPS.

Subsequently, on 25.04.2014 the appellant company issued Series-B CCPS shares to the entities as per the tabular column in para-14 page-6 of appeal paper Book. The respondent No.1 was issued 2,880 Series-B CCP shares at Rs.27,788 per share.

The investment made in Series-A CCPS and Series-B CCPS were reported to RBI by filing Form on 03.07.2014. The fair value of the shares of the appellant company 4,827 per equity shares as per the valuation report prepared as per RBI guidelines dated 24.12.2013. The documents have been filed before the RBI and the RBI acknowledged vide letter dated 26.05.2014.

The formula for conversion of Series-A CCPS and Series-B CCPS into equity shares as per the pricing guidelines in FEMA Regulations issued by the RBI in Master circular dated 01.07.2011. As per the applicable pricing guidelines, wherever the Series-A CCPS and Series-B CCPS worked out to be converted into equity shares, the conversion price could not be less than the fair value of the equity shares of the appellant company as on the date of issue of shares i.e. Rs.8,112 per share for Series-A CCPS and Rs.4,826 per share for Series-B CCPS.

While so, on 20.03.2019, the appellant converted the Series-A CCPS and Series-B CCPS issued to Respondent No.1 into equity shares, it applied the fair value of the equity shares as on the date of conversion i.e. Rs.2,195 per share instead of the respective fair values at the time issue of the shares. This was contrary to the applicable pricing guidelines stated in the FEMA Regulations. However, it was clarified that this was a bonafide mistake due to incorrect legal advice received at the time by the appellant.

As a result of this incorrect conversion share price being applied, the respondent No.1 has been allotted 80,347 equity shares – 40,833 equity shares on conversion of 3,466 Series-A CCPS and 36,464 equity shares on conversion of 2,880 Series-B CCPS. If the correct conversion price had been applied, only 28,458 equity shares would have been allotted to respondent No.1. Therefore, an excess of 51,889 equity shares were allotted by mistake to respondent No.1.

The appellant company informed the RBI and sought permission to cancel / reduce the excess 51,889 equity shares with an appropriate approval from the Registrar of Companies or National Company Law Tribunal as may be required under the Companies Act, 2013 vide letter dated 10.10.2019.

It is submitted that in response to the appellant’s letter as cited above, the RBI vide their letter dated 26.11.2019 advised the appellant company to approach Register of Companies for cancellation of shares.

It is submitted that appellant company had also intimated the R1 regarding the erroneous conversion price and the R1 issued No Objection Letter dated 13.12.2019 along with the Resolution from the Board of Directors agreeing for rectification of Register of Members of appellant company for cancellation of excess 51,889 equity shares.

The learned counsel for appellant submitted that the appellant filed a company petition under Sec.59 of the Companies Act, 2013 before the NCLT, Bengaluru Bench seeking rectification of Register of Members of the appellant company by cancelling the excess 51,889 equity shares of Rs.10 each. However, the learned NCLT dismissed the Company Petition.

The learned counsel for appellant prayed this Bench to allow the appeal and set aside the impugned order and permit the appellant company to cancel the excess equity shares allotted to R1 on erroneous conversion of Series-A CCPS and Series-B CCPS.

The learned counsel appearing for the Respondent No.1 filed a short reply and at para-3 it is stated that “the answering respondent has already given its consent to the cancellation of the excess shares allotted to it vide letter dated 13.12.2019 along with a copy of Minutes of the Meeting of the Board of the answering respondent dated 13.12.2019”. The respondent prayed to allow the Company Appeal.

Heard the learned counsels appearing for the respective parties perused the pleadings and documents filed in their support.

The Appellant filed the Company Petition before the NCLT, Bengaluru U/s.59 of the Companies Act, 2013 read with rule 70 of NCLT Rules 2016 by seeking rectification of register of members of the appellant company by cancelling the excess 51,889 equity shares allotted to Respondent No.1 herein on 20.03.2013 and sought direction to the ROC, Bengaluru to effect the cancellation of 51,889 equity shares excess allotted to Respondent No.1.

The learned NCLT was of the view that without approaching the Registrar of Companies the appellant has filed the present company petition and observed that the filing of the Company Petition is not maintainable and accordingly the same is dismissed.

It is to be seen that whether the appellant has approached NCLT in accordance with law or not? Sec.59 of the Companies Act, 2013 deals with rectification of Register of Members. The said provision is recaptured here at for better appreciation.

From the above provision of law, it is clear that any aggrieved person may appeal to the Tribunal for rectification of the register. After filing of the application, the Tribunal (NCLT) either dismiss the appeal or direct rectification of the records of the register and has power to direct the company even to pay damages if any sustained by the party aggrieved. Therefore, the Tribunal has power to direct the authorities to rectify the Register of the Members by cancelling the shares. However, the NCLT in the impugned order taken a stand that the Appellant has not approached the Registrar of Companies.

The appellant addressed a letter dated 10.10.2019 to RBI (page-234 of appeal paper Book) and sought permission to cancel / reduce the excess 51,889 equity shares allotted on conversion to said Zephyr Peacock India Fund II Ltd (Respondent No.1). However, the RBI vide its letter dated 26.11.2019 (page-242 of appeal paper Book) replied and stated that the cancellation of excess shares allotted will not come under purview of RBI and hence, you may approach Registrar of Companies for cancellation of shares. Further, the RBI advised the appellant to intimate them with documentary evidence after cancellation of excess shares to enable them to acknowledge the concerned FC-GPR pending with them.

Even the respondent No.1 vide its letter dated 13.12.2019 addressed to the Board of Directors of the appellant company stated that they have no objection for cancellation of excess 51,889 equity shares. The content of the said letter is extracted here at. “we hereby give our ‘no objection’ for rectification of register of members by way of cancellation of excess 51,889 equity shares allotted to us by E to E Transportation Infrastructure Pvt. Ltd. On 20.03.2019 pursuant to conversion of Series-A CCPS and Series-B CCPS held by the company, which were not in accordance with regulation-11 (1) (b) of TISPRO Regulations, 2017, whereby the amount paid up on the excess 51,889 equity shares will credited to the Securities Premium Account”. Along with the above letter the respondents have enclosed copy of the Board Resolution dated 13.12.2019 regarding cancellation of excess shares.

As per the above provision of law, the NCLT has power to order/ direct the concerned authorities to rectify the register of members even by cancelling the excess shares. However, the NCLT erred in observing that the appellant has not approached the Registrar of Companies. This tribunal is of the view that the NCLT miserably failed to exercise the power and its jurisdiction as vested in it. Further the NCLT ought to have considered on the factual aspect of the inadvertent error and the appellant company bonafidely informed the RBI and its Regulators with regard to the inadvertent error / bonafide mistake crept in and sought permission to rectify the mistake by cancelling the excess shares. Even the R1 company also through its Board Resolution expressed their No Objection for cancellation of excess shares.

Having analysed the above legal and factual aspect, this Tribunal comes to a resultant conclusion that the appellant has made out a prima facie case to allow the appeal. Accordingly, this Tribunal passed the following orders/ directions: -