Tamilnad Mercantile Bank Ltd. vs Mrs. Madhumathi Kannan Adityan

Oral Judgment : Justice Sharad Kumar Sharma, Member (Judicial):

The Appellant before this Tribunal, is the Respondent to the Company Petition No. 38 / 2018. The Appellant in the instant Company Appeal, puts a challenge to the Impugned Order of 22.11.2019 of NCLT, Chennai, rendered in the Company Petition No. 38 / 2018, preferred under section 59 of the Companies Act, 2013, wherein NCLT, Chennai has ordered the Appellant herein to transfer 300 shares of Tamilnad Mercantile Bank in the name of the Respondent, who was the Petitioner before learned NCLT with the consequential incidental benefits including bonus shares and dividends.

He questions the validity of the Impugned Order contending thereof that the Impugned Order, directing him to transfer of 300 shares with the consequential incidental benefits with effect from 14.07.2014, is contrary to law, and hence, not sustainable in the eyes of law.

Primarily, the ground which has been agitated by the Appellant is that the Impugned Order happens to be contrary to the provisions contained under Section 12B of the Banking Regulation Act of 1949. The Appellant has stated that for the purposes of Share Transfer in the instant case, it was obligatory for the Respondent to obtain a prior permission under Section 12B of the Banking Regulation Act, 1949, from Reserve Bank of India (RBI) and that, in the absence of there being any such permission having been granted under Section 12B of the Act by RBI, the Appellant Bank refused to transfer the said 300 shares acquired by the Respondent in her name on the grounds that shareholding of the combined group of which she is a part is in excess of 10% of the paid-up capital of the Bank. The impression which has been created by the Appellant is as if that the controversy in the Company Appeal happens to be the proceedings under Sec. 58 of the Companies Act, pertaining to appeal against refusal to register shares which will be answered in subsequent part of the body of this Judgment.

The Appellant had taken the following grounds for putting a challenge to the Impugned Order:

The facts which emerge for consideration are that;

Let us at this stage itself, examine implications of Sec. 58 as it has been contained under the Companies Act, 2013. The relevant Section is extracted hereunder:

The very heading of the provision of Section 58 of the Companies Act, if it is compared with the provisions of Sec. 59, would show that the respective Sections have altogether two different legislative objects to be attained. Because, Section 58 pertains to the `refusal of registration’ and contains a provision of Appeal against such refusal, which in itself provides a period of limitation, as contemplated under Sub Section 3 of Section 58 of the Companies Act. On the other hand, as far as Section 59 is concerned, it is titled `Rectification of register of members’. Section 59, for sake of convenience is extracted hereunder:

It can be seen that the said Section 59 of Companies Act, 2013, exclusively deals with the aspect of the ``rectification of register of Members’’.

What is being argued by the learned Counsel for the Appellant and as pleaded too is that, the entire proceedings which are in controversy in this Company Appeal was emanating from the proceedings under Sec. 58 of the Companies Act. However, it is seen from the records of the Appeal, that the proceedings that will come under Section 58 of the Act stood concluded, with issue of the notice of refusal of the Appellant Bank to register the share transfer vide its letter dated 08.08.2014, when there was an apparent and explicit refusal by the Appellant to transfer the shares along with the return of the Original Share Certificates and the share transfer deeds.

Admittedly, and as per the records too, the letter containing notice of refusal of 08.08.2014, passed under Section 58 of the Companies Act, by the Appellant Bank, has not been made as a subject matter of challenge by the Respondent, by preferring an Appeal, as contemplated under Sec. 58 itself.

The controversy at hand which emanates from the Impugned Order under challenge, germinates from the proceedings which has been drawn by the Respondent herein, by invoking the provisions contained under Section 59 of the Companies Act, wherein, by instituting a Petition in December 2017, the Respondent (being the Petitioner in the Company Petition) has prayed for the grant of the following reliefs:

The controversy in the instant Appeal, being confined to the relief as sought for in the Petition, would be falling within the ambit of Sec. 59 of the Companies Act, for the ``rectification of the Register of Members’’, as would be apparent from the relief clause itself, as extracted above.

The Appellant questions the proceedings on the ground that, the Petition filed under Section 59, in December 2017 itself, would be barred by Limitation, and hence, the same would not be maintainable and hence, it deserves rejection.

In answer to this argument extended by the learned Counsel for the Appellant, the learned Counsel for the Respondent, contends that under law, the principle of Limitation is a self-inscribed provision which is contained under the provisions itself. For example, Section 58 of Companies Act, prescribes for a self-contained period of Limitation in sub section 3 of Section 58, where, general law of Limitation will not prevail, and would not be applicable for the purposes of determination of aspect of Limitation. He further substantiates his argument by stating that, her Petition, as preferred in December 2017, will have to be a Petition under Section 59 of the Companies Act, in the context of reliefs sought for in the said Petition, which would be exclusively with regards to the rectification of the Register of Members for directing the Respondent to effect the transfer of 300 shares, to issue the bonus shares, to pay the dividends attached to the Shares since 16.07.2014, till date and in future, and to direct the Appellant Bank to pay the damages as assessed by the Tribunal, for withholding the dividends and the bonus for all these years.

The learned Counsel for the Respondent further submits that, since her Petition stood instituted in December 2017, the period of limitation, which is sought to be enforced upon with effect from 2014 i.e. from the date of refusal to register the transfer of shares in her name will not be attracted for the reason being that Section 59 of the Companies Act, since being a self-contained provision, does not prescribe for any period of limitation and in that eventuality, in the light of the provisions contained under Sec. 433 of Companies Act, 2013, the general provisions of Law of Limitation would be applicable. Thus, if all, the provisions of Article 137 of the Limitation Act, 1963, would be attracted, and in that eventuality, preferring of the instant Company Petition under Section 59 of the Companies Act, by the Respondent / Petitioner in December 2017, would be covered by the provisions contained under the said Article 137, and hence, this Petition would not be barred by limitation, as she had re-lodged her 300 shares with the Appellant Bank on 24.05.2016.

Certain observations made in the Impugned Order, has been extracted by the learned counsel for the Appellant to argue that, it is a proceedings under Section 58 of Companies Act and he has pleaded the same in his grounds taken in the Appeal. However, as a matter of fact and as apparent from records too, the Application preferred in December 2017 by the Respondent / Petitioner in CP/38/2018 in the context of the relief clause therein, was in relation to the ``rectification of Register’’ and not with regards to the ``refusal of Registration’’ and therefore, it is not correct in law, to treat the Appeal to be against the refusal to transfer the shares in controversy and therefore, to come under the ambit of Section 58 of Companies Act. Accordingly, to hold that the Appeal and the Impugned Order, based on the observations of learned NCLT on the issue of refusal to transfer the shares, will fall under Section 58 of the Companies Act, and therefore, would be barred by Limitation, may not be a correct proposition which could be construed, in the light of the observations which have been made in the Impugned Order deliberating on the necessity of compliance of the provisions contained under Section 12B of the Banking Regulation Act, for the purposes of transfer of the shares in controversy.

It has to be admitted that the said observations made by the learned Adjudicating Authority, while dealing with the issue was on a proceeding initiated under Section 59 of the Companies Act, which was registered as CP No. 38 / 2018. The learned Tribunal has rightly observed that in the absence of there being any proof before it, as to which group of shareholders the Respondent herein will belong to, rectification of register by entering her name cannot be denied and accordingly declined to accept the pleadings of the Appellant herein, which could not be substantiated by evidence.

Rather to the contrary, the learned Adjudicating Authority while dealing with Appellant’s arguments, has also observed that, if the letter of the Reserve Bank of India which if it is taken into consideration with regards to the aspect of withholding of the registration of the shares on the ground of de-clubbing and declining of the same, since it was not factually established that the Respondent was acting in concert with the group of persons mentioned by the Appellant herein, thus, in the absence of any proof of the same, there was no embargo as such to withhold the proceedings on the ground, that it was barred by Limitation by attracting the provisions contained under Sub Section 3 of Section 58, as argued by the learned Counsel for the Appellant.

The argument of the learned Counsel for the Respondent was, by way of repetition, that once she has given away her rights to put a challenge to the Impugned Order of 08.08.2014, pertaining to the issue of refusal to register the shares and of the returning of the Original Share Certificates with the Transfer Deed, it completely washes away the proceedings under Sec. 58 of the Companies Act which will stand legally closed, and for which she is not seeking any relief as such, any more. Further, he has contended that in the light of the relief prayed for, in her Petition, the said Petition was within the framework under Section 59 of the Companies Act, and it would not be barred by limitation, contrary to the assertions made by the learned Counsel for the Appellant, because that will be falling well within the ambit of Article 137 of the Limitation Act, to be read along with Section 433 of the Companies Act, and therefore, the direction given by the Impugned Order to register the transfer of 300 Shares in favour of the Petitioner / Respondent herein, along with the incidental benefits which were directed to be granted to her with effect from 14.07.2014, cannot be faulted in any manner whatsoever.

At the stage when the relief sought for was granted, it was in the context of, as observed in Para 15 of the Impugned Order, that the proceedings were not hit by the embargo of Section 12B of the Banking Regulation Act, which would have created an embargo had there been a proceeding with regards to the transfer of shares as contemplated under Section 58 of the Companies Act. But the said proceeding under Section 58 of the Companies Act, as already observed by this Tribunal has ceased to have its effect, from 08.08.2014 and has attained finality qua the parties to this Appellate proceedings.

Thus, it has been argued by the learned Counsel for the Respondent, that since the proceedings before the Tribunal, was being conducted under Section 59 of the Companies Act, the bar of Limitation and sustainability of the proceedings in CP No. 38 / 2018, which has been sought to be raised by the Appellant herein, that the same would be barred by limitation in view of the embargo under Sub Section 3 of Section 58, will not be attracted and be applicable in the circumstances of the present proceedings, that, the Appellant herein has misread the proceedings as if it has been drawn by the Petitioner by filing of Company Petition No. 38 / 2018 to be a proceedings under Section 58 and that, the said proceedings if it is being read in relation to the reliefs sought for in the Company Petition, would fall to be well within the domain of Section 59 of the Companies Act, and in that eventuality, the provisions contained under Article 137 to be read with Section 433 of the Companies Act, would be attracted and the proceedings of the Company Petition, would not be barred by Limitation contrary to the claim of the Appellant herein (Respondent, to the proceedings, before the learned NCLT).

Even otherwise also, the findings by the learned Adjudicating Authority in Para 13 & 14 of the Impugned Order on the implications the provisions of Section 12B (1) of the Banking Regulation Act will have on the proceedings, record that the ``act of refusal for Registration of the Shares’’, by the Appellant herein, on the premises that the Respondent belongs to the combined group of B.R. Adityan and B.S. Adityan and this group has a shareholding in excess of 10% in Tamilnad Mercantile Bank, the Appellant herein, cannot be accepted, because of the fact that the Appellant Bank has failed to establish by evidence or by any Report that, there was existence of such a group which could come in the way of the transfer of the said shares at the time of filing of the Company Petition, and hence the Appellant’s contentions lack merit. Still, since, refusal to transfer the shares is not an issue herein, we are not required to venture on the said aspect and since the controversy is confined to Section 59 of the Companies Act, the direction issued by the learned Adjudicating Authority directing to register 300 Shares along with consequential incidental benefits, would be falling to be well within the ambit of Section 59, where the provisions of Limitation would not bar the Company proceedings of CP / 38 / 2018, which was instituted by the Respondent in December 2017.

After giving a thoughtful consideration to the respective grounds taken by the learned counsels appearing for the parties and particularly the observations made in the Impugned Order, we do not find any apparent legal anomaly in the Impugned Order. Consequently, the TA No. 122 / 2021 (Company Appeal (AT) (INS) No. 5 / 2020) lacks merit and the same is accordingly dismissed. The connected pending Interlocutory Applications, if any, would stand closed.