Vyapar Mandir Palarivattom Private Limited & Anr. vs Usha O.K.

Justice Sharad Kumar Sharma, Member (Judicial): These are sets of 8 Appeals, each set containing 2 Company Appeals which had been preferred by the Appellants. The question of law and facts are common in all these Company Appeals. These Appeals have been preferred, by invoking the provisions contained under section 421 of the Companies Act against the Orders of NCLT, Kochi Bench dated 05.03.2020 and 20.08.2020 in the respective Company Petitions. The Appellants have come up with the case, that the Impugned Order dated 05.03.2020 in the respective Company Petitions and the Impugned Order of 20.08.2020, as rendered in the Interlocutory Applications filed under Section 154 of NCLT Rules, 2016, as preferred in the respective Company Petitions had been erroneously decided. Thus, they have prayed for that the Judgment by virtue of which the rectification in the Register of Members, has been set aside, in respect to the respective shares held by Respondents in the Company Petitions be annulled and reversed as the orders of the Tribunal are based on factual errors as detailed in the Appeal.

The Company Petitions in which the Impugned Orders dated 05.03.2020 have been passed, had been preferred under section 59(1) of the Companies Act, 2013, by the Respondents herein with regard to the controversy pertaining to the transfer of shares, held by the Respondents in the Appellant Company. After passing of such orders, the Appellants herein sought to get the said Orders rectified by filing IAs under section 154 of the NCLT Rules, which were also dismissed. The details of the shares connected to each of the Company Appeals, have been given in the Chart (given herein below) which will form part of this Judgment.

The details of the Company Appeals which have been decided by today’s Judgment are hereunder: -

The Respondents / Petitioners to the Company Petitions detailed above, had filed Company Petitions, by invoking the provisions contained under Section 59 (1) of the Companies Act, principally praying for the rectification of Register of Members of M/s. Vyapar Mandir Palarivattom Private Limited.

The case of Respondent herein / Petitioner in each of the Company Petition was to the effect that the Respondent / Petitioner, was entitled to hold certain Equity Shares of Rs.100/- each, which otherwise stood duly registered and transferred in their name. The details of Share Transfer / Shareholding are given hereunder:-

The Respondents / Petitioners to the Company Petitions had contended that they had not surrendered their Share Certificates to the Appellant Company / Respondent to Company Petitions and that, they have wrongfully and illegally been directed by the Respondent Company therein, to surrender the same in order to recover the amount due towards the rental arrears for certain specified period, by illegally exercising the lien on the Share Certificate.

It was contended by the Respondents that the lien of the Appellant Company over the Shares, as per Clause 6 (2) (3) of Article of Association is limited to the extent, of the Dividends payable on the Shares and that the lien cannot be exercised by the Board of Directors of the Company for the Fully Paid Up Shares and therefore, the Company in no manner has a right or cause to sell off the Shares of the Respondents to a third party, by issuing Duplicate Share Certificates, as against their Original Share Certificates.

They have further contended that in the Company Petition preferred by them, they had principally sought a relief on the aforesaid back-ground, that the Respondent No. 1 therein i.e. ``The Company’’, be restrained from holding any Annual General Meeting or any Extra-ordinary General Meeting, till the Share Register of the Company, is fully rectified, by re-entering their names as well as names of those similarly placed which has been struck off, against the respective Shares in the Share Register and till re-entry of names is done for 12 such Members which include the Respondents out of a total of 32 Members of the Appellant Company.

In the aforesaid prayer for rectification of Register of Members of the Appellant Company, it was also sought to re-enter the total number of Equity Shares, belonging to the Respondents, as held by them under Folio No. 58 and which stood illegally omitted and vested in the Appellant Company, in the Share Register of the Company, and to order restoration of the actual Shareholding of the Respondents herein, as it existed prior to 08.02.2019 by declaring that the Respondents are the legitimate holders of such Equity Shares of the Company, as per their Share Certificates.

The Company Petitions, as preferred by the Respondents were numbered as respectively detailed above, and were ultimately decided by the Judgment dated 05.03.2020. Pursuant to passing of this Judgment, the Appellant Company filed IAs under Rule 154 of NCLT Rules for rectification of respective orders. Rule 154 of the NCLT Rules, 2016, permits the Tribunal to rectify any clerical or arithmetical mistake or error, arising out of an accidental slip, in its order, on its own motion or on an Application of any party to the proceedings, within two years of passing of such order.

Based on the reading of Rule 154 of NCLT Rules, referring to the decision of Sneha Traders HUF v. Mr. Vijay Kumar V. Iyer, Resolution Professional, as it was rendered in Comp. Appeal (AT) (INS) No. 924 / 2019 dated 24.01.2020, which has elaborated the implications of Section 420(2) in respect of NCLT i.e. the Tribunal, may at any time, within two years from the date of the Order, with a view to rectifying any mistake apparent from the record, amend any order, passed by it and shall make such amendment, if the mistake is brought to its notice by the parties. The NCLT held that there was no clerical or arithmetical mistake in its orders which has been committed and which need to be rectified and accordingly rejected the Interlocutory Applications, as preferred in the respective Company Petitions, holding it to be not a correction falling within ambit of Rule 154 of the NCLT Rules, 2016.

The said Rectification Application stood rejected holding thereof that since the said Applications for rectification took the shape of Review, they cannot be entertained under the garb of Rectification Applications, by alleging it to be a rectification of a clerical or arithmetical mistake, in order to bring it within the ambit of Rule 154 of NCLT Rules. Consequent to the Order of 20.08.2020, as rendered on the Interlocutory Applications, the Judgments dated 05.03.2020, as passed in the respective Company Petitions, preferred by the Respondents / Petitioners, were affirmed. This, resulted into passing of the following Order :

This above Order as it was rendered on 06.03.2020 has attained finality.

The two Judgments i.e. the Judgment of 05.03.2020 and consequential rejection of the I.A. seeking rectification of the same by Judgment of 20.08.2020, have been put to challenge by the Opposite Parties to the Company Petitions i.e. the Appellants herein Viz. M/s. Vyapar Mandir Palarivattom Private Limited (Appellant - 1) and Sri. Kaniyamparambil Madhavan Babu (Appellant – 2).

The Appellant No. 1, subsequently sought for that the Appeal may be permitted to be dismissed as withdrawn, Qua the Appellant No. 1 only and that the Company Appeal may continue for Appellant No. 2 only.

Consequent to the request made by the Learned Counsel of Appellant No. 1, this Tribunal has passed the following Order on 12.06.2024, which is extracted hereunder:

As a result thereto, the Appellant No. 1 i.e. ``The Company’, which in itself stood incorporated in 1986, had sought liberty before this Tribunal, not to further contest the proceedings at their behest, and accordingly, the Company Appeal survived only as against the Appellant No. 2 only.

When the Appeal was taken up today, the matter was vehemently argued by the Learned Counsel for the Appellant, on behalf of the Appellant No. 2 only. To this a preliminary objection was raised by the Learned Counsel for the Respondent to the effect that after passing of the Order on 12.06.2024, permitting withdrawal of the Appeal at the behest of the Appellant No. 1 i.e. the Company itself, the Company Appeal cannot be permitted to be proceeded with exclusively at the behest of Appellant No. 2, who in his pleading had contended to claim to be the Managing Director of the Company, because, the Appellant No.2 as a Managing Director, in the absence of Appellant No.1, the Company being a party pursuing the Appeal, has got no locus or rights legally surviving as such, as of now. Whatsoever right was being derived by the Appellant No. 2, to the Company Appeal, was flowing from the status which he enjoyed being Managing Director of the Company / Appellant No. 1 and once, the Appellant No. 1 has withdrawn the Appeal, the Appellant No. 2 independently will have no cause of action itself, Qua the relief, which has been put to challenge and sought in the Company Appeals. Therefore, the Appeal at the behest of Appellant No. 2 exclusively, would not be maintainable, as whatever status Appellant No. 2 had in the capacity of the Managing Director, will survive only till Appellant No. 1, presses its right in the Company Appeal, against impugned action. Appellant No. 2, himself has no independent subsisting status or right.

On this preliminary objection being raised by the Respondent’s Counsel, the Counsel for the Appellant No. 2, was called upon to answer the objection, pertaining to the maintainability of the Company Appeal, under the changed circumstances, exclusively at the behest of Appellant No. 2, either, in the status of being the Managing Director, Shareholder or the Promoter of M/s. Vyapar Mandir Palarivattom Private Limited, particularly, when the said Registered Company itself, has not pressed its rights, as against the Impugned Orders, under challenge in the Appeal. No plausible argument was extended by the Learned Counsel for the Appellant No. 2, to meet the said objection, raised by the Learned Counsel for the Respondent, with regard to the maintainability of Appeal exclusively at the behest of Appellant No. 2, particularly when admittedly the Appellant No. 2 derives his status from Appellant No. 1.

In fact, the Learned Counsel for the Respondent has also taken a stand that now after the withdrawal of Appellant No. 1 in the respective Appeals, before this Tribunal, if at all, the Appellant No. 2, has any cause, qua the relief claimed and be granted to him as per law, he will have to agitate his independent rights, under Section 59 of the Companies Act and not by way of challenging the Impugned Order in the instant Appeal under the garb of initial challenge given by Appellant No. 1, to which, after the withdrawal of the Appellant No. 1, there would not be any right which would be flowing from Appellant No. 1 to Appellant No. 2 to continue each of the Appeals.

The matter was taken up in the Pre-lunch Session and it was argued at length. Later on, the matter continued and arguments resumed in the Post-lunch Session and the Learned Counsel for the Appellant was directed to complete his instructions.

The Learned Counsel for the Appellant No. 2, completed his instructions and submitted that the Tribunal, may pass an appropriate Order. What is being observed above is that in the light of relief granted by NCLT in the Principal Company Petitions to the Respondents herein, the cause for Appeal against such reliefs itself was subsisting only during the time when the Appellant No.1 i.e. the Company, having legal status, being a juristic person, was contesting the matter, but, upon its withdrawal, the Appellant No. 2 individually, will have no cause, as such, which could at all flowing from the Appellant No. 1.

In the absence of there being any plausible answer extended by the Learned Counsel for the Appellant No. 2, on the objection raised by the Learned Counsel for the Respondent / Petitioner, this bunch of Company Appeals, would stand dismissed, without prejudicing the rights of the Appellant No. 2, to resort to the appropriate remedies, as available to him, under Section 59 of the Companies Act, the reason behind it being that the relief prayed against the order of rectification of Register of Members of the First Appellant, by re-entering the names and the configuration of the Shares, held by the Shareholders, under the respective Folio, could have had been possible only when the Company was contesting the proceedings and in the event of Company itself having chosen not to contest the Company Appeal, no such relief can be pressed for by Appellant No. 2 in the absence of an effective contest by Appellant No. 1.

Thus, the Appeals would stand dismissed, but, it will be open for the Appellant No. 2, to resort to the appropriate proceedings, under Section 59 (2) of the Companies Act, 2013, which would be decided, exclusively, in accordance with Law.