NCLT Is Not The Proper Forum To Adjudicate Disputes Of Individual Members Regarding Transfer Of Or Title To Shares: Telangana High Court
The Telangana High Court observed that NCLT is not the proper forum to adjudicate disputes of individuals with regard to the transfer of shares or title to the shares.
The Court observed thus while noting that only a civil Court is empowered to decide on the acts of omission or commission of a party and more importantly on the issue of re-transfer of the shares in favour of the appellant or even the title of the shares pending or on completion of the transfer.
The Court was hearing an appeal against the decision of the Court which allowed the application under Order VII Rule 11(a) and (d) read with Section 151 of The Code of Civil Procedure, 1908, for rejection of the plaint.
The bench of Justice Moushsumi Bhattacharya and Justice Nagesh Bheemapaka observed, “…NCLT is certainly not the proper forum to adjudicate on disputes of individual members with regard to transfer of or title to the shares.”
Advocate Duvva Pavan Kumar appeared for the Appellant and Advocate Sathakarni K appeared for the Respondent.
Brief Facts-
The appellant Cherukuri Ramakrishna owned a significant number of shares in Sunbeam Hospitality Private Limited. Along with other shareholders, the appellant entered into an MOU, Share Purchase Agreement, and Takeover Agreement with the respondents Sandhya Hotels Private Limited for the transfer of their shares. The appellant alleges that the respondents fraudulently transferred the appellant's shares without paying the balance. The appellant filed a suit for a mandatory injunction and re-transfer of shares in Sandhya Hospitality Private Limited. The present appeal arises from the court's order rejecting the plaint based on the respondents' application.
The Court noted that Sections 58 and 59 of the Companies Act, 2013 deal with the refusal of registration of the transfer or transmission of shares/securities and appeal against refusal and rectification of the register of companies under certain defaults. As per the Court, these provisions would only become relevant once the title to the shares/securities has been decided.
The Court observed, “The decision-making with regard to the title of the shares is within the domain of the Civil Court and not the NCLT/NCLAT. This would also be clear from the proviso to Section 58(2), which reads that any contract or arrangement between two or more persons in respect of transfer of securities shall be enforceable as a contract.”
The Court further observed, “Moreover, Section 58 (5) (a) and (b) defines the powers of the Tribunal by delineating the orders which may be passed by the Tribunal in respect of directing registration of transfer/transmission by the Company or rectification of the register or even directing the Company to pay damages to the aggrieved party.”
Accordingly, the Court set aside the impugned order and allowed the appeal.
Cause Title: Cherukuri Ramakrishna v. Sandhya Hotels Private Limited
