Family dispute about ownership of shares:
Merely disowning a son by late father or by the family, is not going to deprive him of any right in the property to which he may be otherwise entitled in accordance with the law. The pertinent question needs to be tried in a civil suit and adjudicated finally, it cannot be decided by NCLT in proceedings in question. Hence, we refrain from deciding the aforesaid question raised on behalf of the appellants in the present proceedings. In the facts and circumstances, it would not be appropriate to permit respondent No.1 to continue the proceedings for mismanagement initiated under sections 241 and 242, that too in the absence of having 10% shareholding and firmly establishing his rights in civil proceedings to the extent he is claiming in the shareholding of the companies.
With regard to the dispute as to right, title, and interest in the securities, the finding of the civil Court is going to be final and conclusive and binding on parties. The decision of such a question has to be eschewed in instant proceedings.It would not be appropriate, in the facts and circumstances of the case, to grant a waiver to the respondent of the requirement under the proviso to section 244 of the Act, as ordered by the NCLAT.
We are of the opinion that the proceedings before the NCLT filed under sections 241 and 242 of the Act should not be entertained because of the pending civil dispute and considering the minuscule extent of holding of 0.03%, that too, acquired after filing a civil suit in company securities, of respondent no. 1. In the facts and circumstances of the instant case, in order to maintain the proceedings, the respondent should have waited for the decision of the right, title and interest, in the civil suit concerning shares in question.The entitlement of respondent No.1 is under a cloud of pending civil dispute. We deem it appropriate to direct the dropping of the proceedings filed before the NCLT regarding oppression and mismanagement under sections 241 and 242 of the Act with the liberty to file afresh, on all the questions, in case of necessity, if the suit is decreed in favour of respondent No.1 and shareholding of respondent No.1 increases to the extent of 10% required under section 244.
Investigation into the affairs of the Company:
There is no denying the fact that, the Competent Authority vide its order dated 20.06.2018 directed the SFIO to conduct an investigation into the affairs of the subject entities, in public interest. There is also no quarrel with the circumstance that, the period specified by the Competent Authority in the said order dated 20.06.2018 lapsed on 19.09.2018. There is also no dispute with regard to the fact that, the SFIO sought an extension of time, from the Competent Authority, to carry out further investigation under the mandate of the provisions of Section 212 of the said Act, only on 13.12.2018, admittedly two and half months after the period granted to them by the Competent Authority for the said purpose, had come to an end by efflux of time.
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Effect of Rule 5
The real reason for omission of Rule 5(2) in the substituted Rule 5 is because it is necessary to state, only once, on the repeal of the SIC Act, that proceedings under Section 20 of the SIC Act shall continue to be dealt with by the High Court. It was unnecessary to continue Rule 5(2) even after 29.06.2017 as on 15.12.2016, all pending cases under Section 20 of the SIC Act were to continue to be dealt with by the High Court before which such cases were pending. Since there could be no opinion by the BIFR under Section 20 of the SIC Act after 01.12.2016, when the SIC Act was repealed, it was unnecessary to continue Rule 5(2) as, on 15.12.2016, all pending proceedings under Section 20 of the SIC Act were to continue with the High Court and would continue even thereafter. This is further made clear by the amendment to Section 434(1)(c), with effect from 17.08.2018, where any party to a winding up proceeding pending before a Court immediately before this date may file an application for transfer of such proceedings, and the Court, at that stage, may, by order, transfer such proceedings to the NCLT. The proceedings so transferred would then be dealt with by the NCLT as an application for initiation of the corporate insolvency resolution process under the Code. It is thus clear that under the scheme of Section 434 (as amended) and Rule 5 of the 2016 Transfer Rules, all proceedings under Section 20 of the SIC Act pending before the High Court are to continue as such until a party files an application before the High Court for transfer of such proceedings post 17.08.2018. Once this is done, the High Court must transfer such proceedings to the NCLT which will then deal with such proceedings as an application for initiation of the corporate insolvency resolution process under the Code.
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Oppression of minority shareholders:
Amendment in Articles of Association
A public company was in urgent need of further capital which the majority of the members who held 98% of the shares were willing to supply if they could buy out the minority. They tried persuasion of the minority to sell shares to them but the minority refused. They therefore proposed to pass a Special Resolution adding to the Articles a clause whereby any shareholder was bound to transfer his shares upon a request in writing of the holders of 98% of the issued capital.
The court held that this was an attempt to add a clause which will enable the majority to expropriate the shares of the minority who had bought them when there was no such power. Such an attempt was not for the benefit of the company as a whole but for the majority. An injunction was therefore granted to restrain the company from passing the proposed resolution.
[Brown v. British Abrasive Wheel Co. (1919) 1 Ch. 290]
This was one of the earliest case of protection of minority shareholders from the oppressive majority of shareholders.