Satvik Rajiv Samani and Anr v. Shardaben Prabhudas Samani and Anr

What happened

Panache Securities Private Ltd. was incorporated on 22 December 1994 with Rajiv Samani and his then wife, Plaintiff No. 2, as subscribers to 1,000 shares each and as directors. The couple separated in 1995, and the marriage ended by a mutual consent decree of 6 August 1997. Panache bought the Harileela Property in Mumbai on 11 July 1996. The deceased married again, and died on 12 March 2013. The plaintiffs said that after his death his mother (Defendant No. 1) and sister (Defendant No. 2) transferred his share in a flat at Sagar Kunj and that a board resolution of 1 August 2013 authorised the sale of the Harileela Property, and that the sale deed in favour of Defendant No. 4 dated 19 October 2013 for Rs.3 Crore, registered on 21 October 2013, was fraudulent, as Defendant No. 3 was not yet a director. The defendants said the second plaintiff gave up her shares and resigned as director on the divorce, and that Defendant No. 1 held 8000 shares allotted in 1999. The purchaser mortgaged the property to Fullerton India Pvt. Ltd. on 21 November 2013. The plaintiffs relied on Shazia Rehman v. Anwar Elahi and Dhirubhai v. Lataben Abuwalla for the civil court's jurisdiction on fraud and on Estate Officer, UT, Chandigarh v. Esys Information Technologies for lifting the corporate veil; the defendants relied on Shashi Prakash Khemka, Adesh Kaur and Bacha F. Guzdar v. Commissioner of Income Tax.

Questions before the court

• Can a civil court on a Notice of Motion in a suit grant an injunction and appoint a Court Receiver over a company's property when the plaintiffs' case depends on a declaration of shareholding, rectification of the register and removal of a director, and on fraud?

Why the court ruled this way

The Court held that the plaintiffs had not sought a declaration that the deceased owned the Harileela Property, which stood in the name of Panache, and that a shareholder has no right in the assets of a company, which is distinct from its shareholders, as Bacha F. Guzdar and other decisions say (paragraphs 128, 130 and 135). The memorandum of association records only that Plaintiff No. 2 agreed to subscribe for shares, while the share certificate is prima facie evidence of title under section 84 and the register of members under section 164 of the Companies Act, 1956, and the plaintiffs produced neither, and she kept silent for nearly sixteen years after the divorce (paragraphs 129 and 131 to 134). A declaration that she remained a shareholder despite the register is in effect rectification of the register, which falls under section 59 of the 2013 Act and the NCLT, and section 430 bars the civil court from granting reliefs the NCLT can grant, as Shashi Prakash Khemka holds; the removal of Defendant No. 3 as a director is likewise within section 242(2)(h) (paragraphs 136 to 139). Adesh Kaur shows that the NCLT can deal with fraud and forgery and the plaintiffs had said that this was an open and shut case of fraud (paragraph 140). Lifting the corporate veil is an exception, not a matter of course, and Estate Officer v. Esys Information Technologies was a case of promoters' non-compliance with directions (paragraphs 141 and 142). The Court found prima facie that Defendant No. 4 was a bona fide purchaser for adequate consideration that exceeded market value on valuation reports and that it carried out due diligence, the order of injunction of 28 November 2013 post-dated the sale and did not bind it, and Plaintiff No. 1's letter to the society was no injunction (paragraphs 143 to 146). A Court Receiver needs pleading and urgency, which was absent, and an injunction in respect of the Sagar Kunj flat was already operating (paragraphs 147 and 148).

Controlling point

The reliefs depending on shareholding, rectification of the register and removal of a director are for the NCLT under section 430 of the Companies Act, 2013, and prima facie no case was made out for an injunction or Court Receiver.

Order and next steps

Both Notices of Motion were dismissed with no order as to costs.

Practical implications

A person who claims shares that no longer appear in the register of members, or who wants a director removed, should file before the NCLT under sections 59 and 242 of the Companies Act, 2013, rather than a civil suit for declaration, and should obtain share certificates and transfer records to establish title.

Limits of this ruling

• The findings were prima facie and made at the interim stage on Notices of Motion, so they do not conclude the suit; the Court did not finally decide who holds the shares or whether the sale was valid, and the existing injunction in respect of the Sagar Kunj flat was not disturbed.