Case Law - CHAPTER 2 – SHARE CAPITAL

CHAPTER 2 – SHARE CAPITAL

29.01.2020

Bank of Baroda (Appellant) v. Aban Offshore Limited (Respondent)

NCLAT

Remedies available for Preference shareholders in relation to redemption of preference

shares

Facts of the case

The present Appeal has been filed by the Appellant w.r.t the NCLT, Chennai Bench (Tribu-

nal) order who has dismissed the application of Appellant solely on the ground that the Ap-

pellant being preferential shareholders has no locus standi to file application for redemption

of shares under Section 55(3) of the Companies Act, 2013 or even under Section 245 of the

Companies Act, 2013.

The Appellant has submitted that the Respondent Company is a listed Company with Madras

Stock Exchange Limited, Bombay Stock Exchange Limited and National Stock Exchange of

India Limited. The Appellant has subscribed on various dates i.e.09.07.2005, 29.05.2007 and

out of total subscription of Rs. 30,00,00,000/- worth of cumulative Redeemable Non-

Convertible Preference Shares at varying coupon rate of 8% and 9% per annum; has also

consented on 31.10.2011 for extended/rolled over of redemption of preference share for a peri-

od of 3 years from the date of original redemption date.

The Appellant has also submitted that the Respondent Company has not yet redeemed any

preference shares inspite of they are paying equity dividend to the extent of 180% for the

equity shareholders in the financial Year 2014-15. The Respondent has defaulted on the re-

demption as well as payment of dividend for the Financial Year 2015-16 onwards and the

said defaults continues till date. The Appellant has also submitted that they have been made

the remediless by the Tribunal for not considering the issue of redemption of preference

shares either under Section 55 or Section 245 of the Companies Act, 2013.

Issues

Whether there is any remedy under law available to preference shareholders for filing applica-

tion for redemption of preference shares?

The Respondent has submitted that the Appellant is only representing in these proceedings

and none others representatives from the class of shareholders i.e. Preference shareholders

class are representing. They are not eligible to file application under Section 245 of the

Companies Act, 2013 because Section 245 clearly reflects that an application must be filed

by minimum requisite members of the Company. They cannot unilaterally decide that they

are empowered to represent a class of shareholders.

Judgement

The National Company Law Appellate Tribunal (NCLAT) examined that intention of the leg-

islature while promulgating Section 55 of the Companies Act, 2013 was to compulsorily pro-

vide for redemption of preference shares by doing away with the issue of irredeemable pref-

erence shares. Therefore, even though there is no specific provision stipulated under the

Companies Act, 2013 through which relief can be sought by preference shareholders in case

of non-redemption by the company or consequent non-filing of petition under Section 55 of

the said Act, the intention of the legislature being clear and absolute, Tribunal’s inherent

power can be invoked to get an appropriate relief by an aggrieved preference shareholder(s).

Alternatively, preference shareholders coming within the definition of ‘member(s)’ under Sec-

tion 2(55) read with Section 88 of the Companies Act, 2013, may file a petition under Sec-

tion 245 of the said Act, as a class action suit, being aggrieved by the conduct of affairs of

the company.

Thereby, it was held that preference shareholders are not remediless and for redemption of

preference shares, they can file an application under Section 55(3) of the Companies Act,

2013 or alternatively they may also file application under Section 245 of the Companies Act,

2013 as a class action suit and the NCLT while exercising the inherent power viz. Rule 11 of

NCLT Rules, 2016 can pass appropriate order.

Hence, the findings of the NCLT that the Appellant being preference shareholders has no

locus standi to file application for redemption of preference shares does not hold good. Thus,

NCLT, Chennai Bench impugned order was set aside. The matter is remitted back to NCLT,

Chennai Bench to decide the application as per law.