Limitation for setting aside of fraudulent transfer of shares would start from date victim comes to know of fraud: NCLT

Case Details: Mrs. Rizwana Anjum v. Hira Multi Construction Ventures (P.) Ltd. - [2022] 144 taxmann.com 81 (NCLT-Hyd.)

Judiciary and Counsel Details

• • Dr. Venkata Ramakrishna Badarinath Nandula, Judicial Member & Veera Brahma Rao Arekapudi, Technical Member
  • M.S. Prasad, Learned Sr. Counsel, Venkat Rami Reddy & Parameswara Reddy, Advs. for the Petitioner.
  • Jagadeesh, S. Ravi, Learned Sr. Counsel & Sharad Sanghi, Advs. for the Respondent.

Facts of the Case

In the instant case, the petition was filed u/s 59 of the Companies Act, 2013 read with Rule 70 of the NCLT Rules, 2016, seeking relief to declare the impugned transfer of shares made in favour of the respondent as null and void and directions to bring back such shares. Also, directions to the respondent company to rectify the Register of Members and Directions to RoC, to invalidate the Annual Returns and other relevant forms.

The petitioner was allotted 2,500 shares in the respondent company and the same was reflected in the Annual Return for the year 2003. In the next year, another 2250 shares were transferred in favour of the petitioner, however the same was not reflected in the subsequent Annual Returns i.e. 2006, 2007 and 2008 filed. Also, the shareholding of the petitioner was shown as NIL in the Annual Returns filed for the years 2009 to 2018.

The petitioner contended that she had neither sold her shares to anyone nor had received any consideration for the transfer of such shares. The same was done fraudulently to gain benefits and to have control over the management of the company. Also, the annual statements of the respondent company were uploaded from time to time.

Further, the petitioner contented that the respondent company resigned a director by fraudulently annexing the forged resignation letters along with Form 32. Also, the petitioner stated that the alleged transfer of shares was effected by the respondent company without her knowledge in the year 2009.

It was noted that the present petition was filed in the year 2019 i.e. after a delay of 10 years, and thus was barred by limitation by virtue of section 433 of the Companies Act read with Article 137 of the Limitation Act. Further, the petitioner had not filed any application seeking condonation of delay.

NCLT Held

The National Company Law Tribunal (NCLT) held that mere uploading of the financial statements of the company in the Public website would be conclusive proof of ‘discovery of fraud’ by the suitor. Further, the limitation shall not begin to run from the date when the financial statements were so uploaded. Rather, the period of limitation shall began from the date on which the petitioner came to know the fraud played by the respondents.

Further, the NCLT held that the present petition was filed within three years of coming to know about the fraud played by the respondents. Accordingly, the petition was not barred by limitation.