1983 (12) TMI 240 - HC - Companies Law

Summary

Issues:
1. Relief sought under Section 403 of the Companies Act, 1956 rendered infructuous due to disposal of appeals by the Company Law Board.
2. Allegations of motive behind share transfer to capture company's management and potential harm to public interest.
3. Background of company facing financial difficulties, government intervention, and liabilities.
4. Dispute over registration of shares purchased by Khaitan group, potential impact on company's management.
5. Legal proceedings before the Company Law Board and Company Court regarding the registration of shares.
6. Company's resistance to share registration, concerns over potential takeover by Khaitan group.
7. Analysis of transferability of shares in public limited companies and protection of shareholder rights.
8. Differentiation between private and public limited companies regarding share transferability and shareholder rights.

Analysis:
The judgment pertains to a petition under Section 403 of the Companies Act, 1956, which became infructuous as the relief sought could no longer be granted after the Company Law Board disposed of appeals related to the transfer of shares. The petitioner, Ganesh Flour Mills Co. Ltd., sought to restrain the Board from proceeding with the appeals, which were subsequently allowed, leading to the transferees being entitled to be registered as shareholders. The company's opposition to the transfers was negatived, resulting in a writ petition against the Board's decision being dismissed.

The background of the company reveals financial struggles, government intervention, and significant liabilities. Despite efforts to rehabilitate the company, it continued to face challenges, with liabilities amounting to approximately 6 crores. The company remained under the management of authorized persons, with potential nationalization on the horizon, indicating a complex financial and regulatory environment.

The dispute arose from the purchase of shares by the Khaitan group, raising concerns about potential management takeover and conflicts of interest due to their ownership stake. Legal proceedings before the Company Law Board and Company Court revolved around the registration of these shares, with the company resisting registration, fearing adverse consequences on its affairs.

The judgment emphasizes the fundamental principle of share transferability in public limited companies, highlighting that shareholders have the right to freely transfer their shares. It underscores that public companies cannot be treated as personal or family affairs, and any attempts to restrict share transferability go against the core principles of company law.

Furthermore, the judgment distinguishes between private and public limited companies, emphasizing the openness of public companies to public subscription of shares. It rejects the notion of monopolistic defenses against share acquisition, asserting that the interests of the public shareholders must prevail over individual or group interests.

In conclusion, the judgment dismisses the application, affirming the principles of share transferability and shareholder rights in public limited companies, while underscoring the importance of upholding these principles for the growth and development of such entities.