1994 (8) TMI 207 - HC - Companies Law

Free transferability and registration of transfer of listed securities, Scope of jurisdiction

Issues Involved:

1. Constitutional validity of clause (c) of sub-section (3) of section 22A of the Securities Contracts (Regulation) Act, 1956.
2. Justification of the Company Law Board's decision to refuse registration of share transfers.
3. Refusal by the Company Law Board to accept additional affidavits from the petitioners.
4. Request for interim relief to restrain the company from transferring ownership, paying dividends, or issuing right/bonus shares.

Issue-wise Detailed Analysis:

1. Constitutional Validity of Clause (c) of Sub-section (3) of Section 22A:

The petitioners challenged the constitutional validity of clause (c) of sub-section (3) of section 22A, claiming it violated Article 14. The court found this submission devoid of merit, stating that the plain reading of clause (c) shows in-built guidelines prescribed by the Parliament. The board of directors must examine whether the transfer is likely to change the composition of the board and if such change would be prejudicial to the interests of the company or public interest. The decision of the board of directors is not final and is subject to the approval of the Company Law Board. The court concluded that the challenge to the validity of clause (c) on the ground of infringement of fundamental rights under Article 14 is without any substance.

2. Justification of the Company Law Board's Decision to Refuse Registration of Share Transfers:

The petitioners argued that the Company Law Board erred in accepting the company's decision to refuse registration of share transfers. The court held that the writ petition cannot be converted into an appeal and it is not permissible to examine the merits of the rival contentions. The Company Law Board had examined all facets of the matter and recorded findings of fact, which cannot be disturbed in exercise of writ jurisdiction. The court found no infirmity in the reasoning or the conclusion recorded by the Company Law Board. The decision of the board of directors was justified based on the material available at the time, and the Company Law Board's approval of this decision was sound and justified.

3. Refusal by the Company Law Board to Accept Additional Affidavits:

The petitioners contended that the Company Law Board erred in not permitting them to file additional affidavits to bring subsequent events on record. The court found no error in the Company Law Board's decision, noting that the arguments had concluded and the petitioners had adequate opportunity to plead their case. The alleged subsequent facts had no bearing on the decision taken by the board of directors at the time of refusal to register the transfer of shares. The court concluded that the petitioners had not suffered any prejudice by the Company Law Board's action in declining to take affidavits on record after the hearing was concluded.

4. Request for Interim Relief:

The petitioners requested an injunction to restrain the company from transferring ownership in shares, making payment of dividends, or issuing right/bonus shares. The court found no substance in this contention, noting that section 206(1) applies during the interregnum between the date of lodgement of the application for transfer of shares and the date of registration, and has no application when the transfer is refused. The court also noted that the petitioners had taken no steps to get back the share certificates which were lodged for transfer, despite a previous court order allowing them to do so. Consequently, the request for interim relief was denied.

Conclusion:

The court discharged the rule in each of the petitions with costs, finding no merit in the contentions raised by the petitioners. The decision of the Company Law Board to refuse registration of share transfers was upheld, and the challenge to the constitutional validity of clause (c) of sub-section (3) of section 22A was repelled. The court also found no error in the Company Law Board's refusal to accept additional affidavits and denied the request for interim relief.

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