1998 (7) TMI 505 - SC - Companies Law

Refusal to register the transfer of shares in favour of Bajaj Auto Ltd. which had been purchased by the appellants - Held that - Appeal allowed. The exercise of discretion by the board of directors in refusing to register the shares in the name of the appellants was not bona fide or in the interest of the company or general body of shareholders. Accordingly its decision not to register the transfer of shares was not correct. The impugned order dated 28-7-1986 of the CLB is set aside and the Resolutions dated 29-8-1983, 27-9-1983 and 19-11-1983 of Bajaj Tempo Ltd. are set aside and as a consequence thereof direction is given to respondent No. 2 to register the shares in question within four weeks from the date of this judgment.

Issues Involved:
1. Whether the appellants and the respondents are rivals in business.
2. Whether the purchases of impugned shares were bona fide investments.
3. Whether the appellants can be termed as undesirable persons.
4. Whether apprehension of inter-connection of respondent-company with Bajaj Group is well-founded and whether it can be a good ground for refusal to transfer shares.
5. Whether transfer of 7,600 shares, sought to be transferred by Smt. Suman Jain, was intra-group transfer and if so, whether respondent-company was justified in refusing transfer of these shares.

Detailed Analysis:

Issue 1: Whether the appellants and the respondents are rivals in business.
The CLB concluded that the appellants and Bajaj Tempo Ltd. were not rivals in business. This finding was based on the analysis of the nature of their respective businesses and the competitive dynamics between them. The Supreme Court upheld this conclusion, agreeing that the appellants were not competitors of Bajaj Tempo Ltd.

Issue 2: Whether the purchases of impugned shares were bona fide investments.
The CLB determined that the appellants were not acquiring the shares with a view to genuine investment but with ulterior motives, including destabilizing the management of Bajaj Tempo Ltd. The Supreme Court disagreed with the CLB's reasoning, stating that the desire to increase shareholding cannot itself be a ground for refusing the transfer of shares. The Court noted that the appellants' investment could be justified by the potential for capital appreciation, which is a valid reason for purchasing shares.

Issue 3: Whether the appellants can be termed as undesirable persons.
The CLB found that the appellants were not undesirable persons. The Supreme Court upheld this finding, noting that there was no evidence to suggest that the appellants were undesirable or that their involvement would be detrimental to the company.

Issue 4: Whether apprehension of inter-connection of respondent-company with Bajaj Group is well-founded and whether it can be a good ground for refusal to transfer shares.
The CLB upheld the apprehension that further acquisition of shares by the appellants could lead to an inter-connection under the MRTP Act, which was a valid ground for refusal. The Supreme Court, however, found that even with the registration of the impugned shares, the appellants' total shareholding would not reach the critical limit of 25%. The Court held that the fear of inter-connection was not a bona fide reason for refusing the transfer, as the appellants' holding would still be below the threshold.

Issue 5: Whether transfer of 7,600 shares, sought to be transferred by Smt. Suman Jain, was intra-group transfer and if so, whether respondent-company was justified in refusing transfer of these shares.
The CLB concluded that the transfer of 7,600 shares by Smt. Suman Jain was an intra-group transfer and should not have been refused. The Supreme Court agreed with this conclusion, stating that the refusal to register this transfer was not justified as it did not affect the overall holding structure.

Conclusion:
The Supreme Court allowed the appeals, setting aside the CLB's order and the resolutions of Bajaj Tempo Ltd. refusing the transfer of shares. The Court directed Bajaj Tempo Ltd. to register the shares in question within four weeks from the date of the judgment. The decision emphasized that the board of directors must act bona fide and in the interest of the company and its shareholders, and not for personal or collateral reasons. The appellants were entitled to costs.

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