2001 (8) TMI 1244 - HC - Companies Law

Issues Involved:
1. Refusal to register the transfer of shares by the respondent company.
2. Alleged violation of Section 108A of the Companies Act.
3. Alleged violation of SEBI Takeover Regulations.
4. Interpretation of "sufficient cause" under Section 111A(2) of the Companies Act.
5. Impact of contractual obligations on the transfer of shares.

Detailed Analysis:

1. Refusal to Register the Transfer of Shares:
The respondent company refused to register the transfer of 6,30,095 equity shares acquired by the appellants, which constituted 21.08% of the paid-up equity share capital of the respondent company. The refusal was based on the resolutions passed by the Board of Directors on 7-5-1998 and 30-10-1998.

2. Alleged Violation of Section 108A of the Companies Act:
Section 108A mandates that no person shall acquire more than 25% of the paid-up equity share capital of a public company without the previous approval of the Central Government. The appellants argued that the acquisition by GMM and its subsidiaries did not exceed the 25% threshold. However, the CLB held that the appellants acted in concert and thus needed prior approval, which was not obtained. The court concluded that the decision of KHL to acquire 20% of the shares, combined with GMM's existing 9.58% holding, required prior approval under Section 108A, which was not sought.

3. Alleged Violation of SEBI Takeover Regulations:
Regulation 7 of the SEBI Takeover Regulations requires disclosure when an acquirer's shareholding exceeds 5%. Regulation 10 mandates a public announcement for acquisitions exceeding 15%. GMM acquired 2,86,200 shares in two lots, with the first lot constituting 4.96% and the second lot allegedly acquired on 25-3-1998. The CLB did not believe the acquisition date and suggested the appellants acted in concert, thus violating Regulation 7. The court remanded the case for evidence on the actual acquisition date, emphasizing that non-compliance with Regulation 7 might expose GMM to penalties but does not affect the legality of the acquisition.

4. Interpretation of "Sufficient Cause" under Section 111A(2):
The appellants argued that "sufficient cause" should be limited to grounds under Section 111A(3). The court disagreed, stating that "sufficient cause" encompasses various reasons beyond statutory violations, including breaches of contractual obligations. The court emphasized that the company could refuse registration if it would be detrimental to its interests or violate existing contractual obligations.

5. Impact of Contractual Obligations on the Transfer of Shares:
The respondent company cited its technology agreement with Hakko Sangyo Co. Ltd. of Japan, which restricted technology transfer without permission. The Board feared that GMM's acquisition might breach this confidentiality commitment, impacting Nile's access to future technological upgrades. The court found the resolutions lacked clarity on the specific obligations and remanded the case to the CLB to record evidence on the contractual obligations and the impact of the share acquisition on these obligations.

Conclusion:
The court remanded all four appeals to the CLB for further evidence on:
1. The actual date of acquisition of shares by KSPL.
2. The contractual obligations of the respondent company to Hakko Sangyo Co. Ltd.
3. Whether the acquisition by GMM and KSPL would compel the respondent company to violate its contractual obligations.

The CLB is directed to reassess the cases based on the recorded evidence and make appropriate decisions.

← Previous Next →