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2023 (11) TMI 529 - HC - Companies LawRefusal of registration of shares of the Respondents - ambit of Section 111A of Companies Act - sufficient cause for refusal to register shares or not - NCLAT directed the appellant to register the shares of respondents - HELD THAT - The interpretation of the expression sufficient cause in the context of refusal by a Company to register shares has to be pragmatic, reasonable and in consonance with the purpose of the legislation. Moreover, it has to be kept in mind that the legislature deliberately used the expression sufficient cause in proviso to Section 111A (2) as against the expression contravention of any of the provision of law used in proviso to Section 111A (3) of the Companies Act, 1956. In the opinion of the Court, the import of the expression sufficient cause cannot be reduced to mean only violation or contraventions of law. Any mala fide transfer done with the intention of obstructing the functioning of the company can also constitute sufficient cause for refusing the registration of transfer of shares. In the case at hand, Respondent No. 4 was associated with the Appellant company in the past. Respondent No. 1 is stated to be his wife while Respondent No. 5 is his daughter. On the other hand, Respondent Nos. 2 and 3 are alleged to be relatives of the Ex-statutory director of the Appellant company. The Respondents have filed multiple complaints against the Appellant company to various statutory authorities - the allegation of the Appellant company is that the Respondents seek to cause hurdles in the way of bona-fide corporate decisions taken by the Appellant Company. The Respondents have chosen not to appear before this Court to rebut the allegation of the Appellant. These facts constitute sufficient cause and the Appellant company has rightly refused to register the shares of the Respondents - Appeal allowed.
Issues Involved:
1. Refusal of registration of shares under Section 111A of the Companies Act, 1956. 2. Interpretation of "sufficient cause" for refusal of share transfer. Summary: Issue 1: Refusal of registration of shares under Section 111A of the Companies Act, 1956 The appeal was filed under Section 10F of the Companies Act, 1956 against the order of the Company Law Board (CLB) dated 17th December 2014. The CLB had directed the Appellant, M/s Basti Sugar Mills (now 'Phenil Sugars Ltd.'), to register the shares of the Respondents. The Respondents, Mrs. Laxmi Gupta, Mr. Chandra Prakash Pahwa, Mr. Kapil Kumar, Mr. Madhav Sharan Gupta, and Ms. Astha Gupta, had sought registration of their shareholding, which was refused by the company. The CLB found that the reasons provided by the Appellant did not fall within the ambit of Section 111A of the Act. The Appellant argued that Respondent No. 4, Mr. Madhav Sharan Gupta, was the Auditor of the company and had acted detrimentally to the company's interests. The Appellant claimed that the Respondents, acting in concert, sought to purchase shares to cause hurdles in corporate decisions. The CLB, however, held that the request would be covered under Section 111(A)(3) and not under Section 111(A)(2) of the Act. Issue 2: Interpretation of "sufficient cause" for refusal of share transferThe Appellant relied on the Supreme Court judgment in Mackintosh Burn v. Sarkar and Chaudhary Enterprise Pvt. Ltd. (2018) 5 SCC 575, which clarified that refusal to register shares could be based on any ground constituting sufficient cause, including conflict of interest. The Appellant argued that the Respondents' actions constituted sufficient cause for refusal under Section 111A(2) of the Act. The CLB had concluded that the term "sufficient cause" should not be limited to violations of law under Section 111A(3) but should include any reasonable apprehension that the transfer is not in the company's best interest. The CLB directed the Appellant to register the shares, but this decision was challenged. The High Court noted that "sufficient cause" should be interpreted pragmatically and reasonably, considering the purpose of the legislation. The Court found that the Appellant's apprehensions about the Respondents' intentions were reasonable and supported by material on record, constituting sufficient cause for refusal. In conclusion, the High Court set aside the CLB's order and upheld the Appellant's refusal to register the shares, finding it justified under the circumstances. The appeal was allowed, and all pending applications were disposed of.
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