2018 (11) TMI 775 - Tri - Companies Law

Transfer Of shares - Rectification of the register of membership of the Respondent Company, recording and transferring of 100 shares in the name of the Petitioner and recording the name of the Petitioner as the shareholder in respect of the 100 shares in the Respondent Company - lifting of corporate veil - Held that - The petitioner on receipt of the application returned back to the petitioner, issued legal notice on 09/06/2014 and again sent application with original share certificates to the respondent on 02/07/2014 which has been received by the respondent. But the respondent did not pass a Resolution nor communicated order of refusal or acceptance and thereby the petitioner filed this petition on 29/09/2014. In the above said facts and circumstances an application for transfer of shares being evidently sent to the respondent along with the transfer application of shares on 02/07/2014 and that the respondent company did not refuse nor send any intimation as provided under sub-section (4) of Section 58 of the Companies Act, 2013, filing of present petition before the erstwhile Company Law Board is found in time and in compliance of sub-section (4) of Section 58 and therefore the preliminary objection raised by the respondent company is found not sustainable. This point is answered accordingly. Admittedly 254 shares were registered in the name of the petitioner company by transferring the shares from two individuals at a time the petitioner company was doing business competing with the respondent. However, till date the respondent has not raised a contention that the petitioner tried to block any one of its resolutions or interfered its freedom to do the business for which it was constituted. In the said background the contention that group companies of the shareholders of the petitioner are doing very same business and hence it would defeat the interest of the respondent is found devoid of any merit. Upon the said reasons, it appears to me that the question of lifting of corporate veil doesn t arise in the peculiar nature and circumstances of the case in hand. The respondent failed in proving that petitioner s shareholder companies are doing competent business with the respondent company. Being found that the petitioner s shareholders are not doing business in conflict with the interest of the respondent company, the business which is doing by the petitioner s shareholders not at all falls in the sufficient cause as laid down by the Hon ble Supreme Court in the appeal preferred by the respondent company. This point is answered accordingly. Article 44 gives no power to refuse transfer upon the reasons advanced on the side of the respondent. The sufficient cause as per sub-section 4 of section 58 of the Companies Act, 2013 read with the Hon ble Supreme Court s findings in this case, also does not stand established on the side of the respondent. In short, the respondent neither succeeds in showing any of the provisions in the Articles so as to refuse the transfer nor succeeds in proving that the petitioner s shareholders are doing any competing business which could be regarded as a sufficient cause as laid down in the Hon ble Supreme Court s decisions in the case in hand. There is nothing forthcoming to prove that the transfer would violate any law as laid down in the Laxmi Tea and Co. 1989 (11) TMI 226 - SUPREME COURT OF INDIA case. In view of the above said discussion it is of the view that the application of the petitioner is liable to be allowed however by directing the parties to bear their respective cost. The petition is allowed upon the following directions - The respondent is directed to register the transfer of impugned 100 shares in the name of the petitioner company within one month of the date of the order and to make suitable entries in the register of members thereafter.

Issues Involved:
1. Premature application by the petitioner.
2. Competing business and conflict of interest.
3. Deceptive and mala fide transfer of shares.
4. Reliefs and costs.

Detailed Analysis:

1. Premature Application by the Petitioner:
The respondent argued that the petition was premature under Section 58(4) of the Companies Act, 2013. The petitioner applied for the transfer of shares on 02.04.2014, which was initially refused. A subsequent application was made on 02.07.2014, which was received by the respondent but not acted upon. The petitioner filed the petition on 29.09.2014. The Tribunal found the application timely and compliant with Section 58(4), rejecting the respondent's argument.

2. Competing Business and Conflict of Interest:
The respondent claimed that the petitioner's shareholders, MKJ Enterprises Ltd. and Keventer Capital Ltd., were engaged in competing businesses, which justified refusing the transfer of shares. The Tribunal examined the business activities of the petitioner's shareholders and found no sufficient evidence that they were engaged in competing businesses. It was noted that the petitioner itself was engaged in similar business activities at the time of the initial transfer of 254 shares, and no issues were raised then. The Tribunal concluded that the respondent failed to prove a conflict of interest that would justify refusing the transfer.

3. Deceptive and Mala Fide Transfer of Shares:
The respondent argued that the transfer was deceptive and mala fide, intending to take control of the respondent company. They highlighted the low profitability of the petitioner's investment and potential disruption to the respondent's management. The Tribunal found these arguments unsubstantiated, noting that the petitioner had not interfered with the respondent's operations despite holding a significant share (28.54%). The Tribunal also dismissed concerns about confidentiality and control, given the government’s majority shareholding (51.01%).

4. Reliefs and Costs:
The Tribunal directed the respondent to register the transfer of the 100 shares in the petitioner's name within one month and make suitable entries in the register of members. Each party was directed to bear its own costs.

Conclusion:
The Tribunal allowed the petition, finding no sufficient cause to refuse the transfer of shares under Section 58(4) of the Companies Act, 2013. The respondent's arguments on premature application, competing business, and deceptive transfer were rejected. The petitioner was entitled to have the shares registered in its name.

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