9911796707
TMI Blog1994 (8) TMI 207X X X X Extracts X X X X X X X X Extracts X X X X ..... e disposing of three sets of references made by respondent No. 2 company in accordance with clause (c ) of sub-section (4) of section 22A of Securities Contracts (Regulation) Act, 1956 ('SCRA'). The facts which gave rise to the passing of the order under challenge in these three petitions are required to be set out in detail to appreciate the grievance made by the petitioners. 3. The respondent No. 2 is a public limited company registered under the provisions of the Companies Act, 1956. The company undertakes con struction of high-tech projects and is managed by persons with technical knowledge and the industrial experience. The company has undertaken large number of projects which are of importance for the national economy. The authorised capital of the company is Rs. 50 crores divided into 5 crores shares of Rs. 10 each. The shares of the company are duly listed on the stock exchanges in India. In the year 1989, the holding of the shares was distributed as follows: Name of shareholder No. of shares Per cent of shares 1. Gammon family (including estate of late Mr. J.C. Gammon) 5,31,396 24.56 2. Non-residents (other than Gammon family) 40,712 1.88 3. NRI companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bhavi Investments Ltd., a shareholder of respondent No. 2 company, filed two applications before Company Law Board under sections 247 and 250 of the Companies Act. In the first application, it was claimed that large scale of shares in two blocks, 2,76,913 shares purchased by Chhabria Investments Ltd. and 2,42,112 shares lodged by Hong Kong & Shanghai Banking Corpn. for registration in the name of Hong Kong Bank (Agency) (P.) Ltd. were lodged with a view to reduce the control of respondent No. 2 company. Bhavi Investments Ltd. requested the Company Law Board to determine the true persons who were financially interested to takeover the control of the company. The applicants stated that Hong Kong Bank (Agency) (P.) Ltd. was not disclosing identity of the beneficiary and therefore requested to restrain the transfer and freezing the various rights of shares lodged and to be lodged by the unknown raider for a period of three years in terms of section 259 of the Companies Act. In the second application, Bhavi Investments Ltd. complained about cornering of 1,56,562 shares by satellite companies controlled by Chhabria. The satellite companies were Alaknanda Mfg. & Finance (P.) Ltd., Tezpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of transfer of any of its securities is lodged for the purpose of registration of such transfer, shall form an opinion in good faith and in case it decides not to register on the grounds mentioned in clauses (b) , (c) and (d ) of sub-section (3), it then shall make a reference to the Company Law Board and forward copies of such reference to the transferor and the transferee. Between 1-12-1988 and 30-12-1988, the Hong Kong Bank (Agency) (P.) Ltd. has lodged 2,42,112 shares with the respondent No. 2 company. The board of directors in the meeting held on 22-1-1989 decided to refuse registration and made reference to Company Law Board on 30-1-1989. The lodgement of the shares by Hong Kong Bank (Agency) (P.) Ltd. belongs to Group I. Alaknanda Mfg. & Finance (P.) Ltd., Tracstar Investments (P.) Ltd., Tezpore Tea Co. Ltd., Malleswara Finance & Investment Co. (P.) Ltd., Manswar Investments (P.) Ltd., Cruickshank & Co. Ltd., Tribtiss Investments Trust Ltd. and Maharashtra Distilleries Ltd. form Group II and had lodged shares for transfer with company between 30-1 -1989 and 20-8-1990. In respect of lodgement of shares by these companies of Group II, the decision to refuse registration wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the constitution of the board of directors and would have adversely affected the company and the public interest, is not correct. The learned counsel also submitted that the Company Law Board was in error in not permitting the petitioners to tender affidavits on 18-11-1991 to bring on record subsequent events only on the ground that the arguments were already concluded and the proceedings were adjourned for passing orders. 7. Shri Advocate General and Shri Rana on the other hand submitted that the challenge to the constitutional validity of clause (c) of sub-section (3) of section 22 A is without any substance. Shri Advocate General submitted that the Company Law Board has approved the decision of the board of directors on references made and the findings recorded by the Company Law Board are mere findings of fact and cannot be disturbed in exercise of writ j urisdiction. Shri Advocate General further submitted that even on merits the findings recorded by Company Law Board does not suffer from any infirmity. It was urged that the Company Law Board was perfectly justified in not taking affidavits which were tendered long after the arguments were over on record and even other wise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to register the transfer of any of its securities in the name of the transferee on any one or more of the following grounds and on no other ground, namely :- (a)that the instrument of transfer is not proper or has not been duly stamped and executed or that the certificate relating to the security has not been delivered to the company or that any other requirement under the law relating to registration of such transfer has not been complied with; (b)that the transfer of the security is in contravention of any law; (c)that the transfer of the security is likely to result in such change in the composition of the board of directors as would be prejudicial to the interests of the company or to the public interest; (d)that the transfer of the security is prohibited by any order of any court, Tribunal or other authority under any law for the time being in force. (4) A company shall, before the expiry of two months from the date on which the instrument of transfer of any of its securities is lodged with it for the purposes of registration of such transfer, not only form, in good faith, its opinion as to whether such registration ought not or ought to be refused on any of the grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) makes it clear that there is in-built guideline prescribed by the Parliament. The board of directors is required to examine whether the transfer is likely to result in change in composition of the Board and even if so, the transfer cannot be refused unless such change would be prejudicial to the interest of the company or to the public interest. It is, therefore, obvious that the Parliament did not confer unregulated powers on the board of directors but specified the cases where it is permissible to refuse transfer. Initially, it was open for the company to refuse to register the transfer without assigning any reason, but after the enactment of section 111, it is incumbent to give reasons for such refusal. The provision of section 111 applies to all the companies but after the enactment of section 22A, the transferability and registration of shares of company whose securities are listed on recognised stock exchanges are regulated only by the provisions of section 22A. The contention that undesirable and unregulated powers are conferred in the Board is not correct because the Parliament in its wisdom has provided that the decision of the board of directors is not final but in case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or registration of transfer stands rejected. In support of the submission, Shri Shah invited our attention to order dated 11-4-1972 passed by Member, Company Law Board in Appeal Nos. 6 to 16 of 1971. It is impossible to accede to the submission of the learned counsel that section 637 A empowers the Company Law Board to give any such direction while disposing of the appeal under sub-section (5) of section 111. Company Law Board while exercising powers of an appellate authority under sub-section (3) of section 111 cannot travel beyond the powers set out under sub-section (5) of section 111 and cannot issue direction under the guise of adjusting the equities. The plain reading of section 63 7A makes it clear that the powers conferred on the Company Law Board under the section cannot be imported while disposing of appeal under section 111. The mere fact that} the member of Company Law Board has passed such an order in year 1972 cannot justify the contention that the Company Law Board can pass equitable orders. The complaint of Shri Shah that the provision of section 22A should be struck down because of absence of provision to adjust the equities, is required to be turned down. It is ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies set up by Chhabria were trying to gather shares only with a view to gain control over the company. The detailed discussion in the order passed by the Company Law Board while exercising powers under sections 247 and 250 of the Companies Act and the discussion in the impugned order, leave no manner of doubt that the petitioners and Chhabria were clearly attempting to get the shares transferred with a view to change the composition of the board of directors. In our judgment, the decision of the board of directors on this count, and which is approved by the Company Law Board, cannot be faulted with. 15. Clause (c) of sub-section (3) of section 22A permits refusal of transfer of securities provided the change in the composition of the Board would be prejudicial to the interest of the company or public interest. The Company Law Board noticed that the facts of the case unmistakably establish that the change in the composition of Board would be detriment to the interest of the company as well as public interest. The Company Law Board into consideration the fact that the company is engaged in prestigious nation-building activities and is managed by technocrats of high-tech sophisticat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urged that the petitioners were desirous of an opportunity to bring subsequent events on record and refusal by the Company Law Board has caused prejudice to the petitioners. It is impossible to accede to the contention. The impugned order sets out that arguments were concluded on 9-8-1991, and the order was reserved for more than two months thereafter. On 18-11-1991, the petitioners had tried to file affidavits to claim that the refusal to register the shares was mala fide and made with collateral object. The Company Law Board points out that the petitioners had adequate opportunity to plead their case at the time of hearing held on number of days. The references were filed in the year 1989 and were heard from November 1990 onwards. The Company Law Board held that any further opportunity for hearing on merit was not necessary. We do not find any error on the part of the Company Law Board in declining to take the affidavits on record. Shri Shah invited our attention to the affidavit which was to be tendered before the Company Law Board. The affidavit nowhere recites that any new fact which was not known earlier had come to the light after the conclusion of the arguments. In paragra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e right to dividend, right shares and bonus shares should be kept in abeyance for a period of two months to enable the petitioners to approach the Supreme Court and in support of the submission, reliance is placed on section 206(1). We are unable to find any substance in the contention. The section comes into operation during the interregnum between the date of lodgement of application of transfer of shares and the date of registration. The section has no application whatsoever when the transfer is refused. There is one more factor which is required to be mentioned at this juncture. During the pendency of these petitions, the petitioners had taken out notice of motion for several interim reliefs and interim relief claimed in prayer (d) was that the petitioners should be allowed to sell the shares pending the hearing and final disposal of the petitions. This Court, by judgment dated 29-9- 1992 directed the petitioners to file application within 15 days of the judgment for return of the share certificates and the transfer forms. This Court passed the said order in view of the statement made by Shri Advocate General that the respondent No. 2 company has no objection to give such direc ..... 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