9911796707
TMI Blog1998 (7) TMI 505X X X X Extracts X X X X X X X X Extracts X X X X ..... Ms. Bindu Saxena, Ms. Leena George, K. Ram Kumar, Ms. Asha G. Nair, C. Balasubramanian, Y. Subba Rao, Ms. Santi Narayan, Dinesh Mathur, S. Ganesh, K.J. Desai and E.M.S. Anam for the Appearing parties. JUDGMENT Kirpal, J.--These appeals by special leave arise from the common order of the CLB (respondent No. 1) which had partly upheld the decision of Bajaj Tempo Ltd. (respondent No. 2) in declining to register the transfer of its shares in favour of Bajaj Auto Ltd. which had been purchased by the appellants. These are essentially two groups of shareholders which control these companies. While 'Bajaj Group' has the control of the appellant it is 'Firodia Group' which controls Bajaj Tempo Ltd. 2. Bajaj Auto Ltd. (appellant in Civil Appeal No. 3480 of 1986) is the holding company of Bajaj Auto Holdings Ltd. (appellant in C.A. Nos. 3480 of 1986 & 3420-79 of 1986) and they, along with other individuals who were members of their group (all of whom are appellants in these appeals) are existing shareholders of Bajaj Tempo Ltd. which is a public Ltd. Co. Bajaj Auto Ltd. purchased 50 shares of Bajaj Tempo Ltd. and Bajaj Auto Holdings Ltd. purchased 13150 shares of the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 the Board has decided that it will not give its approval to the transfer of the following shares. The transfer forms and share certificates are being returned under a separate cover." [Emphasis supplied] 3. It is for the same reason as above that the other transfers were declined by the Resolutions dated 27-9-1983 and 19-11-1983. 4. Appeals were then filed by the appellants under section 111 of the Companies Act, 1956 ('the Act') before the CLB. On the basis of the pleadings before it and the submissions of the counsels for the parties, the CLB formulated the following five issues for its consideration: "1.Whether the appellants and the respondents are rivals in business? 2.Whether the purchases of impugned shares were bona fide invest-ments? 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 shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o get inter-connected with the appellants, in the event of impugned transfer of shares being allowed, was not baseless or ill-found. 8. Assailing the aforesaid decision of the CLB, Shri Shanti Bhushan and Shri Harish Salve the learned Counsels for the appellants submitted that the power of the directors to refuse transfer is by way of an exception to the rule that the share transfer should generally be accepted by a listed company. Impugning the findings in connection with Issue Nos. 2 & 4 of the CLB, it was contended that the conclusion of the Board that the return by way of dividend on the shares was very low is not the only relevant factor in order to determine whether the purchase of shares was by way of investment. An important factor which has been ignored by the Board was that capital appreciation was more than ample to offset the low dividend return. It was submitted that refusal to transfer was not in the interest of the company and the non-transfer by the Firodia Group, which controls Bajaj Tempo, was with a view to protect that group's personal interest. It was also submitted that even if the transfers were allowed the shareholding of the appellants would be below 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hased by the Firodia Group. The board of directors of Bajaj Auto Ltd. refused to register the transfers, inter alia, stating that N.K. Firodia and his representatives had acted against the interest of the company and that it was in the interest of Bajaj Auto to refuse the transfer. The CLB directed Bajaj Auto to register the transfer which led to the filing of the appeal in this Court. Bajaj Auto had placed reliance on its Article 52 of the Articles of Association, which was identical to article 52 of Bajaj Tempo, and it contended that it gave the directors absolute and uncon-trolled discretion to decline to register any transfer of shares. Dealing with the question relating to the discretion of the directors, it was observed at page 554 as follows: "Article 52 of the appellant company provided that the Director might at their absolute and uncontrolled discretion decline to register any transfer of shares. Discretion does not mean a bare affirmation or negation of a proposal. Discretion implies just and proper consideration of the proposal in the facts and circumstances of the case. In the exercise of that discretion the Directors will act for the paramount interest of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve is corrupt because the Bajaj Group acted for their personal interest and not in the bona fide general interest of the company". Dealing with the third reason, it was observed as follows: "The third reason given by the appellant company was that the shares were being acquired by the Firodia group not with a view of bona fide investment but with a mala fide purpose and evil design of obstructing the business of the appellant company. Acquisition or transfer of shares under the articles of the present case does not suffer from any restrictive impediment like promotion or personal objections to the transferees. There is no evidence that the transferees belonged to a rival concern. Equally, there is no evidence that the Firodia Group ever obstructed in the Management of the Company. On the contrary, the Firodia group advanced large sums of money. Firodia was largely responsible for the gradual growth of the appellant company and for the prosperity of the company. It was therefore an abuse of the fiduciary power of the Directors to refuse to register transfer of shares." In the end, this Court noted that the refusal to register the shares was a sequel to the terminati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be determined, keeping in mind the principles enunciated by this Court in Bajaj Tempo Ltd. 's case (supra) is whether the board of directors had acted in the interest of the respondent-company. 14. As we see if the power of the board of directors to refuse registration of transfer of shares must be in the interest of the company and the general body of shareholders. No doubt in the year, 1983, section 82 of the Act provided that the shares or other interest of any member in the company shall be movable property, transferable in the manner provided by the articles of the company. Article 52 sought to give absolute and uncontrolled discretion to the board of directors to decline to register or acknowledge any transfer of shares. Even then as already held in Bajaj Tempo Ltd's case (supra), the Board has to act bona fide, and not arbitrarily and for the benefit of the company as a whole. In the case of a public Ltd. company which is listed with Stock Exchange, an important right of shareholder is to be able to sell his shares at a favourable price. It is seldom in the interest of the general body of shareholders that transfer of shares be refused because that will have an adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res and appeared to be lacking in bona fide. In our opinion, this was not a correct approach. Merely because the appellants wanted to increase the shareholding cannot by itself be a ground in law for refusing to transfer the shares. Realising this in the resolution of the board of directors it was alleged that the purchase was not by way of genuine investment but was made with ulterior/oblique motives and with a view to destabilise the management of the company. There is nothing placed on the record which can possibly persuade anyone to come to the conclusion that the intention of the purchase of shares by the appellants was with a view to destabilise the management of the company or with an ulterior/oblique motive. Prima facie it appears to us that even if it is assuming that the appellants were trying to purchase shares with a view to get a controlling interest in the company that itself cannot be a ground for refusing to transfer the shares unless and until it can be shown that the purchasers were undesirable persons and after gaining control of the company they will act against the company and the shareholders interest. In the instant case the appellants would not even have 25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that even if the purchase of the shares was registered, the total percentage of the holding of the appellants group would be short of 25 per cent. The existing shareholding, at that time, was 23.232 per cent had the transfer of shares been registered then, according to the figures supplied by Mr. Nariman at the time of hearing, the percentage of the holding of the appellants group would have risen to only 23.408 per cent. The learned counsels for the appellants are right in contending that if fear of the inter-connection was the real reason in refusing to register the transfer then such a reason could not exist at that moment because even with the registration of the transfer the total mark of 25 per cent would not be reached. We are in agreement with the appellants' submission and are of the opinion that if the number of shares which were purchased had been such that the total mark of 25 per cent could be reached then the action of the board of directors could not have been faulted. But with the registration of the transfer of shares in question that danger mark would not have been reached. We are unable to accept as correct the appellants contention that because the tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the appellants inter-connected with Bajaj Tempo Ltd. The CLB was therefore, wrong in rejecting a contention of the appellants that the apprehension of the respondent-company that it was likely to get inter-connected with the appellants in the event of the impugned transfer of shares being allowed was baseless and/or ill- founded. 21. In order to see whether the board of directors had acted in furtherance of a personal interest or in the interest of company, the resolution dated 29-8-1983 should be read as a whole. It is apparent that being aware of the state of law, every possible reason was stated in this resolution which could justify the directors in refusing to register a transfer. Of the four reasons given by the Board, two of them were rejected by the CLB, namely that the appellants were competitors of Bajaj Tempo Ltd. and that the transferees were not desirable persons from the larger point of view of interest of Bajaj Tempo Ltd. There is also nothing on record to show that the purchase of shares by the appellants was with ulterior/oblique motives and purposes and with a view to destabilise the management of the company. Lastly, we find that the acquisition in question ..... X X X X Extracts X X X X X X X X Extracts X X X X
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