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TMI Blog2016 (4) TMI 176X X X X Extracts X X X X X X X X Extracts X X X X ..... UWB got transfered to and became the properties and assets of the appellant. On the same footing, all liabilities, duties and obligations of erstwhile UWB became the liabilities, duties and obligations of the appellant. As per paragraph 6(5) of the scheme of amalgamation, the appellant in partial satisfaction of the claim in respect of the interest in the shares of UWB, was to pay upfront a sum of Rs. 28/- in cash in respect of each fully paid up share of erstwhile UWB to the members of the erstwhile UWB. During the course of doing due diligence after the prescribed date, it is the case of the appellant, it came to their notice that the erstwhile UWB had entered into an Articles of Agreement on 26.11.2002 with one Ashish Shivprakash Makharia who represented the other members and associate enterprises of the Makharia group under which the erstwhile UWB had a pre-emption right in respect of transfer of any share held by Makharias in UWB as and when they desired to dispose of any of their investments in the said shares. Such shares were to be offered to the nominees of erstwhile UWB and if they were not accepted by the nominees of the bank, then the said Makharias were entitled to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer of shares within two months from the date on which the instrument of transfer or the intimation of transfer, as the case may be, is delivered to the company, the transferee may appeal to the [Tribunal] and it shall direct such company to register the transfer of shares] (3) The [Tribunal] may, on an application made by a depository, company, participant or investor or the Securities and Exchange Board of India, if the transfer of shares or debentures is in contravention of any of the provisions of the Securities and Exchange Board of India Act, 1992 (15 of 1992) or regulations made thereunder or the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) or any other law for the time being in force, within two months from the date of transfer of any shares or debentures held by a depository or from the date on which the instrument of transfer or intimation of the transmission was delivered to the company, as the case may be, after such inquiry as it thinks fit, direct any depository or company to rectify its register or records ] (4) to (7)..........." 4 Therefore, this section applies only to a company which is not a private company. In other words, to a pub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... msad Investments Ltd. Vs. Nile Ltd. & Ors. to submit that sub-section 2 and sub-section 3 of section 111A should be read together and violation of statutory law is not the only infirmity in the matter of acquisition of shares and even contravention of some existing contractual obligations attached to the shares should be included under "or any other law". I am afraid this judgment has no application at all to the facts of the present case. In that case the subject matter was under Section 111A(2). The counsel for the appellant in that case had argued that the expression "sufficient cause" used in Section 111A(2) should be understood only in the light of the three grounds enumerated under sub-section (3) of section 111A of the Act, which authorized the Company Law Board to direct any depository or a company to rectify its registers or records and the company cannot refuse to register the transfer of shares on any other ground whatsoever. The court dis-agreed with the counsel for the appellant and held that sub-section 2 of section 111A is very broadly worded as compared to sub-section 3 of Section 111A. The court held that the expression used in sub-section-2 was "sufficient cause" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nothing done in contravention of law shall be permitted to subsist. The scope of the power under Sub-section (3) conferred on the Company Law Board is limited only to the acquisition of shares in contravention of law, but violation of statutory law is not the only infirmity in the matter of acquisition of shares. In a given case, shares could be acquired or transferred by a person in contravention of some existing contractual obligations of the transferor or some other obligation attached to those shares. The legal position in the case of such contravention of contractual obligations is discussed in Palmer's Company Law, 24th edition, at page 637 at para. 40-34 : "If the shares have been acquired by means of a loan which requires payment of the debt out of specific property including those shares, such a contract is enforceable by a grant of specific performance and creates an equitable interest in the shares in favour of the lender. A subsequent equitable mortgagee of the shares, who proposes to deal with the shares in such a way as to cause a breach of that contract will be restrained by injunction if he acquired them with actual knowledge of the contract." 47.1 This po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 111A(3) cannot be accepted. The facts and situation are therefore, totally different from the present case. 7 Moreover, section 111 A (2) and section A (3) arise in two different situations. Under sub section 2, the situation arises before the shares are transferred and in sub section 3, it is after the shares are transferred. The expression sufficient cause is far wider than the expression "in contravention of any of the provisions of the Securities and Exchange Board of India Act, 1992 or regulations made thereunder or the Sick Industrial Companies (Special Provisions) Act, 1985 or any other law for the time being in force." Obviously, the Parliament thought it fit in situation after the shares are transferred to authorize the Company Law Board to look into the complaints, to direct any depository or company to rectify its register or records only if the transfer of shares or debentures was in contravention of any law. Per contra, under sub section 2, in every situation a company has to register transfer of shares as the shares are freely transferable except where the company proves that it has sufficient cause to refuse to register. This expression "sufficient caus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the facts and circumstances of the case. There also the issue was of free transferability of shares and right of preemption. The court held that section 111A is not a provision to curtail the rights of the shareholders to enter into consensual arrangement with the purchaser of their specific shares and as such right to enter into consensual arrangement must prevail so long as it is in conformity with the terms of Articles of Association and other provisions of the Act and the Rules. The court went on to further hold that section 111A(2) is the provision mandating the Board of Directors of the company to transfer shares in the name of the transferee subject to the stipulation in section 111A(2) of the Act. The expression "freely transferable" therein is in the context of the mandate against the Board of Directors to register the transfer of specified shares of the members in the name of the transferee, unless there is sufficient cause for not doing so. The court held that concept of free transferability of the shares of a public company is not affected in any manner if the shareholder expresses his willingness to sell the shares held by him to another party with right of first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal thereunder. Section 10F defines the parameters of inquisition by the appellate forum depending on the nature of the order impugned and the nature of the type of the order under scrutiny. When a question of law is neither raised nor considered by the appellate forum, it would not be a question arising out of its order notwithstanding that it may arise on the findings given. Only a question that has been raised before or decided by the Tribunal that could be held to arise out of this order. 2016(1) SCC 237) ( See : Purnima Manthena & Anr. Vs. Renuka Datla & Ors.). Therefore, this point is also a non-issue. 14 The fact laid before the CLB was not an application simplicitor to hold an inquiry as it deems fit to find out whether there has been a contravention of any law for the time being in force and direct any company to rectify its register or record. The question that was required first to be established was whether :- (a) The respondents 1 to 3 and 8 to 11 had any obligations to the erstwhile UWB ; (b) Whether the respondents have committed a breach of those obligations ; and if answer to these two issues are in the affirmative ; (c) Whether that would amount to contravent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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