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TMI Blog2018 (3) TMI 1707X X X X Extracts X X X X X X X X Extracts X X X X ..... limited company by virtue of section 43A of the Companies Act, 1956. Again, the name of the company underwent change on September 15, 2008 and presently its name is "M/s. Synthite Industries Ltd.". The first respondent-company is mainly engaged in the business of manufacture and export of Oleoresins. 2. The present registered office of the first respondent-company is situated at Kadayiruppu, Kolenchery, Ernakulam, Kerala. The present board of directors of the first respondent-company is comprising of 8 members. The authorised share capital of the first respondent-company as on March 31, 2016 was Rs. 25,00,00,000 having 25,00,000 equity shares of Rs. 100 each. The issued, subscribed and paid-up was Rs. 1,05,90,000 having 1,05,900 equity shares of Rs. 100 each, out of which 52,950 shares have been issued as bonus shares. 3. The petitioner claims that the tenth respondent, viz., Beena George has transferred 25 equity shares of Rs. 10 each in the first respondent-company bearing distinctive numbers 1396 to 1420 in favour of the petitioner on September 1, 2016. The share transfer forms were executed both by the petitioner as well as the tenth respondent. The petitioner paid a sum of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... became a deemed public company. The petitioner further states that the other reason stated for refusing transfer of shares is based on article 24(2) which provides a ground that the petitioner-company is a competitor of the first respondent-company and the purchase of shares is not desirable and is not in the interest of the first respondent-company. The petitioner has submitted that mere fact that the petitioner is engaged in the same business cannot be the basis for the board of the first respondent-company to come to any conclusion as to the undesirability of the petitioner as a shareholder and the transfer of shares of a public company such as the first respondent-company are freely transferable. The petitioner submits that the reasons set out by the board of the first respondent-company are not legitimate. The directors acted on a wrong principle and for the oblique motive of obtaining the entire control of the company which amounts to an arbitrary exercise, coupled with collateral purpose and corrupt motive. 6. It has specifically been asserted by the petitioner that there are no basis to refuse registration of transfer of shares on the pretext that the petitioner-company i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Mr. C. J. George has been continuously impinging upon the respondent-company's business secrets, poaching the key employees for technology upgrades and getting the customers by undercutting the price and creating unhealthy competition and fall in profits causing long standing injury to the business of the first respondent-company. 11. It has been stated in the reply filed on behalf of the first respondent-company that Mr. C. J. George and his family is to increase their shareholding in the first respondent-company through their group companies including the petitioner with the ultimate objective of hostile takeover, besides acquiring the business secrets of the first respondent-company in order to use the same for their group companies which are engaged in competing business of the first respondent-company, whereas, the shareholding pattern of the first respondent-company goes to show that all the shareholders of the first respondent-company are closely related to one another, and the present attempt on the part of the objecting shareholders to introduce their group companies, which are competitors, as shareholders in the first respondent-company, the same will take away the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny to register the transfer of shares in question. 15. It appears from the pleading of the parties that the first respondent-company refused to register the transfer of shares in the name of the petitioner on the following grounds : (a) That the petitioner intends to increase the shareholding in the first respondent-company through its group companies with ultimate objective of hostile takeover. (b) The petitioner-company is engaged in the same business and is a competitor. 16. The issue that arose is as to whether the board of directors of the first respondent-company has refused the registration of the transfer of shares in the name of the petitioner on the basis of "sufficient cause" as has been provided under sub-section (4) of section 58 of the Companies Act, 2013. 17. It is an admitted fact that the petitioner has purchased 25 equity shares of Rs. 10 each from the tenth respondent which constitutes 0.02 per cent. of the overall shareholding of the first respondent-company. By acquiring such fraction of shares by the petitioner in the first respondent-company, there are no chances of hostile takeover of the first respondent-company by the petitioner. Therefore, this con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . reported in [2002] 108 Comp Cas 306 (CLB), wherein the Company Law Board held that in case of a public company, the term "sufficient cause" would cover only three grounds as specified in section 111A(3), viz., if the transfer is in contravention of the provisions of the Securities and Exchange Board of India Act, 1992 or Regulations made therein, the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 or any other law in force for the time being. In other words, a public company cannot refuse registration on any other ground including non-compliance with the provisions of the articles. In Estate Investment Co. P. Ltd. v. Siltap Chemicals Ltd. reported in [1999] 96 Comp Cas 217 (CLB), the Company Law Board has categorically stated that "refusal on any other ground in respect of a public company cannot be considered to be 'sufficient cause' for such refusal". 23. However, in Karamsad Investments Ltd. v. Nile Ltd. reported in [2001] 34 SCL 269 (AP) ; [2002] 108 Comp Cas 58 (AP), the hon'ble Justice J. Chelameswar, has observed that the expression "sufficient cause" takes within its sweep not only those contingencies contemplated to undo a transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chase and, every share holder, the freedom to transfer... The principle of free transferability much be given a broad dimension in order to fulfil the object of the law. Imposing restrictions on the principle of free transferability, is a legislative function, simply because the postulate of free transferability was enunciated as a matter of legislative policy when Parliament introduced section 111A into the Companies Act, 1956. That is a binding precept which governs the discourse on transferability of shares. The word 'transferable' is of the widest possible import and Parliament by using the expression 'freely transferable', has rein forced the legislative intent of allowing transfers of shares of public companies in a free and efficient domain." 26. However, a Division Bench of the Bombay High Court in Messer Holdings Ltd. v. Shyam Madanmohan Ruia [2010] 159 Comp Cas 29 (Bom), has laid down that restrictions expressed in an agreement between shareholders do not violate of the 1956 Act and that they can be enforced inter se among shareholders. In doing so, the court diverged from the ruling of a single judge in Western Maharashtra Development Corporation Ltd. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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