TMI Blog2018 (3) TMI 1707X X X X Extracts X X X X X X X X Extracts X X X X ..... titor - Held that:- There is nothing on record to suggest that there has been any instance which goes to show that, the petitioner-company as a competitor has derived benefits which were otherwise, to be enjoyed by the first respondent-company - a perusal of copy of the articles of association placed in the typed set filed with the petition reveals that article 23A stood deleted from the time when the first respondent-company became the deemed public company, and the respondents have also admitted that the first respondent-company is a public company. Therefore, the reliance on article 23A which is not the part of the articles of the first respondent is misconceived and the said ground taken by the respondents' stands rejected. There can be various reasons which may constitute "sufficient cause" for refusal of the registration of the transfer of shares in a public company. In other words, every case is to be seen in the light of its facts and circumstances in order to determine whether reasons on the basis of which the registration has been refused are constituting "sufficient cause" or not. Thus, the discretion of the directors is to be tested as the opinion on fair and sensibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cribed and paid-up was ₹ 1,05,90,000 having 1,05,900 equity shares of ₹ 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 ₹ 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 ₹ 12,50,000 as consideration towards the said transfer. The petitioner had lodged the said transfer on September 1, 2016 with the board of directors of the first respondent-company to register the transfer of the shares. However, the first respondent-company sent a reply dated September 28, 2016 stating therein that the form is not complete due to non-payment of ₹ 2 as fees as set out in article 27 of the articles of association of the first respondent, and the memorandum and articles of association of the petitioner-company has not been submitted. However, the petitioner vide letter dated September 30, 2016 resubmitted the said form along with the sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is a competitor and that by acquiring the shares in question of the first respondent-company, it would do a hostile takeover of the first respondent-company. Based on these submission, the petitioner prayed to direct the rectification of the register of members of the first respondent-company in respect of 25 equity shares of ₹ 10 each in the first respondent-company bearing distinctive numbers 1396 to 1420 by registering transfer of shares from the tenth respondent to the petitioner. 7. The reply has been filed on behalf of the first respondent-company wherein the allegation levelled in the petition has been denied. It has been submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquiring 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 character of the family owned company. It has been stated in the reply that the directors of the first respondent-company exercised their fiduciary powers to protect the interests of the first respondent-company and allowing a competitor to become a shareholder of the first respondent-company will amount to abuse of the fiduciary duties. Based on this, it has been prayed that the petition be dismissed as the petitioner has no cause of action for filing the present petition. However, it has not been denied that the first respondent-company is a public limited company. 12. The petitioner has filed the rejoinder wherein the allegat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 ₹ 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 contention of the first respondent-company stands rejected. 18. The second ground taken for rejection of the registration of the transfer of shares in favour of the petitioner is that the petitioner-company is running the same business and is a competitor. There is nothing on record to suggest that there has been any instance which goes to show that, the petitioner-company as a competitor has derived benefits which were otherwise, to be enjoyed by the first respondent-company. 19. The petitioner as well as the respondents have levelled similar allegations against each other, i.e., impinging upon their business s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticles. 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 but there can also be other circumstances and reasons which might require the company to refuse to register the transfer of shares, i.e., breach of certain existing contractual obligations of the company which may be exposing the company to action in law. In short, the court has held that while there could be various reasons which could constitute sufficient cause , it would not be possible to enumerate all of them and should instead be decided on the facts of each case. 24. From the above, it becomes clear that there can be various reasons which may constitute sufficient cause for refusal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing 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. Bajaj Auto Ltd. [2010] 154 Comp Cas 593 (Bom) wherein a pre-emption clause in a shareholders' agreement was held to be in violation of section 111A of the 1956 Act. But the apex court while delivering its judgment in Messer Holdings Ltd. v. Shyam Madanmohan Ruia [2010] 159 Comp Cas 29 (Bom) not only refused to answer the questions of law posed before it, but also criticized the parties for unreasonably taking up valuable time of the court. Thus, the issue of free transferability of shares in public companies remained unsettled. Thus, unless a sufficient cause is shown for restricting ..... X X X X Extracts X X X X X X X X Extracts X X X X
|