Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2018 Supreme(SC) 254

SUPREME COURT OF INDIA
Kurian Joseph, Mohan M. Shantanagoudar, JJ.
Mackintosh Burn Limited – Appellants
Versus
Sarkar and Chowdhury Enterprises Private Limited – Respondents
Civil Appeal Nos. 3322-3323 of 2018 (Arising out of S.L.P. (Civil) Nos.8204-8205 of 2018) (Diary No. 485 of 2018)
Decided On : 27-3-2018

Advocates Appeared:
For the Appellants :- Satish Kumar, Adv.
For the Respondents:- Ms. Bharti Tyagi, Adv.

IMPORTANT POINT
A public company may refuse registration of the transfer of securities for a sufficient cause. Conflict of interest in a given situation can also be a cause. However, it is for the Company law Board (now National Company Law Tribunal) to decide its sufficiency.

Headnote:Companies Act, 2013 – Section 58(2) and (4) – Shares freely transferable – However a public company may refuse registration of the transfer of securities for a sufficient cause – Such right to refuse a question of law – On the other hand sufficiency of cause shown for refusal can be a mixed question of law and fact – Conflict of interest in a given situation can also be a cause – However, it is for the Company law Board (now National Company Law Tribunal) to decide its sufficiency – Matter remitted to National Company Law Tribunal (Para 12, 17, 18)
       Facts of the case:
       The appellant is a public company with majority of shares held by the Government of West Bengal. The respondent, which is holder of 28.54 per cent of the shares purchased 100 shares, which together would make its holding 39.77 per cent, sought registration of the shares. Since, no orders were passed on the registration, the respondent approached the Company Law Board, Kolkata Bench, Kolkata. It was mainly contended by the appellant that the respondent Company is controlled by a competitor in business, and hence, it would not be in the interest of the Government Company to permit such transfer. The Company Law Board, however, rejected the contentions and directed registration
       The order passed by the Company Law Board in C.P. No. 151 of 2014 was challenged by the appellant before the High Court
       High Court by order dated 15.10.2015, dismissed the appeal.
       The Special Leave Petition thereagainst was permitted to be withdrawn with liberty to approach the High Court.
       The appellant filed an application to recall the judgment which was dismissed. The High Court took the view that the liberty granted to the appellant was to file a proper review and not to seek a fresh hearing by recalling the judgment.
       The present appeal is filed compositely challenging the orders dated 15.10.2015 and 15.09.2017.
       Finding of the Court:
       It is for the Company law Board (now National Company Law Tribunal) to decide sufficiency of cause of refusal to register transfer of securities.
       Result: Appeals disposed of. Matter remitted.

JUDGMENT

Kurian, J.

Delay condoned. Leave granted.

2. The appellant is a public company with majority of shares held by the Government of West Bengal. The respondent, which is holder of 28.54 per cent of the shares purchased 100 shares, which together would make its holding 39.77 per cent, sought registration of the shares. Since, no orders were passed on the registration, the respondent approached the Company Law Board, Kolkata Bench, Kolkata. It was mainly contended by the appellant that the respondent Company is controlled by a competitor in business, and hence, it would not be in the interest of the Government Company to permit such transfer. The Company Law Board, however, rejected the contentions and directed registration as per order dated 16.09.2015. The order, to the extent relevant, reads as follows:

"6. Having considered (sic) the Company Petition, reply, rejoinder and the arguments (oral and written), it is observed that the Respondent Company is a Government of West Bengal Undertaking wherein 51.01% of the total issued, subscribed and paid up share capital is held by the Government of West Bengal which correspondence to 454 equity shares of Rs. 3,500/- each. Besides, the Petitioner Company is a member of the Respondent Company being the registered shareholder of 254 equity shares of Rs. 3,500/- each. As stated in the Company Petition, on or about 02.07.2014, the Petitioner Company purchased additional 100 shares of and in the Respondent Company from one Shri Sankar Naik in physical mode and the Petitioner Company vide letter dated 02.04.2014, forwarded the original share certificates along with the transfer deeds duly signed, stamped and executed to the Respondent Company for registering the transfer of the said 100 shares in the name of the Petitioner Company. But, the said communication returned with the postal endorsement "refused" and hence, the Petitioner Company through its Advocate issued a notice dated 09.06.2014 calling upon the Respondent Company in the share register, which was responded to by the Respondent Company vide communication dated 16.06.2014. Thereafter, once again the Petitioner Company vide letter dated 02.07.2014, forwarded all the original share certificates together with the duly executed and stamped transfer deeds to the Respondent Company for effecting registration of the transfer in the name of Petitioner Company. Apart from this, the Petitioner Company followed up the matter by issue of reminder dated 25.08.2014 to the Respondent Company, but in vain. Consequently, legal notice dated 11.09.2014 was issued calling upon the Respondent Company to take immediate steps to register and record the name of the Petitioner Company as the registered owner in relation to the aforesaid 100 shares. In this regard, the Respondent Company has replied that the action of the Petitioner Company has been contrary to the SEBI Act as well Substantial Acquisition of Shares and Takeover Regulations. In addition, the Petitioner Company is controlled by M/s MKJ Group which is involved in similar business as the Respondent Company is carrying on and hence, the intention of the Petitioner Company to purchase 100 equity shares is to take over the control of the Respondent Company. It has also been mentioned that on 13.03.2014, the Petitioner Company had already made an application for the sale of its said 254 Shares to the Principal Secretary of Government of West Bengal, Public Enterprises Division as well as the Managing Director of the Respondent Company. In this context, the Petitioner Company Advocate has averred that the question of acquisition being violation of SEBI Act or Takeover Regulation is not applicable in the case of the Respondent Company as the shares of the Respondent Company are not listed. Not only this, the acquisition of 100 shares cannot and will not change the control of the Respondent Company even after registration of such transfer as the Company will continue to remain as a Government Comp

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2018 Supreme(SC) 254

IMPORTANT POINTA public company may refuse registration of the transfer of securities for a sufficient cause. Conflict of interest in a given situation can also be a cause. However, it is for the Company law Board (now National Company Law Tribunal) to decide its sufficiency.

IMPORTANT POINT
A public company may refuse registration of the transfer of securities for a sufficient cause. Conflict of interest in a given situation can also be a cause. However, it is for the Company law Board (now National Company Law Tribunal) to decide its sufficiency.