Full Judgment Text
REPORTABLE
SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 3322-3323 OF 2018
(Arising out of S.L.P. (Civil) Nos.8204-8205 of 2018)
(Diary No. 485 of 2018)
MACKINTOSH BURN LIMITED ... APPELLANT (S)
VERSUS
SARKAR AND CHOWDHURY ENTERPRISES
PRIVATE LIMITED ... RESPONDENT (S)
J U D G M E N T
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
Signature Not Verified
registration, the respondent approached the Company Law Board,
Digitally signed by
MAHABIR SINGH
Date: 2018.03.27
17:46:30 IST
Reason:
Kolkata Bench, Kolkata. It was mainly contended by the appellant
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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
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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
Company. It is also irrelevant in the present context
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as the Petitioner Company is controlled by MKJ
Group or that the business of the Respondent
Company and the MKJ Group are similar.
6.1 Under the aforesaid facts and circumstances, it
is undoubtedly clear that the Respondent Company
received the share transfer deeds along with the
original share certificates for registration of the
transfer in favour of the Petitioner Company who is
already the second largest shareholder in the
Respondent Company. On one side, the Respondent
Advocate has made the submission that on
13.03.2014, the Petitioner Company had made an
application for sale of its 254 shares to the Principal
Secretary of Government of West Bengal, Public
Enterprises Division as well as the Managing Director
of the Respondent Company, on the other side,
doubt has been raised over the intention of the
Petitioner Company that the purported purchase of
100 equity shares is to take over the control of the
Respondent Company. Over and above, the plea has
been taken by the Respondent Company Advocate
that the Petitioner Company is controlled by M/s MKJ
Group and the business of the Respondent Company
and MKJ Group are similar, whereas the Government
of West Bengal is singly owing 51.01% of the paid up
capital of the Company and thereby, the MKJ Group
cannot acquire the control of the Respondent
Company. As a matter of fact, even if the purchase
of additional 100 shares by the Petitioner Company
is taken into consideration, the total shareholding of
the Petitioner Company will be 39.77% only. Besides,
Article 44 of the Article of Association of the
Respondent Company gives the authority to the
Board to decline the transfer of shares and when
such shares are not fully paid up. In the present
case, there is no lien on any share of the Petitioner
Company and also, the shares are fully paid up.
Thus, there seems to be no impediment in transfer
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of shares and hence, the Petitioner Company has the
right to get the shares transferred in its name.
6.2 IN view of the legal position stated supra, I
am of the considered opinion that the conditions
specified in the concerned Article 44 regarding
transfer of shares have been duly filled by the
Petitioner Company and the registration of transfer
cannot be refused arbitrarily and the reason for
non-registration of transfer in favour of the Petitioner
Company on the suspicion of acquisition of control
by the Petitioner Company over the Respondent
Company is baseless and unfounded. Therefore, in
the interest of justice, I hereby direct the
Respondent Company to register the transfer of
impugned 100 shares in the name of the Petitioner
Company within 10 days of the receipt of this Order
and also, to make suitable entries in the register of
members thereafter.”
3. The order passed by the Company Law Board in C.P. No.
151 of 2014 was challenged by the appellant before the High
Court of Calcutta under Section 10F of the Companies Act, 1956.
In the Memorandum of Appeal, the following questions of law
were raised:
“XXV. FOR THAT following substantial questions of
law arise for consideration and determination by
this Hon’ble Court:
a. Whether the Learned Company Law Board was
to first consider whether the Appeal has been
filed within the time prescribed by Section 58
(4) of the Companies Act, 2013 which is
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condition precedent to assuming jurisdiction to
entertain the Appeal and should have refused to
entertain the Appeal?
b. Whether it was the inherent duty and
incumbent upon the Learned Company Law
Board to consider the question of as to whether
the Appeal had been filed within the time
prescribed under Section 58 (4) of the
Companies Act, 2013 and to reject the Appeal?
c. Whether the Learned Company Law Board
should have held that in any event the
application for recording of transfer of shares
nd
made on 2 April, 2014 was refused/rejected by
the letter dated 16.06.2014 served on the
respondent same day and the appeal not having
th
been filed within 60 days from 16 June, 2014
was barred under Section 58 (4) of Companies
Act, 2013.
d. Whether the Learned Company Law Board
should have held in view of the respondents
th
case in their Advocates letter dated 9 June,
nd
2014 that registration was refused on 2 April,
th
2014 the appeal filed on 29 September, 2014
was beyond the time fixed under Section 58 (4)
of the Companies Act, 1956 and was not
entertainable?
e. Whether the learned Company Law Board can
direct rectification of the share register in favour
of an applicant when the applicant is controlled
by Company which is a competitor in similar
business of the Company?
f. Whether the learned Company Law Board ought
to have considered that MKJ Group would have
access to the appellant and its trade secrets
and tenders submitted and policy decision of
the petitioner and act contrary to the interest of
the appellant and the public at large?
g. Whether the learned Company Law Board can
direct rectification of share registration within
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10 days from the receipt of the impugned order
without there being a valid good reason?
h. Whether on the notification of the Companies
Act, 2013 the Company Law Board is entitled to
give effect to the repealed provision of the
Companies Act 1956?
i. Whether the learned Company Law Board can
pass an order without considering the
submissions and arguments of a party in its
entirety?
j. Whether the learned Company Law Board can
pass an order without taking into consideration
the contention of the appellant by passing an
urreasoned order?
k. Whether the provision of the Companies Act,
2013 with relation of the time period fixed in
Section 58 and 59 are mandatory?
l. Whether in view of the notification of Section 58
and 59 of the Companies Act 2013, the Learned
Company Law Board had jurisdiction to
adjudicate an application there under in view of
the said provision only providing jurisdiction to
the Tribunal?”
4. The High Court by order dated 15.10.2015, dismissed the
appeal. The Court took the view that since the appeal filed by the
respondent before the Company Law Board under Section 58/59
of the Companies Act, 2013 was liable to be admitted and
considered even beyond the period of limitation, there was no
other question of law taken in the appeal. To quote the relevant
portion:
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“The Court : The only question of Law ought
to be urged in the proposed appeal is as to
whether the Company Law Board lacked authority
in receiving the petition under Section 58 of the
Companies Act, 2013 beyond the period envisaged
in sub-section (4) thereof.”
5. The order dated 15.10.2015 passed by the High Court was
challenged in Special Leave Petition (Civil) No. 35029 of 2015 by
the appellant. The Special Leave Petition was permitted to be
withdrawn with liberty to approach the High Court. The said order
dated 04.01.2016 reads as follows:
“The learned counsel for the petitioner seeks
permission to withdraw the special leave petition
with liberty to approach the High Court. Permission
is granted with the above liberty. Accordingly, the
special leave petition is dismissed as withdrawn.
We make it clear that we have not considered the
special leave petition on merits.”
6. It appears the appellant filed an application to recall the
judgment. The same was dismissed by order dated 08.08.2016.
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 dated 15.10.2015. To quote:
“The Court: The basis of the present
application appears to be an order passed by the
Hon’ble Supreme Court on 4th January, 2016
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preferred against the order passed by a
Coordinate Bench on 15th October, 2015. It
appears from the order of the Hon’ble Supreme
Court that the petitioner prayed for withdrawal of
the special leave petition with liberty to approach
the High Court. The Hon’ble Supreme Court
granted the said liberty. This application has been
filed with a prayer for de novo and or fresh
consideration of the order dated 15th October,
2015 on a specious plea that the coordinate bench
did not consider important questions of law while
dismissing the 10F appeal. The petitioner in effect
seeks a review of the order passed by a
Coordinate Bench. The application is also not
accompanied by a memorandum of review. The
application is not in form. The petitioner has also
not approached the Coordinate Bench seeking
review of the order.
Under such circumstances, this application
stands dismissed. However, there shall be no order
as to costs.”
7. The appellant challenged the said order dated 08.08.2016
before this Court.
8. By order dated 11.11.2016, it was clarified that it would
be open to the appellant to file a proper review. Accordingly, the
appellant filed a review before the High Court. The said review
petition was dismissed by the High Court holding that there was
no mistake capable of correction in review and that the correction
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could be done only by a superior forum. The order dated
15.09.2017 of the High Court reads as follows:
“The Court :- The grounds cited for seeking
reconsideration of the order dated October 15,
2015 have more to do with the merits of the
original appeal under Section 10F of the
Companies Act, 1956 than what is evident from
the relevant order. Not every mistake is capable of
correction in a review. A mistake of law or in the
appreciation of facts may be made, but the same
would be amenable to correction by a superior
forum and not by way of a review.
Since no grounds of review are made out,
RVW No.59 of 2016 is dismissed without going into
the merits of the grounds urged.
There will be no order as to costs.”
9. The present appeal is filed compositely challenging the
orders dated 15.10.2015 and 15.09.2017.
10. We have extensively heard Shri C. Aryama Sundram,
learned Senior Counsel appearing for the appellant and Shri
Shyam Divan, learned Senior Counsel appearing for the
respondent.
11. Refusal of registration of the transfer of shares and the
appellate remedy are provided under Section 58 of the
Companies Act, 2013. This provision had come into force at the
relevant time. The Section reads as follows:
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“ 58. Refusal of registration and appeal
against refusal. -( 1 ) If a private company limited
by shares refuses, whether in pursuance of any
power of the company under its articles or
otherwise, to register the transfer of, or the
transmission by operation of law of the right to,
any securities or interest of a member in the
company, it shall within a period of thirty days
from the date on which the instrument of transfer,
or the intimation of such transmission, as the case
may be, was delivered to the company, send
notice of the refusal to the transferor and the
transferee or to the person giving intimation of
such transmission, as the case may be, giving
reasons for such refusal.
( 2 ) Without prejudice to sub-section ( 1 ), the
securities or other interest of any member in a
public company shall be freely transferable:
Provided that any contract or arrangement
between two or more persons in respect of
transfer of securities shall be enforceable as a
contract.
( 3 ) The transferee may appeal to the Tribunal
against the refusal within a period of thirty days
from the date of receipt of the notice or in case no
notice has been sent by the company, within a
period of sixty days from the date on which the
instrument of transfer or the intimation of
transmission, as the case may be, was delivered to
the company.
( 4) If a public company without sufficient
cause refuses to register the transfer of securities
within a period of thirty days from the date on
which the instrument of transfer or the intimation
of transmission, as the case may be, is delivered
to the company, the transferee may, within a
period of sixty days of such refusal or where no
intimation has been received from the company,
within ninety days of the delivery of the
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instrument of transfer or intimation of
transmission, appeal to the Tribunal.
( 5 ) The Tribunal, while dealing with an appeal
made under sub-section ( 3 ) or sub-section ( 4 ),
may, after hearing the parties, either dismiss the
appeal, or by order—
(a) direct that the transfer or transmission
shall be registered by the company and
the company shall comply with such
order within a period of ten days of the
receipt of the order; or
(b) direct rectification of the register and
also direct the company to pay
damages, if any, sustained by any party
aggrieved.
( 6 ) If a person contravenes the order of the
Tribunal under this section, he shall be punishable
with imprisonment for a term which shall not be
less than one year but which may extend to three
years and with fine which shall not be less than
one lakh rupees but which may extend to five lakh
rupees.”
(Emphasis supplied)
12. Under Section 58(2) of the Companies Act, 2013, the
securities or interest of any member in a public company are
freely transferable. However, under Section 58 (4), it is open to
the public company to refuse registration of the transfer of the
securities for a sufficient cause. To that extent, Section 58 (4) has
to be read as a limited restriction on the free transfer permitted
under Section 58 (2). Section 10F of the Companies Act, 1956,
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provides that an appeal against an order passed by the Company
Law Board can be filed before the High Court on questions of law.
Right to refuse registration of transfer on sufficient cause is a
question of law and whether the cause shown for refusal is
sufficient or not in a given case, can be a mixed question of law
and fact.
13. In the instant case, there is no resolution passed by the
company refusing to register the transfer of shares. Since the
Company Law Board has gone into the contentions by the
appellant for refusing to register transfer for all purposes, it has to
be taken that those contentions are the grounds taken by the
appellant for refusing to transfer the shares.
14. The appellant has taken several grounds in the
memorandum of appeal and raised questions of law as well on
these aspects. No doubt, one of the main questions of law
stressed in the appeal pertains to the limitation. But on going
through the several grounds taken in the Memorandum of Appeal
and the questions of law raised specifically in the appeal and the
grounds, it is apparent that the appellant had raised questions of
law other than the question of law on limitation. Hence, the High
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Court has gone wrong in its view in the order dated 15.10.2015
that “ the only question of law sought to be urged in the present
appeal is as to whether the Company Law Board lacked authority
in reviewing petition under Section 5 of the Companies Act, 2013
beyond the period envisaged in sub-Section 4 thereof” .
15. As per order 15.09.2017, the High Court, however,
declined to consider the review holding that the same was beyond
the scope of review and that the same can be corrected only by a
superior forum.
16. We are afraid that the stand taken by the High Court
cannot be justified in the factual background we have explained
and the legal position analysed above. The appellant having taken
specific grounds in the appeal and having raised questions of law
regarding its right to refuse registration of transfer on sufficient
ground, being a statutory appeal under Section 10F of the
Companies Act, 1956, the High Court should have considered the
same among other questions of law.
17. Be that as it may, as we have been taken through the
grounds before the Company Law Board, we propose to consider
the matter from that stage. The Company Law Board, it appears,
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was of the view that the refusal to register the transfer of shares
can be permitted only if the transfer is otherwise illegal or
impermissible under any law. Going by the expression “without
sufficient cause” used in Section 58(4), it is difficult to appreciate
that view. Refusal can be on the ground of violation of law or any
other sufficient cause. Conflict of interest in a given situation can
also be a cause. Whether the same is sufficient in the facts and
circumstances of a given case for refusal of registration, is for the
Company Law Board to decide since the aggrieved party is given
the right to appeal. The contention of the appellant before the
Company Law Board that the whole transfer is deceptive and
mala fide in the background of the respondent company, should
have been considered.
18. In that view of the matter, we do not think that we should
go in further detail on the merits of the contentions. The order
dated 16.09.2015 passed by the Company Law Board, Kolkata
Bench, Kolkata, the order dated 15.10.2015 in ACO No. 199 of
2015 in APO No. 448 of 2015 and the order dated 15.09.2017 in
RVWO 59 of 2016 and ACO 171 of 2016 in APO 448 of 2015 are
set aside. The matter is remitted to the Company Law Board, now
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the National Company Law Tribunal for consideration afresh of the
appeal filed under Section 58 of the Companies Act, 1956. We
make it clear that the Tribunal shall pass orders afresh
uninfluenced by any of the observations and findings in the order
dated 16.09.2015 of the Company Law Board, orders of the High
Court or of this Court. We direct the Tribunal to pass orders
expeditiously since the appeal is of the year 2014. The appeals
are disposed of accordingly.
19. There shall be no order as to costs.
............................................J.
(KURIAN JOSEPH)
............................................J.
(MOHAN M. SHANTANAGOUDAR)
NEW DELHI;
MARCH 27, 2018.
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