1. In this petition filed under section 111A of the Companies Act, 1956 (?the Act?), M/s. Hindustan Mercantile Bank Ltd. (?the petitioner?) has sought for rectification of register of members of M/s. D.N. Choudhury Cotton Mills Ltd. (?the respondent-company?) in respect of 100 shares comprised in share certificate No. 1845, presently standing in the name of Mr. T.R. Jalan, by substituting the petitioner?s name in place of the name of Mr. T.R. Jalan (?the transferor?) in the register of members of the respondent-company.
2. It is the case of the petitioner that it has lodged 100 shares bearing certificate No. 1845 along with relevant transfer deed, share certificate, board resolution and memorandum and articles of association of the petitioner, with the respondent-company for registration of transfer of shares in the name of the petitioner. The petitioner by its letter dated 12-4-2006 also requested the respondent-company to register the transfer of shares. The respondent-company, in turn, returned back the said documents to the petitioner, by its letter dated 2-6-2006, refusing to register the said block of shares. In support of such refusal, the respondent-company has also sent a legal opinion along with its said letter dated 2-6-2006. This prompted the petitioner to come before this Bench to redress its grievances by a suitable order for rectification of register of members of the respondent-company. The petitioner through its Counsel, Shri Himadri Chakraborty, has submitted that the Directors of a public limited company cannot refuse registration of shares without any proper and valid reasons and that it is extremely arbitrary on the part of the management of the respondent-company (which is a public limited company) to indulge in such illegal act, when as a matter of fact, the shares are freely transferable goods. In this backdrop, the legal opinion in support of the refusal decision of the respondent-company has no relevance at all in the instant case.
3. Resisting the claim of the petitioner, the respondent-company through its Counsel, Shri D. Basak, has contended that the proposed transfer of 100 shares of the company in favour of the petitioner is in contravention of the provisions of the Securities and Exchange Board of India Act, 1992 (?SEBI Act?) and/or the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (?SEBI Regulations?) and the same constitutes a good ground for the refusal of the company to register the transfer of shares. Justifying the refusal of transfer of shares by the company in favour of the petitioner, Shri Basak has focused his arguments to the facts that like the petitioner?s lodgment letter dated 17-1-2006, the company also received similar letters from other companies, namely, M/s. Crown Investment (P.) Ltd., M/s. Kunj Commercial Co. Ltd., M/s. A.D. Investment Co. Pvt. Ltd., M/s. Collieries India Pvt. Ltd., M/s. Teesta Valley Corporation Ltd. (?the said companies?), for transfer of various shares of the company in their favour. Furthermore, all the said companies including the petitioner refused to supply a list of present Directors and other information, as asked for by the company under the pretext that the same were not necessary for transfer of shares. The company informed the petitioner as also the said companies that the company would not be able to register the transfer of shares as sought for, by reason of non-compliance of legal formalities on the part of the petitioner and the said companies. The Counsel also stressed that the petitioner acting in concert with the said companies, had been trying to acquire the shares of the respondent-company and gain control and management of the respondent-company without following the provisions and procedures laid down in the SEBI Act and/or Regulations framed thereunder. On the other hand, the failure on the part of the petitioner to duly comply with and/or fulfil the various legal provisions in relation to transfer/acquisition of shares constitutes sufficient cause within the meaning of section 111A of the Act, for refusal on the part of the respondent-company to transfer the shares lodged by the petitioner. Shri Basak also drew the attention of this Bench to the fact that Mr. T.R. Jalan had been trying to interfere in the management of the company for a very long time. Earlier, in the year 1980, when Shri Jalan had attempted to transfer 100 shares in favour of his nephew, the company had rejected the said request. A petition was filed before the Company Law Board (CLB) against the said rejection and by an order dated 29-4-1980, the CLB upheld the decision of the Board of Directors of the company on the ground that the registration of transfer and induction of nephew of Shri T.R. Jalan would be against the interest of the company. Similarly, now Shri Jalan has transferred 100 shares to the petitioner only with a view to cause mischief in the affairs of the company. It is the repeated attempt in a circuitous way to gain control of the management of the company. Therefore, the Board of Directors of the company, after obtaining legal opinion, has decided to refuse the registration of transfer of 100 shares on the ground that it was a camouflaged motive behind such transfer of shares in favour of the petitioner which was to clothe it with shareholdings in order to create disturbance or mischief in the smooth sailing affairs of the company.
4. In response, Shri H. Chakraborty, Counsel, representing the petitioner, while refuting all the contentions put forth by the Counsel appearing for the respondent-company, has reiterated what has been stated in the pleadings and submitted that the shares impugned in the present petition being 100 shares constitute a very negligible percentage of the total issued capital of the respondent-company. The petitioner is a bona fide purchaser of the said shares for valuable consideration. Moreover, the respondent-company is not a listed company and consequently, SEBI Act and SEBI Regulations are not at all applicable in the instant case, as contended by the Counsel of the respondent-company. In any case, the refusal of the respondent-company to register transfer of shares in favour of the petitioner is without proper and valid reasons and the Directors of the respondent-company have acted arbitrarily with scant regard to the express provisions of section 111A of the Act. It was also submitted that the legal opinion as forwarded by the respondent-company in support of its refusal to register the transfer of shares, does not come to rescue the respondent-company in any manner in justifying its refusal to transfer the shares as no cogent grounds assigned to such unjustified refusal. It was also submitted that this Bench should not place any reliance on the earlier decision of CLB which dates back to the year 1980, subsequent to which the law has been changed from time to time and more so, the facts and circumstances under which the CLB decided the matter in the year 1980, does not squarely fit to the facts stated in the present petition. The earlier decision of CLB will not in any way give support the arbitrary decision of the respondent-company to refuse the registration of transfer of shares and such refusal being unlawful, should be turned down with a direction upon the respondent-company to register the transfer of 100 shares of the respondent-company in favour of the petitioner by rectifying its register of members of the respondent-company.
5. I have considered the pleadings and arguments. Even though when the petitioner lodged the share certificates along with transfer instruments, the company only sought for list of directors and also the certificate of commencement of business to enable the company to transfer the shares, yet, after the petitioner declined to supply these documents, the company decided to decline the registration of transfer on the basis of a legal opinion. The legal opinion on which the company has relied on is on the basis that the petitioner along with a few other companies were acting in concert to acquire shares in violation of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. To come to the conclusion that the petitioner along with others are acting in concert, reliance had been placed on commonality of directors both in the petitioner company and other companies. Since the company is not a listed company SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 are not applicable. Further, I find that neither the petitioner nor other companies have acquired shares of the company. There is only one transferor i.e., Mr. T.R. Jalan who had transferred 100 shares to the petitioner company and further 100, 25, 100, 50
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and 100 shares each to other companies. Even assuming that these companies are interrelated and connected with Mr. Jalan, the main fact that it is Mr. T.R. Jalan who has distributed his holding to other companies connected with him. This makes it clear that total holdings under Jalan?s control remains the same, clearly indicating that there is no increase in the holding of Jalan or other entities connected with him. The respondents have relied on the earlier decision of this Board and contended that that decision would act as res judicata. I do not find any substance to this contention and as a matter of fact that a similar contention raised by the company in another earlier proceeding - C.P. No. 533(111A)/ERB/2004 had been negatived by me. Thus, I find that the company has rejected the request for registration of transfer on wrong principles and on unsustainable grounds. Accordingly, I direct the company to register the transfer of shares in favour of the petitioner.