1. The petitioner filed CP 12/2007 against R1 Company and other Respondents for directions to record transfer of 73,334 equity shares of R1 Company acquired by the petitioner and for rectification of the register of shareholders after transfer has been effected by R1 Company in favour of the petitioner.
2. Likewise, the same petitioner filed CP 17/2008 against R1 Company for directions to record transfer of 78,501 equity shares of R1 Company acquired by the petitioner and for rectification of the share register after transfer has been effected in favour of the petitioner by R1 Company.
3. The petitioner and Respondents in CP 12/2007 and CP 17/2008 and the section of law involved are one and the same. The only difference in these two CPs is timing of purchase and number of shares, since parties are same, reliefs are similar, to avoid duplicity of reasoning, I hereby pass Common Order as below.
Pleadings in CP 12/2007
4. The petitioner says, this Company Petition is duly signed and verified by Ms. Manisha Garg, Director of the petitioner company and she is duly authorised by the petitioner company vide its Board Resolution dated 10.8.2007. The petitioner company is a Public Limited Company with an object to act as an Industrial, Technical and Commercial project Consultants to carry on the business of factors, Brokers, Agents, Dealers, etc., to advance deposits or lend money, securities or properties to any company, firm or association and to purchase, exchange or otherwise acquire land, building and other immovable properties of any type or description - constructing, altering, decorating, furnishing and maintaining houses, offices and flats etc.
5. The petitioner, in the normal course of business, purchased 14,260 equity shares of R1 Company from Ms. Ravinder Kaur and 21,000 equity shares of R1 Company from one Mr. Jai Kumar Kankaria, total amounting to 35,260 equity shares from the open market. In pursuance thereof, the petitioner, vide letter dated 12.4.2007, made a request to R1 company along with details of equity shares purchased and duly filled transfer forms seeking transfer of these shares in its favour. When R1 Company requested the petitioner to submit a copy of MOA along with Board Resolution passed by the petitioner company to purchase the said shares, which were duly provided by the petitioner company accompanied by a letter dated 27.4.2007.
6. Thereafter, when the petitioner purchased 38,074 shares of R1 Company from various parties and sent a letter of request to R1 Company on 27.4.2007 seeking transfer of those shares along with share certificates and transfer deeds, R1 Company failed to register the petitioner as shareholder of the company to the shares transferred in the name of it. For having no information come from R1 Company, the petitioner company, on 2.8.2007, sent a reminder. On remainder also, when R1 Company failed to register transfer of shares, the petitioner company filed the instant petition seeking a direction from this Bench to record transfer of 73334 equity shares in favour of the petitioner company and sought for direction for rectification of share register.
Reply by Respondents
7. R1 submits, this petition is not maintainable because this petitioner company not being registered as Non Banking Financial Company with Reserve Bank of India in compliance of Section 45(1)(a) of RBI Act, it cannot make investments in purchasing and selling shares. Since the company is prohibited to do such business u/s 45(IA) (a), this act of purchasing shares by petitioner company is ultra vires to the objects of clauses of Memorandum of Association of the petitioner company. R1 further submits that Clause 43 of Memorandum of Association of the petitioner company being shown as deleted in the Balance Sheet of the petitioner company as on 31.3.2004 and 31.3.2005, the petitioner cannot purchase shares in violation of Section 45(IA) (a) of RBI Act. For having the petitioner acquired shares of R1 Company violating Section 45 (IA) of RBI Act and its own objects, this violation fell within the ambit of clause "any other law" under Sub-section (3) of Section 111A of the Companies Act, 1956, hence this petition is liable to be dismissed.
8. R1 further submits that the petitioner has purchased shares of R1 Company @ Rs 15/- per share particularly when R1 company is registered with BIFR and rehabilitation process is under consideration, in fact these shares, he says, should be valued at much higher than Rs 15/-, in a situation like this, no shares should be transferred unless actual price of the shares are fixed. R1 states that the petitioner being listed Company; it could not acquire shares without adopting fair & transparent method such as public offer after proper valuation. R1 states that the petitioner made a voluntary offer to certain shareholders without proper valuation of price of shares violating SEBI (Substantial Acquisition of shares and Takeovers) Regulations 1997; therefore this transfer is hit by SEBI Takeover Regulations. R1 states that R3 herein has been acting in connivance with Petitioner Company; it is evident on seeing the letter of notice of hearing received by the answering respondents on the letterhead of the counsel for the petitioner in the envelope of Dhir & Dhir Associates appearing on R-3 behalf.
9. R1 further states that the Board of the petitioner company is not duly constituted, therefore, the resolution passed for filing this petition is nullity in the eyes of law. It says that the present petition is not supported by valid Board resolution because Ms Manisha Garg, who is authorised to file this Company Petition, filed this petition u/s 111 of the Companies Act, 1956 which is applicable to private companies, but whereas the company records show that it is a Public Limited company. Since the stand of the authorised representative not being correct, this petitioner cannot be heard under section 111A of the Companies Act 1956.
10. R1 states that the petitioner company has not filed forms and returns with RoC, therefore, it is not right on the part of R1 Company to register these shares as transferred to the petitioner company. He further submits that there is no item in the AGM held on 30-09-2004 & 30-09-2005 for appointment/retirement of directors to comply with the mandate not less than 2/3rd of total number of directors of the company shall retire by rotation, therefore, whatever resolution that has been passed by the company to file this Company Petition is null and void.
11. R1 states that it is a Public Limited company and for it has become sick, this company has been registered with declared with BIFR and Rehabilitation process is under consideration.
12. For these reasons, R1 & R2 pray this Bench to dismiss this Company Petition.
Pleadings in CP 17/2008
13. The petitioner submits that R1 Company refused to record 78,501 equity shares of R1 Company acquired by the petitioner, therefore, Ms Manisha Garg who is director of the petitioner company, duly authorised by the petitioner company, accordingly she filed this Company Petition to record transfer of shares in the name of the petitioner.
14. The petitioner, in the normal course of its business, purchased around 14,260 shares of R1 Company from one Ms Ravinder Kaur; 21,000 equity shares from Mr. Jai Kumar Kankaria, total amounting to 35260 equity shares from the open market. Pursuant to the purchase of shares, the petitioner, vide letter dated 12.4.2007 submitted to R-1 company the details of equity shares purchased along with the duly filled transfer deeds. When R1 company, seeing the letter for recording transfer of shares in the name of the petitioner company, requested the petitioner company to submit a copy of MOA along with Board Resolution passed by the company to purchase the said shares which were duly provided by the petitioner company, accompanied by letter dated 24.7.2007. Thereafter, the petitioner purchased another tranche of 38,074 shares, thereafter sought for recording transfer of these shares in favour of the petitioner. When R1 Company refused to record transfer of shares in its favour, the petitioner company filed CP 12/2007 seeking direction to R1 Company to record the transfer of 73,334 equity shares. During pendency of CP 12/2007, the petitioner company further acquired 14,950 shares vide letter dated 12.12.2007. The petitioner company again on 28.12.2007 purchased 63,551 equity shares of the respondent company. Responding to this letter of request, R1 company, vide letter dated 20.12.2007, rejected the request of the petitioner for recording the transfer of these shares. Then the petitioner filed an additional affidavit in CP 12/2007 on 8.1.2008 for bringing on record the details of further acquisition of shares and relief incidental thereof. When R1 company objected to filing of additional affidavit for recording transfer of 78501 shares along with the reliefs already sought in CP 12/2007, the petitioner company withdrew its additional affidavit filed in CP 12/2007 and preferred this CP for recording transfer of 78501 shares purchased in two tranches and for consequential rectification of share register showing the petitioner's name as shareholder to 78501 shares.
Reply by Respondents
15. R1 states that, as per the Memorandum of Association of the petitioner company, it is not entitled to carry on any investment activity of selling or purchasing shares, hence purchasing of these shares is ultra vires of the object clause of the petitioner company. R1 referred to clause 43 deleted from the Memorandum of Association of the petitioner company because as this Article says, company can sell and purchase shares. Since the company has not obtained any licence from RBI to carry on the business of selling and purchasing shares, the company is prohibited from doing this business as stated u/s 45 of the RBI Act. For BIFR have been pending, R1 says no shares of it should be transferred unless actual price of shares are fixed by an independent valuation. Since R1 Company is listed company, whenever any shares were acquired by private negotiations without making a public offer or announcement as required under SEBI, it is hit by SEBI (Substantial Acquisition of Shares and Takeover) Regulation 1997.
16. R1 further says that the Board of the petitioner company is not at all duly constituted, therefore, whatever resolution passed by the company is null and void, that the Balance Sheet dated 31-03-2005 of the petitioner company shows its paid up capital as Rs. 81,44,000/- as against its authorised share capital of Rs. 50/- lacs, R1 submits that the petitioner company being a Public Limited company, it is required to comply with the provisions of Sections 257 & 260 of the Companies Act, 1956. Since Ms Gang was appointed as Additional Director during the year ended 31.3,2005, therefore they can hold the office of directorship only up to the date of AGM. Since Garg who signed and verified the petition is not a director elected in the ensuing AGM, she could not have signed the petition; hence, the present petition is liable to be rejected on this ground alone.
17. R1 states this Company Petition was filed beyond limitation because this CP was filed on 18.11.2008 challenging the action of R1 Company dated 28.12.2007. That the status of the petitioner company is not clear because the company filed this CP u/s 111 despite it is Public Limited Company in the records of RoC. Since no independent valuation has been done for valuation, especially when it is under BIFR, no shares should be transferred unless actual price/value of the shares is fixed by independent valuation.
18. R1 states that R3, director of R1 Company, wanted to see the petitioner come into R1 to create problems to the management of R1 Company. Since the petitioner company consciously deleted the business of buying and selling shares by deleting Clause 43 of the Memorandum of Association, if any shares are purchased for trading purpose, it is nothing but ultra vires to the clauses of Memorandum of Association.
19. R1 submits that petitioner company is not duly constituted as per the provisions of the Companies Act and is in violation of Sections 255 8t 260 of the Companies Act, 1956 and also against Regulation 80 of Articles of Association, the resolution passed by the Board authorising Ms Garg to file this Company Petition is nullity in the eyes of law.
20. For having the petitioner company exceeded its authorised share capital, the petitioner company could not have acquired shares beyond its authorised share capital.
21. R1 submits that the petitioner company has not filed forms and Returns with RoC, Regional Director, Central Government within the time prescribed under Companies Act and rules there under.
22. R1 submits that the petitioner company being a listed company, it has to follow due process of law in acquisition of shares, but it has acquired shares of R1 without adopting fair method i.e. by public offer/announcement violating the provisions of SEBI Takeover Regulation 1997. In the present case, the petitioner company made a voluntary offer to certain shareholders without proper valuation of shares and without giving equal opportunity to other shareholders, therefore, R1 has sought for dismissal of this Company Petition.
23. Mr P. Nagesh, the Petitioner Counsel and Mr. Sangram Patnaik, R1 Counsel vehemently argued on their respective sides, whereas the counsel appearing on behalf of R2 prays this bench to adopt the submissions of R1 counsel as submissions of R2. On hearing their submissions, I have observed the points for consideration as below:
1. Whether Ms. Manisha Garg has no authorization to file Company Petitions 12/2007 and 17/2008 as contended by R1;
2. Whether CP 17/2008 is hit by limitation as contended by R1;
3. Whether the petitioner company shall not purchase shares of R1 company for it has not been registered u/s 45(1A) (a) of RBI Act, 1934 as contended by R1.
4. Whether CP 12/2007 & CP 17/2008 for recording transfer of impugned shares in the name of the petitioner and rectification of share register to that effect is hit by Section 111 A(3) of the Companies Act 1956 as contended by R1.
5. Whether the status of the petitioner company is not clear as contended by R1 Company.
6. Whether any independent valuation of shares impugned has to be done before purchasing shares of as contended by R1.
7. Whether the petitioner company's conduct is malafide as contended by R1.
8. Whether purchasing shares of R1 company by the petitioner company is hit by doctrine of ultra vires as contended by R1
9. Whether the Board of Petitioner Company is not duly constituted as contended by R1.
10. Whether acquisition of these shares by the petitioner company is in non-compliance of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997as contended by R1.
Point 1: Whether Ms. Manisha Garg has no authorization to file Company Petitions 12/2007and 17/2008 as contended by R1;
Point 9: Whether the Board of Petitioner Company is not duly constituted as contended by R1.
24. On perusal of these two points, it appears that these two points could be decided together, I have taken these two under one head. The respondents counsel vehemently argued saying since Ms Garg, as an Additional Director, signed pleadings and affidavits in the year 2007 in CP 12/2007 and in the year 2008 in CP 17/2008, she has to place proof that she has been subsequently elected in the ensuing AGMs dated 28.8.2004 and 29.9.2005 as regular Director, for having not shown any material that she has been elected as regular director, the Board of the petitioner company showing Ms Garg as director cannot be considered as validly constituted Board. He also raised another point saying Ms Garg filed Board Resolution dated 10.8.2007 to the cause of action for filing CP 17/2008 that arose on 20.12.2007, therefore, It is obvious that Board Resolution for filing petition cannot be ante to cause of action for filing CP 17/2008, he, therefore, says that the Board Resolution dated 10.8.2007 for filing CP postulates that this resolution dated 10-8-2007 is with regard to transfer of 73,334 equity shares lodged with them on 14.4.2007 and 27.4.2007 for transfer which is subject matter in CP 12/2007 but not in CP 17/2008. He says though this point has been taken by R1 in their reply, till date, the petitioner company has not filed any resolution ratifying the action of the petitioner filing CP 17/2008, therefore, it is evident that Ms Garg filed CP 17/2008 without any resolution from the petitioner company.
25. To say that CP 17/2008 filed by Ms Garg without valid Board Resolution is liable to be dismissed, R-1 counsel relied upon
(a) State Bank of Travancore Vs M/s Kingston Computers (I) P. Ltd [2011(102) CLA 124]
(b) Kothari Orient Finance Ltd. Vs. Tele Data Informatics Ltd. & Ors [2002 (108) Comp Cas 863(Mad)]
(c)Medchl Chemicals & Pharmaceuticals Pvt. Ltd & Ors Vs. M.M.T.C. Ltd. [2002(108) Comp Cas 24 (Mad)
(d)Satish & Company Vs. S.R. Traders & Ors [(1999) 95 Comp Cas 836 (A.P.)]
(e)S.S. Sangha Vs. Indian Commerce & Industries Co. [(1999) 98 Comp Cas 151 (Mad)
(f) K.N. Sankamarayanan & Anr. Vs. Shree Consultants & Services Pvt. Ltd. & Ors [(1994) 80 Comp Cas 558 (Mad)
(g) Nibro Ltd. Vs. NIC Ltd [41 (1990) DLT 633]
26. To which, the petitioner counsel contended that the petitioner company had already passed a resolution to file CP 12/2007 to record transfer of 73,334 shares in the name of the petitioner, that apart, Ms Garg being the Director of the company unless there is an express restriction under Articles of Association, she being director of the company, she can exercise directorial powers to file CP 17/2008 on company's behalf as stated under Order 29, Rule 1 of CPC. He also argues that it is an administrative action taken for the benefit of the company and till date that is not questioned by the petitioner, therefore, it cannot be said she has no right to file CP on company's behalf. He also says that the petitioner has empowered Ms Garg to file even CP 17/2008.
27. On seeing the contentions of either side, it appears that there is a valid Board Resolution for filing CP 12/2007. There is no material on record to say that Resolution dated 10-8-2007 passed by the Board of the petitioner company authorizing Ms Garg to file CP 12/2007 is invalid except bald allegation from R1 saying Board of the petitioner company is not validly constituted. Since R1 has asserted that Board is not valid one, R1 has to prove that Board of the petitioner company is invalid. If the petitioner has any legal obligation to hold Board Meeting by serving notice upon R1, then it could be said that Board Meeting is invalid for notice has not been served upon it. In a situation like that, it could be asserted that for having the petitioner failed to comply with legal obligation, the burden of proof rests upon the petitioner to prove that Board Resolution is held as per law. Here in this case, the petitioner has no obligation to show to R1 that Petitioner Board is valid. For having the petitioner denied the allegation that Board is invalid, then R1 has to prove Board is invalid, that R1 has not done. If sections 101 and 102 of Indian Evidence Act are read in tandem, it is dear that the person asserts a fact must prove the existence of those facts, and burden of proof in a proceeding lies on that person who would fail if no evidence is given on either side. Notwithstanding the fact whether Board is validly constituted, one fact staring at this Bench is, it is not the case of R1 that the petitioner has not purchased these shares, it is not it's case that transfer in between the transferee and transferor is invalid, it is also not R1 that it will be put to irreparable loss and damage by recording this transfer in favour of the petitioner, there being no allegation on any of the points raised above, R1 company not being shareholder of the petitioner company, the point saying Board of the petitioner is invalid has no merit.
28. It appears, by oversight or by mistake Board Resolution that was passed to file CP 12/2007, has come into CP 17/2008 as if the same resolution is applicable to CP 17/2008. No doubt, the company should have passed a separate resolution for filing CP 17/2008 or at least the company should have filed ratification to the act of Ms Garg.
29. In all the cases R1 counsel relied upon indicate that the rights of adverse parties In those proceedings would get seriously affected. However, here in this case, there is valid Board Resolution to file CP 12/2007 authorizing Ms Garg to file CP 12/2007, it means Company authorized Ms Garg to file CP 12/2007. As to CP, by oversight the resolution passed in CP 12/2008 annexed to CP17/2008 as authorisation to file this CP as well. There is no objection from the petitioner company saying that Ms Garg is not authorised to file CP 17/2008. Manisha Garg is not a stranger to the company, she is one of the directors of the company, it has never been said by the petitioner company that she is not the director of the petitioner company. Now the point for consideration is whether refusal to record the transfer of these shares in the name of the petitioner is valid or not. Had really the Board of Directors of petitioner company not inclined to authorize her to act on the company's behalf, the Board would have not authorised Ms Garg to file even CP 12/2007. Normally there need not be two different yardsticks to give authorisation to Ms Garg to file CP12/2007 and to give authorisation to somebody else to file CPI7/2008. If Section 292 of the Companies Act, 1956 is read, it appears that Board has to mandatorily pass resolution only when it deals with subjects that are mentioned u/s 292(1), since it is nowhere said in the Companies Act what powers the directors cannot exercise on behalf of the company without Board Resolution, then the inference that could be drawn from Section 292 is that there shall be Board Resolution only when directors are to exercise powers u/s 292(1) of this Act. In Articles of Association of any company, it could be seen that the actions of Directors shall not be invalidated if they are for any reason disqualified to continue as directors. When company or Board gets benefit by the action of the directors, it can at best be called as 'administrative function' on behalf of the company. Moreover under article 113 of the petitioner company, any director can authenticate the documents of the company and it shall be deemed as done on company's behalf. Had there been no power to director of a Company to act on behalf of Board and company, this could have been dearly envisaged in the act itself, but whereas Companies Act has not envisaged anywhere that director shall not act for anything unless there is a resolution from the Board and Articles also state past actions of a director shall not be made invalid by that director being subsequently disqualified. Here the contention of R1 is limited to say that Manish Garg has no authorisation to initiate proceedings against R1 Company. It is an internal arrangement of Board as well as the petitioner company to determine who is to file Company Petition on behalf of Petitioner Company.
30. Notwithstanding the provisions of the Companies Act, it is dear from CPC, any director of the Board of a company or authorised Secretary of the company is permitted under law to sign and verify on behalf of the company. I do not say that Order 29 Rule 1 can be extended to say that directors are permitted to act on behalf of the company to exercise any powers on behalf of the company. In general, no provision is there in the Companies Act disabling director representing the company on the ground resolution has not been passed by the Board, except to the extent mentioned in section 292 of the Act. Every act has to be seen in the factual context of a given case. If a ratio is carved out in a case, it cannot be ipso facto applied to other cases, and make it run-of-the-mill. A ratio, meaningful and reasonable in one set of facts need not necessarily be equally as much reasonable and meaningful in another set of facts; the reasonableness of a ratio will depend on facts of each case.
31. In fact, R1 must limit itself to the extent to see whether the documents placed by the petitioner company for recording and transferring the name of the petitioner are in compliance with the mandate given u/s 108 of the Companies Act. It is not expected to dive deep into to see how many directors are there in the transferee company, whether they are additional directors or regular directors, what are the objects and articles of that company, whether the petitioner company passed Board Resolution, whether the director of the company is validly authorised by the petitioner company. By recording transfer in favour of the petitioner will not make any difference to the company unless such transfer is hit by regulations of SEBI, having R1 Company not said under what regulation the acquisition by the petitioners is invalid. The counsel just cannot generalise every acquisition in another company is hit by SEBI regulation, moreover, if R1 feels this acquisition is hit by SEBI Regulations, why has it not appealed before SEBI and get it nullified? Here, transferors have not raised any objection saying the petitioner has not passed on consideration to them. Once any company makes an allotment in a public limited company, then ownership of those shares devolve upon allottees, they can freely transfer them in accordance with Section 111 A (2) of the Act 1956, the company will not have any say over it as long as such transfer is not hit by a provision of law, if the company, for any reason felt aggrieved of such transfer, then this company shall get it invalid from the competent authority, if it is violation of any regulation, company has to go to that Regulating authority. When any authority is conferred with special powers to validate or invalidate an action, the aggrieved has to go before that authority alone, not before some other authority. Courts will not usurp into powers of one another. Therefore, under section 111A of the Act 1956, the role of R1 Company is only limited to record the transfer and rectify the register accordingly. While doing so, it is limited to see whether the documents that have come before the company are in accordance with law or not. This R1 Company has not raised even a whisper saying that documents filed by the petitioner company for rectification of register, are not in accordance with Section 108 of the Companies Act. For these reasons, it cannot tie in the mouth of R1 Company to say that Manish Garg has no authorisation; the Board of Petitioner Company is not validly constituted. Since R1-company is not the shareholder of the petitioner company, what right has R1 to question all those transactions when the petitioner company has asked for registration of shares? To impugn all these points, R1 has not initiated proceedings before any court of law, therefore R1 cannot travel beyond the scope of section 111 A of the companies Act. Accordingly, these two points are decided against R1 Company.
Point 2 - Whether CP17/2008 is hit by limitation as contended by R1.
32. There being no contention over CP 12/2007 over limitation issue, I hereby limit my discussion to the contention of R1 CP 17/2008 is barred by limitation.R1 counsel contended that R1 refused to record transfer of 14950 shares on 20.12.2007 and transfer of 63,551 shares on 28.12.2007, but whereas the petitioner filed this Company Petition on 18.12.2008 i.e. almost 11 months after refusal from the company, though sub section (2) of Section 111 envisages that an appeal under sub section (2) shall be made within two months from the date of receipt of the notice of refusal from the company. R1 counsel submits that since sub section (7) of Sec 111A envisages that sub sections (5), (7), (9) & (12) of Sec 111 apply to proceedings before CLB u/s 111A as they apply to the proceedings u/s 111, two months limitation mentioned under Section 111 (3) while dealing with an appeal under sub section (2) of Section 111 is equally applicable to cases dealt with under Sec 111A of this Act because sub section (5) of Sec 111 says, while dealing with an appeal under sub section (2) or an application made under sub section (4), an order could be passed by CLB to register transfer or transmission within 10 days of the receipt of the order and also direct rectification of register and to pay damages, if any, sustained by any party aggrieved. R1 counsel submits, since reliefs envisaged under subsection (5) of 111 are in respect of appeals filed under sub section (2) and (4)of Sec 111, the counsel says the limitation prescribed under sub section (3) of Sec 111 applicable to appeal under sub section 2 of section 111, is equally applicable to Sec 111A of this Act. Respondents counsel submits, if Sections ill & 111A are read together, It is evident that aggrieved has to file an appeal within two months from the date of receipt of order of refusal from the company, here, for having this petitioner filed an appeal about 11 months after refusal, this remedy is squarely hit by the limitation given under sub section (3) of Sec 111. Therefore, the relief sought by the petitioner in CP 17/2008 cannot be granted.
33. On hearing the submissions of either side, it appears that Sec 111 is given power to refuse registration and also a power conferred upon the aggrieved to appeal against such refusal, whereas u/s 111A, no such power is conferred upon the company to refuse registration. It only says Sec 111A is meant for rectification of register on transfer, meaning thereby the power conferred u/s 111 to the private companies is not being extended to Public Limited companies. It is evident, under Sub Section 111A, Public Limited companies are under obligation to rectify the register and transfer because the shares of public limited company are freely transferable. Perhaps for that reason alone, refusal is limited to proviso in sub section (2) of Sec 111A. Sub section 4 of Sec 111 speaks of rectification; likewise, Sec 111A also speaks of rectification of register. Whenever any proviso is attached to main section, the binding nature of the proviso shall remain to the extent mentioned in it, the restraint that is flagged in a proviso shall not, for any reason, dilute the intent of the main section. The intent of main section i.e. sub section (2) is the shares of public limited company shall be freely transferable. If, for any reason, company refuses to register such transfer, it must be with a sufficient cause not only that, the company shall intimate this refusal. It can only do so within two months from the date on which instrument of transfer is reached to the company. If it goes beyond two months, according to this section, it is deemed that the shares are shown as transferred in the name of transferee. Here, in this proviso, it is also said that transferee may appeal to CLB, on such appeal; Company Law Board shall direct such company to register transfer of shares. The time that is mentioned to the company for refusal is not mentioned in how much time the appeal is to be filed before Company Law Board. When appeal time has not been mentioned in the proviso, can a company borrow a section of law that is present in Sec 111, which is applicable to private companies, and say this appeal is not maintainable for not filed in limitation? If such an attempt is made, it is nothing but negating the spirit of subsection 2 of section 111A of the Act.
34. The case of the respondents here is since applicability of sub section (5) of Sec 111 is envisaged in sub section (7) of Sec 111A, and for having sub section (5) meant for dealing with appeal under sub section (2), R1 counsel says, the limitation under sub section (3) is applicable to Section 111A as well. Subsection (S) of Section 111 goes like this,
"(5) The Company Law Board, while dealing with an appeal preferred under subsection (2) or an application made under sub- section (4) may, after hearing the parties, either dismiss the appeal or reject the application, 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 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."
35. By seeing the text of it, it is dear that the reliefs that can be granted under sub section (5) are - one, transfer or transmission shall be registered by the company within 10 days of the receipt of the order from CLB, two, to rectify the register and to pay damages, if any sustained by any party aggrieved So the mandate under section 111 (5) is to register transfer or transmission in 10 days from the date of order and accordingly to rectify the register and pay damages if any required. This sub section 5 had already been in existence before bringing in 111A into existence; therefore, it cannot be assumed that it has been carved out to supplement the need under section 111A as well. When section 111 had come into existence, section 111A was not there. By the time section 111 came in, Court or CLB could pass reliefs over transfer and transmission under subsection 2 of section 111 and rectification under sub section 4 of section 111, the reliefs under subsection (5) being consequential orders, the language in subsection (5) is couched in such a way that the court or tribunal can invoke subsection (5) and pass consequential orders to give effect to the orders passed under sub section (2) or subsection (4) of section 111. Therefore it is evident sub section (5) is included in Sec 111 to pass consequential reliefs to orders under subsections (2) or (4) of section 111. There being no such provision to pass consequential orders either for compliance of order under section 111A or to grant to damages as envisaged under subsection (5) of section 111, sub-section (7) of section 111A so enacted conferring the powers upon CLB to grant reliefs as covered under sub section (5) of 111 in cases fall under section 111A of the Act. If sub-section (5) of Sec 111 is applicable to Sec 111A, it does not mean that the applicability given under sub section (7) could be extended to apply to the limitation that is mentioned to the appeal under sub section (3), had it been the intention of the Legislature to include limitation under sub section (3) of Sec 111 to Sec 111A, the Legislature could have certainly mentioned that sub section (3) Is also applicable to Sec 111A. Therefore, for having the Legislature consciously not mentioned limitation point in the proviso to sub section (2) and consciously omitted including sub section (3) of Sec 111 in sub section (7) of Sec 111A, Courts are only limited to say that an appeal could be filed If refusal comes within two months from the date of receipt of transfer sought to the company. By this reading, I understand that CLB can pass consequential reliefs under sub section 5 of section 111 directing the company to register transfer within 10 days and rectify the register and pay damages, in cases falling under sub sections (2) & (4) of section 111 and also in cases falling under section 111A. It does not mean the limitation mentioned in subsection (3) of section 111 is applicable to cases falling under section 111A, because the reliefs under subsection (5) can be passed in the cases falling under section 111 (2) (4) and cases falling under section 111 A as well. Therefore, I have not found any merit in the contention raised by R1 counsel stating that since the petitioner failed to file Company Petition within two months from the date of refusal from the company to the petitioner, it is barred by limitation to seek remedy under Section 111A of the Act 1956.
36. Notwithstanding this contention, the petitioner having filed an amendment application to CP 12/2007 to implead reliefs asked in CP 17/2008 within two months from the date of refusal, it could not be said that the petitioner has not initiated proceedings within two months from the date of refusal. The petitioner, for some reasons, withdrew the amendment application and filed CP 17/2008 seeking rectification of register as sought in CP 17/2008. Therefore, for this reason also, I do not find any merit to say that CP 17/2008 is hit by limitation. Hence, this point is decided against R1.
Points 3, 4, 8 & 10
3. Whether the petitioner company shall not purchase shares of R1 company for it has not been registered u/s 45(IA) (a) of RBI Act, 1934 as contended by R1.
4. Whether CP 12/2007 & CP 17/2008 for recording transfer of impugned shares in the name of the petitioner and rectification of share register to that effect is hit by Section 111 A(3) of the Companies Act 1956.
8. Whether purchasing shares of R1 company by the petitioner company is hit by doctrine of ultra vires as contended by R1.
10. Whether acquisition of these shares by the petitioner company is in non-compliance of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997 as contended by R1.
37. R1 counsel contends that the petitioner purchased the shares of R1 Company in the market in several tranches. He says if any company buys shares of any other company repeatedly, for doing so, it has to lake prior permission of RBI under RBI Act to carry investment activity. Here this petitioner company has not taken permission from RBI to carry any investment business. For having not taken any permission from RBI, R1 Counsel says, the petitioner is not permitted to buy and sell shares, it cannot purchase shares in several tranches from R1 company because it is nothing but share trading, for which it has to obtain permission under Sec 45(I)(a) of RBI Act, Now the test to be laid is whether this company doing any business connecting to investment activities, if so, any proof is there to show that this company violated the provisions of law.
38. On seeing the material available before me, I have not seen anything till date that statutory authorities have taken some action against this company for violating any provision of law. It goes without saying that there is no restraint or prohibition against any company from purchasing shares of any other company. It is the respective statutory authorities to decide whether the petitioner company indulged in investment activities to which permission is required from RBI. Nether RBI taken any steps against the petitioner Company holding the company indulged in an activity that requires permission, nor RoC ever asked this company to obtain permission from RBI, on the top of it, R1 Company has not initiated any proceedings before any of these authorities and obtained positive orders for taking action against the Petitioner Company. It is needless to say R1 Company cannot become unilaterally judgemental on its own that the Petitioner shall not buy shares of R1 company, and then refuse recording transferring shares in the name of the petitioner deciding it as investment company. Has R1 company initiated proceedings before any court of law or any competent statutory authority stating Petitioner company indulged in an activity that is not permitted under law, answer is no, then how R1 Company could raise this objection before this Bench, when the petitioner sought for an order directing R1 company to registration of shares in the name of the petitioner.
39. R1 Counsel retied upon Krishna Kumar Birla v. Rajendhra Singh Lodha and Ors ((2008) 4 SCC 300) and Mohinder Singh Gill and Others v. The Chief Election Officer, New Delhi and Ors to say that when an issue on maintainability is raised, then Courts shall take it up as preliminary point and if found not maintainable, it has to be dismissed without going into merits of the case, here the petitioner has not stated nor conceded that the Petitioner Company is NBFC, then it will become an issue with other issues in the final hearing not a point to decide on maintainability. R1 counsel relied upon Dr A.Lakshmana Swamy Mudalair and Ors v. LIC and another (AIR 1963 sc 1185 and Birla Education Trust v. Birla Corporation Ltd ((2011) 4 Comp LJ 293 (CLB)) to say that a company cannot travel beyond the objects specified the Objects clause in MoA, therefore, he says the company having gone beyond Objects clause of the company and such crossing of objects clause is ultr vires of the object clause, therefore this company petition is to be decided on this point alone. To which my answer is the petitioner company never said it has violated any of the objects clause of the company and its business is not acquisition of shares, therefore unless R1 proves that the petitioner company is NBFC before competent authority, it cannot be said that acquisition of shares is ultra vires to the object clauses of the company.
40. R1 Counsel says that the petitioner acquired shares of R1 Company in several tranches violating SEBI Takeovers Regulations 1997. Has R1 company said anywhere which threshold limit captioned under Takeover Regulations is crossed by the petitioner, I haven't seen any such details in the reply filed by R1 except making this bald allegation. For the sake of discussion let us assume the petitioner crossed threshold limit captioned under SEBI Takeover Regulations, whether R1 Company initiated any proceedings before SEBI saying the Petitioner Company contravened the Regulations of SEBI. I have not seen any averment showing the action taken by R1 before competent authority i.e., SEBI. It is a fundamental if any violation of regulation is found, the person aggrieved shall go before such Regulating Authority to get it invalidated, it is not CLB to adjudicate this issue appropriating the powers exercisable by SEBI. It is known law that shares of a Public Limited company are freely transferable, this right of transferability is only regulated to the extent mentioned in Takeover Regulations, if really any threshold crossing is present, of course here there is no material showing the petitioner company crossed threshold limit mentioned in SEBI Regulations, action has to be taken by competent authority that is SEBI. Till date R1 Company has not initiated any proceeding to invalidate the acquisition of shares by the petitioner before SEBI. It is also known proposition that Tribunals are limited to exercise powers that are conferred upon it, CLB being a Tribunal; it shall not go beyond the powers conferred upon it. Adjudicating authority over Takeovers is vested with SEBI, but not CLB. R1 Company raised another objection for registration of these transfers stating that since BIFR proceedings pending against R1 Company, any transfer of shares in the company will become in violation of SICA proceedings.
41. On seeing subsection 3 of section 111A conferring right upon this Bench to rectify the Share Register when such registration is in contravention to any provisions of the SEBI Act and its Regulations, SICA or any other law for time being, it is evident that CLB can pass an order under subsection 3 of section 111A, when any of the parties mentioned in subsection 3 of 111A says the registration of shares is in contravention to the provisions mentioned therein, then on seeing proof of such contravention CLB will observe recording of such transfer is invalid and will rectify the share register accordingly. But one fact that should not get lost sight of is, CLB is not conferred upon with any parallel powers as that of powers conferred upon SEBI under chapter -VIA (Penalties and Adjudication), and as that of powers conferred upon BIFR in respect of SICA or powers conferred upon courts or statutory authorities in respect of "any other law for time being", therefore how can CLB confers powers upon for itself and pass orders under sub-section 3 of section 111A dehors adjudication from the competent authority? Suppose this Bench on hearing any party rectifying the register holding such transfer is in contravention to any law as mentioned in sub section 3 of section 111A, if any competent authority thereafter decides such acquisition is not In contravention of law, which finding will be binding on the parties? To my mind, it is dear that the adjudication given by the authority conferred with statute will prevail over the CLB order, because CLB has not been conferred with any powers to adjudicate SEBI Takeovers or SICA or under any other law, therefore it is obvious the order passed by CLB has to go causing parties further litigate over which court order is binding to which they are uncalled for. Therefore, unless any such statutory authority gives declaration such and such transfer is in contravention of law, neither Company Law Board nor the company can usurp into the jurisdiction of some competent authority and say that since the transfer in contravention of provisions of law, the share register is to be rectified. It cannot be done so because sovereign authority confers jurisdiction upon various statutory bodies or Courts to decide such and such acts are in violation of such and such provision of law. Normally there will not be overlapping jurisdiction, even under company law also, constitutional courts, over a period of time, held which matter goes to CLB and which matter goes to civil courts. Here, R1 Company has not gone to RBI saying this petitioner has violated the provisions under Sec 45 of the RBI Act. It has not even gone before SEBI saying the petitioner herein violated Takeover Regulations in acquiring shareholding of R1 Company. It has also not been said to BIFR to declare the transfer made in favour of the petitioner is in violation of SICA. I must also say two points when subsection 3 of section 111A is dealt with - one, this provision is to be invoked post registration for rectifying wrong registration; two, this provision can be invoked only on an application from the aggrieved, here there cannot be any grievance under this sub section unless shares are already registered and there is an application from the aggrieved, Neither of these conditions fulfilled to invoke jurisdiction under subsection 3 of section 111A of Act 1956. Let us see other way round allowing the argument that violation under subsection 3 of section 111A would become sufficient cause of action to refuse registration as envisaged under sub section 2 of section 111A, by taking clauses under sub
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section 3 of section 111A as sufficient cause, then also the petitioning party (R1) shall file proof showing competent authority adjudged that transfer or acquisition of shares is in contravention to law mentioned in subsection 3 of section 111A of the Act 1956. That R1 has not done. 42. For there being no material to say that Petitioner Company violated any of the provision of law in acquiring this shareholding, I do not find any merit in the contention of R1, therefore, decided against R1 Company. Point 5: Whether the status of the petitioner company is not dear as contended by R1 Company. 43. R1 counsel left no stone unturned in making allegations to avoid registration of transfer of shares in favour of Petitioner Company. It is out and out clear; the petitioner company is a public limited company. It need not be seen whether acquiring company is a private limited company or public limited company. If any shares have come before the company for registering transfer from transferor to transferee, the company is only limited to see whether such transfer is in compliance of Sec 108 or not. Especially, in a public limited company where shares are freely transferable, R1 Company cannot take a ground that registration of transfer is refused on the ground status of the petitioner company is not clear. Nevertheless the petitioner company categorically stated that it is a public limited company. Therefore, I do not find any merit in this point, hence forth; this point is also decided against R1 Company. Point 6: Whether any independent valuation of shares impugned has to be done before purchasing shares of as contended by R1. 44. There is no mandate under law to get the shares valuated before transfer from transferor to transferee. Company has nothing to take or give in registration of transfer from transferor to transferee. Therefore, it makes no difference whether shares are independently valued or not. Point 7: Whether the petitioner company's conduct is malafide as contended by R1. 45. R1 counsel says that petitioner company and R3 are acting in concert with each other stating that it is evident from the contention of the petitioner that the letter of notice dated 11.9.2007 of hearing in CP 12/2007 was received by R2 on the letterhead of the counsel for the petitioner in the envelop written Dhir & Dhir, Advocates, who are appearing on behalf of R3. Assuming for time being the petitioner is acting in concert with R3, is there any bar under law to refuse rectification of share register showing the name of the petitioner in the name of transferees on the ground petitioner acting in concert with R3. R1 counsel has not given any reason that the petitioner acting in concert with R3 is detrimental to the interest of the company. I believe I need not elaborate any further to say this allegation is not good enough to refuse to rectify the share register. Therefore, this point is also decided against R1. 46. R1 counsel says, the petitioner is not entitled to carry on investment activity for selling or purchasing shares, which is ultra vires of object clause under Memorandum of Association. It is abundantly clear that neither statutory authority nor any Court declared that acquisition of these shares by the petitioner company fell within the ambit of any of the provisions such as RBI provisions, SEBI provisions, and SICA provisions. There being legal right to acquire shares by any person or company, they are free to acquire shares within the limitations as envisaged under various provisions of law. When a company deals with public in taking Finance from the public or giving finance to the public or trading shares, then the State, to protect the interest of the innocent public, brought in all these regulations to regulate the companies to the extent that is possible. Here, public interest is not involved, nor is there any bar under law to acquire shares. Therefore, R1 Company could not have refused recording transfer of shares with a bald allegation saying purchasing of shares of R1 Company is hit by doctrine of ultra vires. R1 Company is unconcerned with deletion of a clause from objects clause, moreover by deletion of that clause, the company is only limited not to do share trading that does not mean the petitioner company is deprived of purchasing shares in normal course, moreover it will not become a ground to refuse recording registration in favour of the petitioner, hence this issue decided against R1. 47. Therefore, for the reasons stated above, I have not seen any merit in these applications to refuse registration of shares in the name of the petitioner company. Therefore, the company is directed to register shares of 73,334/- shown in CP 12/2007 and 78,501 shares shown in CP 17/2008 and also rectify the share register within 10 days from the date of receipt of the order and also provide all benefits that are accrued over these shares from the date of acquisition till date to the petitioner. 48. Accordingly, these two CP 12/2007 and CP 17/2008 are allowed. No orders as to costs. 49. Any CAs if pending, stand closed and orders if any subsisting, stand vacated.