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TMI Blog2023 (11) TMI 529X X X X Extracts X X X X X X X X Extracts X X X X ..... ar Mills (now 'Phenil Sugars Ltd.') seeking a prayer to the effect that their shareholding ought to be registered by the company. 3. The said prayer was allowed by the CLB vide the impugned order which is now under challenge by the company. The said order was initially stayed by this Court on 21st April, 2015 and the matter has remained pending since then. 4. The Respondents were duly served in this matter and had entered appearance on 21st April, 2015. However, for the last several hearings, none has appeared for Respondent Nos. 1, 2 and 4. 5. One Mr. Sadaat Salim, ld. Counsel had appeared for Respondent No. 3 on the last date of hearing. However, there was no appearance for the said Respondent today on the first call. The Court, accordingly, passed over the matter and directed the Appellant to contact Mr. Sadaat Salim, ld. Counsel. He has entered appearance through video conferencing and submits that he has no instructions to appear from Respondent No. 3. 6. In view of the above, the Respondents are proceeded ex-parte and submissions were heard on behalf of the Appellant. 7. Mr. Naveen Chawla, ld. Counsel for the Appellant submitted that under Section 111A of the Act, the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of carry forward losses of several crores of rupees. Respondent No. 4 was then asked to explain the reasons thereof. Moreover, the new management also removed the statutory auditor of Respondent No. 1 company, namely, M/s Basant Ram & Sons. 12. Respondent No. 4 thereafter terminated his association with the Appellant and made several complaints to the Registrar of Companies, Company Law Board, Securities and Exchange Board of India and various other authorities against the Appellant. 13. It is averred by the Appellant that Respondent No. 4 then formed a cartel of individuals which included his family members i.e., Respondent No. 1 and Respondent No. 5, as also Respondent No. 2 and Respondent No. 3, who were relatives of the ex-statutory auditor of the Appellant Company. 14. It is the case of the Appellant that Respondent No. 4 thereafter acting in concert with his family members, who are other Respondents in the present petition, purchased shares of the Appellant Company. The relationship amongst the various Respondents has been depicted in the appeal in the following terms: Respondent Name Relationship 1 Laxmi Gupta Wife of Respondent No. 4 2 Chandra Prakash Pawha Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asised that the sufficiency clause mentioned in proviso is much broader than the aspects covered in sub section 3 of the Section 111A of the Companies Act, 1956. Since the ultimate object of the Board is to protect the interest of the company, the Board refused to register shares in the name of the petitioners on determination that these petitioners would cause hurdles to the company if they enter into the company as shareholders. When sub section (2) has come into existence in the year 1995, the proviso has not come into existence along with sub section (2) in the year 1997. Perhaps on seeing the anomalies happening at the time of registration, the petitioner counsel says, it was further enacted by bringing in a proviso to sub section 2 giving a leeway to the company to refuse registration of shares as and when such registration is against the interest of the company. Therefore, the counsel submits with all humility that since 1997 the company has got a right to refuse for registration of shares as and when any sufficient cause is there for such refusal. Since the company refused on a bona fide ground as mentioned in the letter dated 9.4.2007, the counsel prays this Bench to dismi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Companies Act. Therefore, if the proviso is taken out and read in the entire section, the company can rectify the register only on the statutory violation as shown in sub section (3). Since the company should not be handicapped to invoke the same violations at the time of pre-registration, perhaps to my understanding, this proviso has been brought in to apply to those violations under sub section (3) It the time of pre-registration as well. Since there being no ratio extending this sufficiency clause beyond the violations stated in sub section (3), this proviso of sufficiency clause cannot control the free transferability that has been mentioned in sub section 2 of Section 111A of the Companies Act, 1956. 23. Therefore, this Bench, though Respondent counsel submission are elucidating, could not agree with his submissions against the letter and spirit of Section 111A of the Act. Therefore, this Bench hereby holds that the reason given as sufficient to refuse registration of shares in the name of the petitioners is not within the ambit of Section 111A of the Act. 24. Therefore, this Bench hereby directs the Respondents to enter the names of the petitioners in the register o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ures held by a depository or from the date on which the instrument of transfer or the intimation of the transmission was delivered to the company, as the case may be, after such inquiry as it thinks fit, direct any depository or company to rectify its register or records. (4) The Tribunal while acting under sub-section (3), may at its discretion make such interim order as to suspend the voting rights before making or completing such enquiry. (5) The provisions of this section shall not restrict the right of a holder of shares or debentures, to transfer such shares or debentures and any person acquiring such shares or debentures shall be entitled to voting rights unless the voting rights have been suspended by an order of the Tribunal. (6) Notwithstanding anything contained in this section, any further transfer, during the pendency of the application with the Tribunal, of shares or debentures shall entitle the transferee to voting rights unless the voting rights in respect of such transferee have also been suspended. (7) The provisions of sub-sections (5), (7), (9), (10) and (12) of section 111 shall, so far as may be, apply to the proceedings before the Tribunal under this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. XXX XXX XXX 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, 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 La ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of shares. There is no doubt in the mind of the Court that a company can refuse registration of transfer of shares if: i. There is an apprehension that the transfer is not in the best interest of the company and all its stakeholders including the shareholders; ii. The said apprehension is reasonable and there is material on record to support the apprehension. 29. In the case at hand, Respondent No. 4 was associated with the Appellant company in the past. Respondent No. 1 is stated to be his wife while Respondent No. 5 is his daughter. On the other hand, Respondent Nos. 2 and 3 are alleged to be relatives of the Ex-statutory director of the Appellant company. The Respondents have filed multiple complaints against the Appellant company to various statutory authorities. There are various allegations against Respondent No. 4 and the manner in which he has functioned as an auditor of the Company. In this background, the allegation of the Appellant company is that the Respondents seek to cause hurdles in the way of bona-fide corporate decisions taken by the Appellant Company. The Respondents have chosen not to appear before this Court to rebut the allegation of the Appellant. 30. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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