MACKINTOSH BURN LIMITED versus SARKAR AND CHOWDHURY ENTERPRISES PRIVATE LIMITED on 27 March 2018

Issues

[2018] 3 S.C.R. 83

MACKINTOSH BURN LIMITED

v.

SARKAR AND CHOWDHURY ENTERPRISESPRIVATE LIMITED

(Civil Appeal Nos. 3322-3323 of 2018)

MARCH 27, 2018

[KURIAN JOSEPH ANDMOHAN M. SHANTANAGOUDAR, JJ.]

Companies Act, 2013: s. 58 – Refusal of registration andappeal against refusal – Held: Under s. 58(2), the securities orinterest of any member in a public company are freely transferable– However, u/s.58(4), it is open to the public company to refuseregistration of the transfer of the securities for a sufficient cause –To that extent, s. 58 (4) has to be read as a limited restriction on thefree transfer permitted u/s. 58(2) – Right to refuse registration oftransfer on sufficient cause is a question of law and whether thecause shown for refusal is sufficient or not in a given case, can bea mixed question of law and fact – On facts, since no orders werepassed on registration of shares, respondent approached Companylaw Board, which directed registration – Appellant having takenspecific grounds in the appeal and having raised questions of lawregarding its right to refuse registration of transfer on sufficientground, being a statutory appeal u/s. 10F, the High Court shouldhave considered the same among other questions of law –Company Law Board, was of the view that the refusal to register thetransfer of shares can be permitted only if the transfer is otherwiseillegal or impermissible under any law – Going by the expression“without sufficient cause” used in Section 58(4), said view cannotbe accepted – Refusal can be on the ground of violation of law orany other sufficient cause – Conflict of interest in a given situationcan also be a cause – Whether the same is sufficient in the factsand circumstances of a given case for refusal of registration, is forthe Company Law Board to decide since the aggrieved party is giventhe right to appeal – Submission before the Company Law Boardthat the whole transfer is deceptive and mala fide in the backgroundof the respondent company, should have been considered – In viewthereof, matter remitted to the Company Law Board for considerationafresh of the appeal filed u/s. 58.

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ADisposing of the appeals, the Court

HELD: 1.1 Refusal of registration of the transfer of sharesand the appellate remedy are provided under Section 58 of theCompanies Act, 2013. Under Section 58(2) of the 2013 Act, thesecurities or interest of any member in a public company areBfreely transferable. However, under Section 58 (4), it is open tothe public company to refuse registration of the transfer of thesecurities for a sufficient cause. To that extent, Section 58 (4)has to be read as a limited restriction on the free transferpermitted under Section 58 (2). Section 10F of the CompaniesAct, 1956 provides that an appeal against an order passed by theCCompany Law Board can be filed before the High Court onquestions of law. Right to refuse registration of transfer onsufficient cause is a question of law and whether the cause shownfor refusal is sufficient or not in a given case, can be a mixedquestion of law and fact. [Para 11, 12] [92-F; 94-A-C]

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1.2 In the instant case, there is no resolution passed by thecompany refusing to register the transfer of shares. Since theCompany Law Board has gone into the contentions by theappellant for refusing to register transfer for all purposes, it hasto be taken that those contentions are the grounds taken by theEappellant for refusing to transfer the shares. The appellant hastaken several grounds in the memorandum of appeal and raisedquestions of law as well on these aspects. No doubt, one of themain questions of law stressed in the appeal pertains to thelimitation. But on going through the several grounds taken inthe Memorandum of Appeal and the questions of law raisedFspecifically in the appeal and the grounds, it is apparent that theappellant had raised questions of law other than the question oflaw on limitation. Hence, the High Court has gone wrong in itsview in the order dated 15.10.2015 that “the only question of lawsought to be urged in the present appeal is as to whether theGCompany Law Board lacked authority in reviewing petition underSection 5 of the Companies Act, 2013 beyond the periodenvisaged in sub-Section 4 thereof”. [Para 13, 14] [94-D-F]

1.3 As per order 15.09.2017, the High Court, however,declined to consider the review holding that the same was beyond H

the scope of review and that the same can be corrected only by asuperior forum. The stand taken by the High Court cannot bejustified in the factual background and the legal position analysed.The appellant having taken specific grounds in the appeal andhaving raised questions of law regarding its right to refuseregistration of transfer on sufficient ground, being a statutoryappeal under Section 10F of the Companies Act, 1956, the HighCourt should have considered the same among other questionsof law. [Para 15, 16] [94-G-H]

1.4 The Company Law Board, it appears, was of the viewthat the refusal to register the transfer of shares can be permittedonly if the transfer is otherwise illegal or impermissible underany law. Going by the expression “without sufficient cause” usedin Section 58(4), it is difficult to appreciate that view. Refusal canbe 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 ofa given case for refusal of registration, is for the Company LawBoard to decide since the aggrieved party is given the right toappeal. The contention of the appellant before the Company LawBoard that the whole transfer is deceptive and mala fide in thebackground of the respondent company, should have beenconsidered. In that view of the matter, the order dated 16.09.2015passed by the Company Law Board, the order dated 15.10.2015in ACO No. 199 of 2015 in APO No. 448 of 2015 and the orderdated 15.09.2017 in RVWO 59 of 2016 and ACO 171 of 2016 inAPO 448 of 2015 are set aside. The matter is remitted to theCompany Law Board, now the National Company Law Tribunalfor consideration afresh of the appeal filed under Section 58 ofthe Companies Act, 1956. [Para 17, 18] [95-A-E]

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 3322-3323 of 2018.

From the Judgment and Order dated 16.09.2015 of the High Courtof Calcutta in ACO No.171 of 2016 and RVWO No. 59 of 2016 arisingout of APO No.448 of 2015.

C. Aryama Sindram, Kavin Gulati, Sr. Advs, Indranil Ghosh, KunalSingh, Satish Kumar, Abhishek Gupta, Zafar Inayat, Apoorv Tripathi,Advs for the Appellant.

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AShyam Divan, Sr. Adv, Pankaj Bhatia, Ajay Choudhury, D.N.Sharma, Rakesh Sinha, Nipun Goel, Dhruv Surana, Ashish Choudhury,Ms. Bharti Tyagi, Advs for the Respondent.

The Judgment of the Court was delivered by KURIAN, J. 1. Delay condoned. Leave granted.B

2. The appellant is a public company with majority of shares heldby the Government of West Bengal. The respondent, which is holder of28.54 per cent of the shares purchased 100 shares, which together wouldmake its holding 39.77 per cent, sought registration of the shares. Since,no orders were passed on the registration, the respondent approachedCthe Company Law Board, Kolkata Bench, Kolkata. It was mainlycontended by the appellant that the respondent Company is controlledby a competitor in business, and hence, it would not be in the interest ofthe Government Company to permit such transfer. The Company LawBoard, however, rejected the contentions and directed registration asDper order dated 16.09.2015. The order, to the extent relevant, reads asfollows:

“6. Having considered (sic) the Company Petition, reply, rejoinderand the arguments (oral and written), it is observed that theRespondent Company is a Government of West BengalEUndertaking wherein 51.01% of the total issued, subscribed andpaid up share capital is held by the Government of West Bengalwhich correspondence to 454 equity shares of Rs.3,500/- each.Besides, the Petitioner Company is a member of the RespondentCompany being the registered shareholder of 254 equity sharesof Rs. 3,500/- each. As stated in the Company Petition, on orFabout 02.07.2014, the Petitioner Company purchased additional100 shares of and in the Respondent Company from one ShriSankar Naik in physical mode and the Petitioner Company videletter dated 02.04.2014, forwarded the original share certificatesalong with the transfer deeds duly signed, stamped and executedGto the Respondent Company for registering the transfer of thesaid 100 shares in the name of the Petitioner Company. But, thesaid communication returned with the postal endorsement“refused” and hence, the Petitioner Company through its Advocateissued a notice dated 09.06.2014 calling upon the RespondentCompany in the share register, which was responded to by the E

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Respondent Company vide communication dated 16.06.2014.Thereafter, once again the Petitioner Company vide letter dated02.07.2014, forwarded all the original share certificates togetherwith the duly executed and stamped transfer deeds to theRespondent Company for effecting registration of the transfer inthe name of Petitioner Company. Apart from this, the PetitionerCompany followed up the matter by issue of reminder dated25.08.2014 to the Respondent Company, but in vain. Consequently,legal notice dated 11.09.2014 was issued calling upon theRespondent Company to take immediate steps to register andrecord the name of the Petitioner Company as the registered ownerin relation to the aforesaid 100 shares. In this regard, theRespondent Company has replied that the action of the PetitionerCompany has been contrary to the SEBI Act as well SubstantialAcquisition of Shares and Takeover Regulations. In addition, thePetitioner Company is controlled by M/s MKJ Group which isinvolved in similar business as the Respondent Company is carryingon and hence, the intention of the Petitioner Company to purchase100 equity shares is to take over the control of the RespondentCompany. It has also been mentioned that on 13.03.2014, thePetitioner Company had already made an application for the saleof its said 254 Shares to the Principal Secretary of Governmentof West Bengal, Public Enterprises Division as well as theManaging Director of the Respondent Company. In this context,the Petitioner Company Advocate has averred that the questionof acquisition being violation of SEBI Act or Takeover Regulationis not applicable in the case of the Respondent Company as theshares of the Respondent Company are not listed. Not only this,the acquisition of 100 shares cannot and will not change the controlof the Respondent Company even after registration of suchtransfer as the Company will continue to remain as a GovernmentCompany. It is also irrelevant in the present context as the PetitionerCompany is controlled by MKJ Group or that the business of theRespondent Company and the MKJ Group are similar.

6.1 Under the aforesaid facts and circumstances, it is undoubtedlyclear that the Respondent Company received the share transferdeeds along with the original share certificates for registration ofthe transfer in favour of the Petitioner Company who is already ABCDE

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the second largest shareholder in the Respondent Company. Onone side, the Respondent Advocate has made the submission thaton 13.03.2014, the Petitioner Company had made an applicationfor sale of its 254 shares to the Principal Secretary of Governmentof West Bengal, Public Enterprises Division as well as theManaging Director of the Respondent Company, on the other side,doubt has been raised over the intention of the Petitioner Companythat the purported purchase of 100 equity shares is to take overthe control of the Respondent Company. Over and above, theplea has been taken by the Respondent Company Advocate thatthe Petitioner Company is controlled by M/s MKJ Group and thebusiness 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 Groupcannot acquire the control of the Respondent Company. As amatter of fact, even if the purchase of additional 100 shares bythe Petitioner Company is taken into consideration, the totalshareholding of the Petitioner Company will be 39.77% only.Besides, Article 44 of the Article of Association of the RespondentCompany gives the authority to the Board to decline the transferof shares and when such shares are not fully paid up. In the presentcase, there is no lien on any share of the Petitioner Company andalso, the shares are fully paid up. Thus, there seems to be noimpediment in transfer of shares and hence, the PetitionerCompany has the right to get the shares transferred in its name.

6.2 IN view of the legal position stated supra, I am of theconsidered opinion that the conditions specified in the concernedArticle 44 regarding transfer of shares have been duly filled bythe Petitioner Company and the registration of transfer cannot berefused arbitrarily and the reason for non-registration of transferin favour of the Petitioner Company on the suspicion of acquisitionof control by the Petitioner Company over the RespondentCompany is baseless and unfounded. Therefore, in the interest ofjustice, I hereby direct the Respondent Company to register thetransfer of impugned 100 shares in the name of the PetitionerCompany within 10 days of the receipt of this Order and also, tomake suitable entries in the register of members thereafter.”

3. The order passed by the Company Law Board in C.P. No. 151of 2014 was challenged by the appellant before the High Court of Calcuttaunder Section 10F of the Companies Act, 1956. In the Memorandum ofAppeal, the following questions of law were raised:

“XXV. FOR THAT following substantial questions of law arisefor consideration and determination by this Hon’ble Court:

a. Whether the Learned Company Law Board was to firstconsider whether the Appeal has been filed within the timeprescribed by Section 58 (4) of the Companies Act, 2013 whichis condition precedent to assuming jurisdiction to entertain theAppeal and should have refused to entertain the Appeal?

b. Whether it was the inherent duty and incumbent upon theLearned Company Law Board to consider the question of asto whether the Appeal had been filed within the time prescribedunder Section 58 (4) of the Companies Act, 2013 and to rejectthe Appeal?

c. Whether the Learned Company Law Board should have heldthat in any event the application for recording of transfer ofshares made on 2[nd] April, 2014 was refused/rejected by theletter dated 16.06.2014 served on the respondent same dayand the appeal not having been filed within 60 days from 16[th]June, 2014 was barred under Section 58 (4) of CompaniesAct, 2013.

d. Whether the Learned Company Law Board should have heldin view of the respondents case in their Advocates letter dated9[th] June, 2014 that registration was refused on 2[nd] April, 2014the appeal filed on 29[th] September, 2014 was beyond the timefixed under Section 58 (4) of the Companies Act, 1956 andwas not entertainable?

e. Whether the learned Company Law Board can directrectification of the share register in favour of an applicant whenthe applicant is controlled by Company which is a competitorin similar business of the Company?

f. Whether the learned Company Law Board ought to haveconsidered that MKJ Group would have access to the appellant A

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Aand its trade secrets and tenders submitted and policy decisionof the petitioner and act contrary to the interest of the appellantand the public at large?

g.Whether the learned Company Law Board can directrectification of share registration within 10 days from the receiptBof the impugned order without there being a valid good reason?

h. Whether on the notification of the Companies Act, 2013 theCompany Law Board is entitled to give effect to the repealedprovision of the Companies Act 1956?

i. Whether the learned Company Law Board can pass an orderCwithout considering the submissions and arguments of a partyin its entirety?

j. Whether the learned Company Law Board can pass an orderwithout taking into consideration the contention of the appellantby passing an urreasoned order?

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k. Whether the provision of the Companies Act, 2013 withrelation of the time period fixed in Section 58 and 59 aremandatory?

l. Whether in view of the notification of Section 58 and 59 of theCompanies Act 2013, the Learned Company Law Board hadEjurisdiction to adjudicate an application there under in view ofthe said provision only providing jurisdiction to the Tribunal?”

4. The High Court by order dated 15.10.2015, dismissed theappeal. The Court took the view that since the appeal filed by therespondent before the Company Law Board under Section 58/59 of theFCompanies Act, 2013 was liable to be admitted and considered evenbeyond the period of limitation, there was no other question of law takenin the appeal. To quote the relevant portion:

“The Court : The only question of Law ought to be urged inthe proposed appeal is as to whether the Company Law BoardGlacked authority in receiving the petition under Section 58 of theCompanies Act, 2013 beyond the period envisaged in sub-section(4) thereof.”

5. The order dated 15.10.2015 passed by the High Court waschallenged in Special Leave Petition (Civil) No. 35029 of 2015 by theH

appellant. The Special Leave Petition was permitted to be withdrawnwith liberty to approach the High Court. The said order dated 04.01.2016reads as follows:

“The learned counsel for the petitioner seeks permission towithdraw the special leave petition with liberty to approach theHigh 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 leavepetition 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 Courttook the view that the liberty granted to the appellant was to file a properreview and not to seek a fresh hearing by recalling the judgment dated15.10.2015. To quote:

“The Court: The basis of the present application appears tobe an order passed by the Hon’ble Supreme Court on 4th January,2016 preferred against the order passed by a Coordinate Benchon 15th October, 2015. It appears from the order of the Hon’bleSupreme Court that the petitioner prayed for withdrawal of thespecial leave petition with liberty to approach the High Court.The Hon’ble Supreme Court granted the said liberty. Thisapplication has been filed with a prayer for de novo and or freshconsideration of the order dated 15th October, 2015 on a speciousplea that the coordinate bench did not consider important questionsof law while dismissing the 10F appeal. The petitioner in effectseeks a review of the order passed by a Coordinate Bench. Theapplication is also not accompanied by a memorandum of review.The application is not in form. The petitioner has also notapproached 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 beforethis Court.

8. By order dated 11.11.2016, it was clarified that it would beopen to the appellant to file a proper review. Accordingly, the appellantfiled a review before the High Court. The said review petition was A

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Adismissed by the High Court holding that there was no mistake capableof correction in review and that the correction could be done only by asuperior forum. The order dated 15.09.2017 of the High Court reads asfollows:

“The Court :- The grounds cited for seeking reconsiderationBof the order dated October 15, 2015 have more to do with themerits of the original appeal under Section 10F of the CompaniesAct, 1956 than what is evident from the relevant order. Not everymistake is capable of correction in a review. A mistake of law orin the appreciation of facts may be made, but the same would beamenable to correction by a superior forum and not by way of aCreview.

Since no grounds of review are made out, RVW No.59 of2016 is dismissed without going into the merits of the groundsurged.

There will be no order as to costs.”D

9. The present appeal is filed compositely challenging the ordersdated 15.10.2015 and 15.09.2017.

10. We have extensively heard Shri C. Aryama Sundram, learnedSenior Counsel appearing for the appellant and Shri Shyam Divan, learnedESenior Counsel appearing for the respondent.

11. Refusal of registration of the transfer of shares and the appellateremedy are provided under Section 58 of the Companies Act, 2013. Thisprovision had come into force at the relevant time. The Section reads asfollows:F

“58. Refusal of registration and appeal against refusal.-(1) If a private company limited by shares refuses, whether inpursuance of any power of the company under its articles orotherwise, to register the transfer of, or the transmission byoperation of law of the right to, any securities or interest of amember in the company, it shall within a period of thirty daysfrom the date on which the instrument of transfer, or the intimationof such transmission, as the case may be, was delivered to thecompany, send notice of the refusal to the transferor and thetransferee or to the person giving intimation of such transmission,as the case may be, giving reasons for such refusal.

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(2) Without prejudice to sub-section (1), the securities or otherinterest of any member in a public company shall be freelytransferable:

Provided that any contract or arrangement between two or morepersons in respect of transfer of securities shall be enforceableas a contract.

(3) The transferee may appeal to the Tribunal against the refusalwithin a period of thirty days from the date of receipt of the noticeor in case no notice has been sent by the company, within a periodof sixty days from the date on which the instrument of transfer orthe intimation of transmission, as the case may be, was deliveredto the company.

(4) If a public company without sufficient cause refuses to registerthe transfer of securities within a period of thirty days from thedate on which the instrument of transfer or the intimation oftransmission, as the case may be, is delivered to the company, thetransferee may, within a period of sixty days of such refusal orwhere no intimation has been received from the company, withinninety days of the delivery of the instrument of transfer or intimationof 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, eitherdismiss the appeal, or by order—

(a) direct that the transfer or transmission shall be registeredby the company and the company shall comply with suchorder within a period of ten days of the receipt of theorder; or (b) direct rectification of the register and also direct thecompany to pay damages, if any, sustained by any partyaggrieved.

(6) If a person contravenes the order of the Tribunal under thissection, he shall be punishable with imprisonment for a term whichshall not be less than one year but which may extend to threeyears and with fine which shall not be less than one lakh rupeesbut which may extend to five lakh rupees.”

(Emphasis supplied)

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A12. Under Section 58(2) of the Companies Act, 2013, the securitiesor interest of any member in a public company are freely transferable.However, under Section 58 (4), it is open to the public company to refuseregistration of the transfer of the securities for a sufficient cause. Tothat extent, Section 58 (4) has to be read as a limited restriction on thefree transfer permitted under Section 58 (2). Section 10F of theBCompanies Act, 1956, provides that an appeal against an order passedby the Company Law Board can be filed before the High Court onquestions of law. Right to refuse registration of transfer on sufficientcause is a question of law and whether the cause shown for refusal issufficient or not in a given case, can be a mixed question of law and Cfact.

Cfact.

13. In the instant case, there is no resolution passed by the companyrefusing to register the transfer of shares. Since the Company LawBoard has gone into the contentions by the appellant for refusing toregister transfer for all purposes, it has to be taken that those contentionsDare the grounds taken by the appellant for refusing to transfer the shares.

14. The appellant has taken several grounds in the memorandumof appeal and raised questions of law as well on these aspects. Nodoubt, one of the main questions of law stressed in the appeal pertains tothe limitation. But on going through the several grounds taken in theMemorandum of Appeal and the questions of law raised specifically inEthe appeal and the grounds, it is apparent that the appellant had raisedquestions of law other than the question of law on limitation. Hence, theHigh Court has gone wrong in its view in the order dated 15.10.2015that “the only question of law soughtto be urged in the presentappeal is as to whether the Company Law Board lacked authorityFin reviewing petition under Section 5 of the Companies Act, 2013beyond the period envisaged in sub-Section 4 thereof”.

15. As per order 15.09.2017, the High Court, however, declinedto consider the review holding that the same was beyond the scope ofreview and that the same can be corrected only by a superior forum.

G16. We are afraid that the stand taken by the High Court cannotbe justified in the factual background we have explained and the legalposition analysed above. The appellant having taken specific grounds inthe appeal and having raised questions of law regarding its right to refuseregistration of transfer on sufficient ground, being a statutory appealunder Section 10F of the Companies Act, 1956, the High Court shouldHhave considered the same among other questions of law.

17. Be that as it may, as we have been taken through the groundsbefore the Company Law Board, we propose to consider the matterfrom that stage. The Company Law Board, it appears, was of the viewthat the refusal to register the transfer of shares can be permitted only ifthe transfer is otherwise illegal or impermissible under any law. Goingby the expression “without sufficient cause” used in Section 58(4), it isdifficult to appreciate that view. Refusal can be on the ground of violationof law or any other sufficient cause. Conflict of interest in a given situationcan also be a cause. Whether the same is sufficient in the facts andcircumstances of a given case for refusal of registration, is for theCompany Law Board to decide since the aggrieved party is given theright to appeal. The contention of the appellant before the CompanyLaw Board that the whole transfer is deceptive and mala fide in thebackground of the respondent company, should have been considered.

18. In that view of the matter, we do not think that we should goin further detail on the merits of the contentions. The order dated16.09.2015 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 of2015 and the order dated 15.09.2017 in RVWO 59 of 2016 and ACO171 of 2016 in APO 448 of 2015 are set aside. The matter is remitted tothe Company Law Board, now the National Company Law Tribunal forconsideration afresh of the appeal filed under Section 58 of the CompaniesAct, 1956. We make it clear that the Tribunal shall pass orders afreshuninfluenced by any of the observations and findings in the order dated16.09.2015 of the Company Law Board, orders of the High Court or ofthis Court. We direct the Tribunal to pass orders expeditiously since theappeal is of the year 2014. The appeals are disposed of accordingly.

19. There shall be no order as to costs.

Nidhi Jain

Appeals disposed of.

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