REPORTABLE  

SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.  3322-3323 OF 2018 (Arising out of S.L.P. (Civil)  Nos.8204-8205 of 2018)

(Diary No. 485 of 2018)

MACKINTOSH BURN LIMITED       ...  APPELLANT (S)

VERSUS

SARKAR AND CHOWDHURY ENTERPRISES PRIVATE LIMITED          ... RESPONDENT (S)

J  U  D  G  M  E  N  T

KURIAN, J.:

         Delay condoned. Leave granted.  

2. The appellant is a public company with majority of shares

held by the Government of West Bengal. The respondent, which is

holder  of  28.54 per  cent  of  the  shares  purchased 100  shares,

which together  would make its  holding 39.77 per  cent,  sought

registration of the shares. Since, no orders were passed on the

registration, the respondent approached the Company Law Board,

Kolkata Bench, Kolkata. It was mainly contended by the appellant

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that  the  respondent  Company is  controlled  by a  competitor  in

business,  and  hence,  it  would  not  be  in  the  interest  of  the

Government Company to permit such transfer. The Company Law

Board,  however,  rejected  the  contentions  and  directed

registration  as  per  order  dated  16.09.2015.  The  order,  to  the

extent relevant, reads as follows:

“6.  Having  considered  (sic)  the  Company Petition,  reply,  rejoinder  and  the  arguments  (oral and  written),  it  is  observed  that  the  Respondent Company  is  a  Government  of  West  Bengal Undertaking  wherein  51.01%  of  the  total  issued, subscribed and paid up share capital is held by the Government of West Bengal which correspondence to 454 equity shares of Rs.3,500/- each. Besides, the Petitioner Company is a member of the Respondent Company being  the  registered  shareholder  of  254 equity shares of Rs. 3,500/- each. As stated in the Company  Petition,  on  or  about  02.07.2014,  the Petitioner Company purchased additional 100 shares of  and in  the Respondent Company from one Shri Sankar  Naik  in  physical  mode  and  the  Petitioner Company  vide  letter  dated  02.04.2014,  forwarded the original share certificates along with the transfer deeds  duly  signed,  stamped  and  executed  to  the Respondent Company for registering the transfer of the said 100 shares in the name of  the Petitioner Company.  But,  the  said  communication  returned with the postal endorsement “refused” and hence, the Petitioner Company through its Advocate issued a  notice  dated  09.06.2014  calling  upon  the Respondent  Company in  the  share  register,  which was responded to by the Respondent Company vide communication dated 16.06.2014. Thereafter, once

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again  the  Petitioner  Company  vide  letter  dated 02.07.2014,  forwarded  all  the  original  share certificates  together  with  the  duly  executed  and stamped transfer deeds to the Respondent Company for effecting registration of the transfer in the name of Petitioner Company. Apart from this, the Petitioner Company  followed  up  the  matter  by  issue  of reminder  dated  25.08.2014  to  the  Respondent Company,  but  in  vain.  Consequently,  legal  notice dated  11.09.2014  was  issued  calling  upon  the Respondent  Company  to  take  immediate  steps  to register  and  record  the  name  of  the  Petitioner Company as the registered owner in relation to the aforesaid 100 shares. In this regard, the Respondent Company has replied that the action of the Petitioner Company has been contrary to the SEBI Act as well Substantial  Acquisition  of  Shares  and  Takeover Regulations. In addition, the Petitioner Company is controlled  by  M/s  MKJ  Group  which  is  involved  in similar  business  as  the  Respondent  Company  is carrying on and hence, the intention of the Petitioner Company to purchase 100 equity shares is to take over the control of the Respondent Company. It has also  been  mentioned  that  on  13.03.2014,  the Petitioner  Company  had  already  made  an application for the sale of its said 254 Shares to the Principal Secretary of Government of West  Bengal, Public Enterprises Division as well as the Managing Director of the Respondent Company. In this context, the Petitioner Company Advocate has averred that the question of  acquisition being violation of  SEBI Act or Takeover Regulation is not applicable in the case of the Respondent Company as the shares of the  Respondent  Company  are  not  listed.  Not  only this,  the acquisition of 100 shares cannot and will not change the control of the Respondent Company even  after  registration  of  such  transfer  as  the Company will continue to remain as a Government Company. It is also irrelevant in the present context

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as  the  Petitioner  Company  is  controlled  by  MKJ Group  or  that  the  business  of  the  Respondent Company and the MKJ Group are similar.  

6.1 Under the aforesaid facts and circumstances, it is undoubtedly clear that the Respondent Company received  the  share  transfer  deeds  along  with  the original  share  certificates  for  registration  of  the transfer in favour of the Petitioner Company who is already  the  second  largest  shareholder  in  the Respondent Company. On one side, the Respondent Advocate  has  made  the  submission  that  on 13.03.2014,  the Petitioner  Company had made an application for sale of its 254 shares to the Principal Secretary  of  Government  of  West  Bengal,  Public Enterprises Division as well as the Managing Director of  the  Respondent  Company,  on  the  other  side, doubt  has  been  raised  over  the  intention  of  the Petitioner Company that the purported purchase of 100 equity shares is to take over the control of the Respondent Company. Over and above, the plea has been taken by the Respondent Company Advocate that the Petitioner Company is controlled by M/s MKJ Group and the business of the Respondent Company and MKJ Group are similar, whereas the Government of West Bengal is singly owing 51.01% of the paid up capital of the Company and thereby, the MKJ Group cannot  acquire  the  control  of  the  Respondent Company. As a matter of fact, even if the purchase of additional 100 shares by the Petitioner Company is taken into consideration, the total shareholding of the Petitioner Company will be 39.77% only. Besides, Article  44  of  the  Article  of  Association  of  the Respondent  Company  gives  the  authority  to  the Board to  decline  the transfer  of  shares  and when such  shares  are  not  fully  paid  up.  In  the  present case, there is no lien on any share of the Petitioner Company  and  also,  the  shares  are  fully  paid  up. Thus, there seems to be no impediment in transfer

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of shares and hence, the Petitioner Company has the right to get the shares transferred in its name.

6.2 IN view of the legal position stated supra, I am  of  the  considered  opinion  that  the  conditions specified  in  the  concerned  Article  44  regarding transfer  of  shares  have  been  duly  filled  by  the Petitioner Company and the registration of transfer cannot  be  refused  arbitrarily  and  the  reason  for non-registration of transfer in favour of the Petitioner Company on the suspicion of acquisition of control by  the  Petitioner  Company  over  the  Respondent Company is baseless and unfounded. Therefore,  in the  interest  of  justice,  I  hereby  direct  the Respondent  Company  to  register  the  transfer  of impugned 100 shares in the name of the Petitioner Company within 10 days of the receipt of this Order and also, to make suitable entries in the register of members thereafter.”

3. The order passed by the Company Law Board in C.P. No.

151 of  2014 was  challenged by the appellant  before  the  High

Court of Calcutta under Section 10F of the Companies Act, 1956.

In  the  Memorandum of  Appeal,  the  following  questions  of  law

were raised:

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

a. Whether the Learned Company Law Board was to first consider whether the Appeal has been filed within the time prescribed by Section 58 (4)  of  the  Companies  Act,  2013  which  is

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condition precedent to assuming jurisdiction to entertain the Appeal and should have refused to entertain the Appeal?

b. Whether  it  was  the  inherent  duty  and incumbent  upon  the  Learned  Company  Law Board to consider the question of as to whether the  Appeal  had  been  filed  within  the  time prescribed  under  Section  58  (4)  of  the Companies Act, 2013 and to reject the Appeal?

c. Whether  the  Learned  Company  Law  Board should  have  held  that  in  any  event  the application  for  recording  of  transfer  of  shares made on 2nd April, 2014 was refused/rejected by the  letter  dated  16.06.2014  served  on  the respondent same day and the appeal not having been filed within 60 days from 16th June, 2014 was barred under Section 58 (4) of Companies Act, 2013.

d. Whether  the  Learned  Company  Law  Board should  have  held  in  view  of  the  respondents case  in  their  Advocates  letter  dated  9th June, 2014 that registration was refused on 2nd April, 2014 the appeal filed on 29th September, 2014 was beyond the time fixed under Section 58 (4) of  the  Companies  Act,  1956  and  was  not entertainable?

e. Whether the learned Company Law Board can direct rectification of the share register in favour of an applicant when the applicant is controlled by  Company  which  is  a  competitor  in  similar business of the Company?

f. Whether the learned Company Law Board ought to have considered that MKJ Group would have access  to  the  appellant  and  its  trade  secrets and  tenders  submitted  and  policy  decision  of the petitioner and act contrary to the interest of the appellant and the public at large?

g. Whether the learned Company Law Board can direct  rectification  of  share  registration  within

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10 days from the receipt of the impugned order without there being a valid good reason?

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

i. Whether the learned Company Law Board can pass  an  order  without  considering  the submissions  and  arguments  of  a  party  in  its entirety?

j. Whether the learned Company Law Board can pass an order without taking into consideration the contention of the appellant by passing an urreasoned order?

k. Whether  the  provision  of  the  Companies  Act, 2013 with  relation of  the time period fixed in Section 58 and 59 are mandatory?

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

4. The High Court by order dated 15.10.2015, dismissed the

appeal. The Court took the view that since the appeal filed by the

respondent before the Company Law Board under Section 58/59

of  the  Companies  Act,  2013  was  liable  to  be  admitted  and

considered even beyond the period of  limitation,  there was no

other question of law taken in the appeal. To quote the relevant

portion:

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

5. The order dated 15.10.2015 passed by the High Court was

challenged in Special Leave Petition (Civil) No. 35029 of 2015 by

the  appellant.  The  Special  Leave  Petition  was  permitted  to  be

withdrawn with liberty to approach the High Court. The said order

dated 04.01.2016 reads as follows:

“The learned counsel for the petitioner seeks permission to withdraw the special leave petition with liberty to approach the High Court. Permission is granted with the above liberty. Accordingly, the special  leave petition is dismissed as withdrawn. We make it clear that we have not considered the special leave petition on merits.”

6. It appears the appellant filed an application to recall the

judgment. The same was dismissed by order dated 08.08.2016.

The  High  Court  took  the  view  that  the  liberty  granted  to  the

appellant  was to  file  a  proper  review and not  to  seek a  fresh

hearing by recalling the judgment dated 15.10.2015. To quote:

“The  Court:  The  basis  of  the  present application appears to be an order passed by the Hon’ble  Supreme  Court  on  4th  January,  2016

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preferred  against  the  order  passed  by  a Coordinate  Bench  on  15th  October,  2015.  It appears  from the order  of  the  Hon’ble  Supreme Court that the petitioner prayed for withdrawal of the special leave petition with liberty to approach the  High  Court.  The  Hon’ble  Supreme  Court granted the said liberty. This application has been filed  with  a  prayer  for  de  novo  and  or  fresh consideration  of  the  order  dated  15th  October, 2015 on a specious plea that the coordinate bench did not consider important questions of law while dismissing the 10F appeal. The petitioner in effect seeks  a  review  of  the  order  passed  by  a Coordinate  Bench.  The  application  is  also  not accompanied  by  a  memorandum of  review.  The application is not in form. The petitioner has also not  approached  the  Coordinate  Bench  seeking review of the order.

Under  such  circumstances,  this  application stands dismissed. However, there shall be no order as to costs.”

7. The appellant challenged the said order dated 08.08.2016

before this Court.

8. By order dated 11.11.2016, it was clarified that it would

be open to the appellant to file a proper review. Accordingly, the

appellant filed a review before the High Court. The said review

petition was dismissed by the High Court holding that there was

no mistake capable of correction in review and that the correction

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could  be  done  only  by  a  superior  forum.  The  order  dated

15.09.2017 of the High Court reads as follows:

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

Since  no  grounds  of  review  are  made  out, RVW No.59 of 2016 is dismissed without going into the merits of the grounds urged.

There will be no order as to costs.”

9. The present  appeal  is  filed  compositely  challenging  the

orders dated 15.10.2015 and 15.09.2017.

10. We  have  extensively  heard  Shri  C.  Aryama  Sundram,

learned  Senior  Counsel  appearing  for  the  appellant  and  Shri

Shyam  Divan,  learned  Senior  Counsel  appearing  for  the

respondent.  

11. Refusal  of registration of the transfer of shares and the

appellate  remedy  are  provided  under  Section  58  of  the

Companies Act, 2013. This provision had come into force at the

relevant time. The Section reads as follows:

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“58. Refusal of registration and appeal against refusal.-(1) If a private company limited by shares  refuses,  whether  in  pursuance of  any power  of  the  company  under  its  articles  or otherwise,  to  register  the  transfer  of,  or  the transmission by operation of law of the right to, any  securities  or  interest  of  a  member  in  the company,  it  shall  within  a  period  of  thirty  days from the date on which the instrument of transfer, or the intimation of such transmission, as the case may  be,  was  delivered  to  the  company,  send notice  of  the  refusal  to  the  transferor  and  the transferee  or  to  the  person  giving  intimation  of such  transmission,  as  the  case  may  be,  giving reasons for such refusal.         (2) Without prejudice to sub-section (1), the securities  or  other  interest  of  any  member  in  a public company shall be freely transferable:

Provided  that  any  contract  or  arrangement between  two  or  more  persons  in  respect  of transfer  of  securities  shall  be  enforceable  as  a contract.

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

(4) If  a  public  company  without  sufficient cause refuses to register the transfer of securities within  a  period  of  thirty  days  from the  date  on which the instrument of transfer or the intimation of transmission, as the case may be, is delivered to  the  company,  the  transferee  may,  within  a period of sixty days of such refusal  or where no intimation has been received from the company, within  ninety  days  of  the  delivery  of  the

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instrument  of  transfer  or  intimation  of transmission, appeal to the Tribunal. (5)  The  Tribunal,  while  dealing  with  an  appeal made  under  sub-section  (3)  or  sub-section  (4), may, after hearing the parties, either dismiss the appeal, or by order—

(a) direct that the transfer or transmission shall be registered by the company and the  company  shall  comply  with  such order within a period of ten days of the receipt of the order; or

(b) direct  rectification  of  the  register  and also  direct  the  company  to  pay damages, if any, sustained by any party aggrieved.  

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

(Emphasis supplied)

12. Under  Section  58(2)  of  the  Companies  Act,  2013,  the

securities  or  interest  of  any  member  in  a  public  company are

freely transferable. However, under Section 58 (4), it is open to

the public company to refuse registration of the transfer of the

securities for a sufficient cause. To that extent, Section 58 (4) has

to be read as a limited restriction on the free transfer permitted

under Section 58 (2).  Section 10F of the Companies Act, 1956,

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provides that an appeal against an order passed by the Company

Law Board can be filed before the High Court on questions of law.

Right  to  refuse registration of  transfer  on sufficient  cause is  a

question  of  law  and  whether  the  cause  shown  for  refusal  is

sufficient or not in a given case, can be a mixed question of law

and fact.

13. In the instant case, there is no resolution passed by the

company refusing  to  register  the  transfer  of  shares.  Since  the

Company  Law  Board  has  gone  into  the  contentions  by  the

appellant for refusing to register transfer for all purposes, it has to

be taken that  those contentions  are the grounds taken by the

appellant for refusing to transfer the shares.

14. The  appellant  has  taken  several  grounds  in  the

memorandum of appeal and raised questions of law as well on

these  aspects.  No  doubt,  one  of  the  main  questions  of  law

stressed in  the appeal  pertains  to  the limitation.  But  on going

through the several grounds taken in the Memorandum of Appeal

and the questions of law raised specifically in the appeal and the

grounds, it is apparent that the appellant had raised questions of

law other than the question of law on limitation. Hence, the High

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Court has gone wrong in its view in the order dated 15.10.2015

that “the only question of law sought to be urged in the present

appeal is as to whether the Company Law Board lacked authority

in reviewing petition under Section 5 of the Companies Act, 2013

beyond the period envisaged in sub-Section 4 thereof”.

15. As  per  order  15.09.2017,  the  High  Court,  however,

declined to consider the review holding that the same was beyond

the scope of review and that the same can be corrected only by a

superior forum.

16. We  are  afraid  that  the  stand  taken  by  the  High  Court

cannot be justified in the factual background we have explained

and the legal position analysed above. The appellant having taken

specific grounds in the appeal and having raised questions of law

regarding its right to refuse registration of transfer on sufficient

ground,  being  a  statutory  appeal  under  Section  10F  of  the

Companies Act, 1956, the High Court should have considered the

same among other questions of law.  

17. Be that as it  may,  as we have been taken through the

grounds before the Company Law Board, we propose to consider

the matter from that stage. The Company Law Board, it appears,

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was of the view that the refusal to register the transfer of shares

can  be  permitted  only  if  the  transfer  is  otherwise  illegal  or

impermissible under any law. Going by the expression “without

sufficient cause” used in Section 58(4), it is difficult to appreciate

that view. Refusal can be on the ground of violation of law or any

other sufficient cause. Conflict of interest in a given situation can

also be a cause. Whether the same is sufficient in the facts and

circumstances of a given case for refusal of registration, is for the

Company Law Board to decide since the aggrieved party is given

the right to appeal.  The contention of the appellant before the

Company  Law Board  that  the  whole  transfer  is  deceptive  and

mala fide in the background of the respondent company, should

have been considered.

18. In that view of the matter, we do not think that we should

go in further detail on the merits of the contentions. The order

dated 16.09.2015 passed by  the  Company Law Board,  Kolkata

Bench,  Kolkata,  the order dated 15.10.2015 in ACO No.  199 of

2015 in APO No. 448 of 2015 and the order dated 15.09.2017 in

RVWO 59 of 2016 and ACO 171 of 2016 in APO 448 of 2015 are

set aside. The matter is remitted to the Company Law Board, now

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the National Company Law Tribunal for consideration afresh of the

appeal filed under Section 58 of the Companies Act,  1956. We

make  it  clear  that  the  Tribunal  shall  pass  orders  afresh

uninfluenced by any of the observations and findings in the order

dated 16.09.2015 of the Company Law Board, orders of the High

Court  or  of  this  Court.  We  direct  the  Tribunal  to  pass  orders

expeditiously since the appeal is of the year 2014. The appeals

are disposed of accordingly.

19. There shall be no order as to costs.

............................................J. (KURIAN JOSEPH)

............................................J. (MOHAN M. SHANTANAGOUDAR)   

                       NEW DELHI; MARCH 27, 2018.

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