M/S PHENIL SUGARS LTD vs MRS. LAXMI GUPTA & ORS
CO.A(SB) 9/2015 & CO.APPL. 615/2015
Facts:
1.An application filed by the Respondents, against the Appellant Company – M/s Basti Sugar Mills (now ‘Phenil Sugars Ltd.’) seeking a prayer to the effect that their shareholding ought to be registered by the company before the CLB which was allowed by the CLB vide order dated 17.12.2014.
2.Appeal has been filed by the Appellant under Section 10F of the Companies Act, 1956 (hereinafter ‘the Act’) against the impugned judgment and order dated 17th December, 2014 passed by the Company Law Board (CLB). Vide the impugned order, the CLB has held that the reason given by the Appellant to refuse registration of shares of the Respondents do not fall within the ambit of Section 111A of the Act.
Issue: Whether the appeal can be allowed?
Arguments:
Appellant:
1.Counsel for the Appellant submitted that under Section 111A of the Act, the proviso to sub-Section 2 makes it clear that the company has the discretion to refuse the registration of the transfer of shares for sufficient cause. It was submission that one of the Respondents i.e., Respondent No.4- Mr. Madhav Sharan Gupta was the Auditor of the company and had conducted himself in a manner which was detrimental to the interests of the company itself.
Decision: HC allowed the appeal.
Rationale:
1.Hon’ble HC noted that the CLB has concluded that though Basti Sugar Mills Co. Ltd. merged with Phenil Sugars Pvt. Ltd. on 20th February, 2013, the transferor company being a public company, the lis would be covered by Section 111A and not Section 111 of the Act.
2.It held that interpretation of the expression ‘sufficient cause’ in the context of refusal by a Company to register shares has to be pragmatic, reasonable and in consonance with the purpose of the legislation. Moreover, it has to be kept in mind that the legislature deliberately used the expression “sufficient cause” in proviso to Section 111A (2) as against the expression “contravention of any of the provision of law” used in proviso to Section 111A (3) of the Companies Act, 1956.
3.It further held 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
4.It noted that 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.
Order Copy:
