Companies Act, 2013: s. 58 – Refusal of registration and appeal against refusal – Held: Under s. 58(2), the securities or interest of any member in a public company are freely transferable – However, u/s.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, s. 58 (4) has to be read as a limited restriction on the free transfer permitted u/s. 58(2) – 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 – On facts, since no orders were passed on registration of shares, respondent approached Company law Board, which directed registration – 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 u/s. 10F, the High Court should have considered the same among other questions of law – Company Law Board, 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), said view cannot be accepted – 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 – Submission 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 – In view thereof, matter remitted to the Company Law Board for consideration afresh of the appeal filed u/s. 58.
Disposing of the appeals, the Court
HELD: 1.1 Refusal of registration of the transfer of shares and the appellate remedy are provided under Section 58 of the Companies Act, 2013. Under Section 58(2) of the 2013 Act, 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 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. [Para 11, 12] [92-F; 94-A-C]
1.2 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. 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 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”. [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 CHOWDHURY ENTERPRISES PVT. LTD. [KURIAN, J.]
the scope of review and that the same can be corrected only by a superior forum. The stand taken by the High Court cannot be justified in the factual background and the legal position analysed. 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. [Para 15, 16] [94-G-H]
1.4 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 Law Board that the whole transfer is deceptive and mala fide in the background of the respondent company, should have been considered. In that view of the matter, the order dated 16.09.2015 passed by the Company Law Board, 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 the National Company Law Tribunal for consideration afresh of the appeal filed under Section 58 of the Companies Act, 1956. [Para 17, 18] [95-A-E]
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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