By POOJA J. PUNJABI Chartered Accountant
7. [2018] 143 CLA 421 (SC)
Mackintosh Burn Limited vs. Sarkar and
Chowdhury Enterprises Private Limited
Date of Order: 27th March,
2018
Sections 58(2) and 58(4)
of Companies Act, 2013 – Refusal to record registration of shares is a mixed
question of law and facts – “Sufficient cause” as appearing in section 58(4) is
not restrictive to mean that only illegal or impermissible transfers can be
refused – A refusal to transfer shares for conflict of interest in a given
situation can also be a cause – Each case will have to be examined for facts to
determine what constitutes “sufficient cause”
FACTS
M Co is a public company
with majority of shares held by the Government of West Bengal. S Co held 28.54%
of the shares of M Co and further acquired 100 shares, which together would
make its holding 39.77%. M Co refused to register the transfer of shares on the
contention that S Co was controlled by a competitor in business, and hence, it
would not be in the interest of a Government Company to permit such transfer.
Company Law Board (“CLB”), vide order dated 16.09.2015 rejected the contentions
and directed registration of shares in favour of S Co.
The order of CLB was
challenged before the High Court of Calcutta u/s. 10F of the Companies Act,
1956. The appeal was dismissed by the High Court. After several rounds of
litigation, review petition was filed before the High Court, which was also
dismissed by the High Court. High Court, in the order dated 15.09.2017 held
that there was no mistake capable of correction and that correction could be
done only by a superior forum.
Present application was
filed before the Supreme Court challenging the orders.
HELD
Refusal of registration of
the transfer of shares and the appellate remedy are provided u/s. 58 of the
Companies Act, 2013. This provision had come into force at the relevant time.
Supreme Court went through provisions of section 58(2) and 58(4) of the
Companies Act, 2013. It observed that 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, section 58(4) has to be read as a limited
restriction on the free transfer permitted u/s. 58(2).
Supreme Court held that
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.
The Supreme Court held
that High Court should have considered various aspects arising through the
order of CLB and not restricted itself in adjudicating on the grounds of
limitation only.
The Supreme Court observed
that meaning of the words “without sufficient cause” as used in section 58(4)
cannot be interpreted to mean that transfer of shares can be permitted only if
the transfer is otherwise illegal or impermissible under any law. 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. It observed that whether the
reason for refusal of registration is sufficient in the facts and circumstances
of a given case is for the Company Law Board to decide.
Without going into any
further merits of the case, Supreme Court set – aside the orders of CLB and
High Court and remitted the matter back to NCLT for afresh consideration
without being influenced by any findings recorded in the orders of CLB, High
Court or the Supreme Court.
8. (2018) 91 taxmann.com 123 (NCLAT)
Achintya Kumar Barua vs.
Ranjit Barthkur
Date of Order: 08th
February, 2018
Section 173(2) of
Companies Act, 2013 – A company is bound to provide video-conferencing or
participation through other audio visual means to a director who intends to
avail the same for attending the meetings of Board of Directors – Secretarial
Standards which make provision of this facility optional for the company would
not override the law contained in Act and Rules
FACTS
‘R’ had filed an
application in order to enforce its right to participate in the Board meetings
of the company through video conferencing. The matter had earlier come-up
before the Company Law Board (‘CLB’) and being aggrieved by certain observations,
the same was carried to the High Court of Guwahati. The Hon’ble High Court
found that the appeal did not raise any question of law and sent back the
matter. The same came up before the National Company Law Tribunal (“NCLT”) and
hearing both sides, the NCLT allowed the application directing that the
facility u/s. 173(2) of the Companies Act, 2013 should be made available. It
further observed that company had necessary infrastructure to provide such a
facility. ‘A’ and other directors filed an appeal before National Company Law
Appellate Tribunal (“NCLAT”) against the order of the NCLT.
‘A’ put forth two
contentions before the NCLAT. Firstly, it was urged that provisions of section
173(2) are not mandatory and that it is not compulsory for the company to
provide facility for video-conferencing. Secondly, Rule 3(2)(e) of the
Companies (Meetings of Board and its Powers) Rules, 2014 (“Rules”) casts
responsibility on the Chairperson to ensure that no person other than the
concerned Director is attending or having access to the proceedings of the
meeting through video-conferencing mode or other audio-visual means. It was
submitted that Chairman may not be able to ensure the same as he would have no
means to know as to who else is sitting in the room or place concerned.
HELD
NCLAT perused the
provisions of section 173(2) as well as Rule 3. It held that use of the word
“may” in the section only gave an option to the Director to choose whether he
would be participating in person or through video-conferencing or other
audio-visual means. The word “may” did not give an option to the company to
deny this right given to the Directors for participation through
video-conferencing or other audio-visual means, if they so desire.
NCLAT held that Rules,
read as a whole, were a complete scheme. While Rule 3(2)(e) casts a
responsibility on the Chairman, Rule 3(4) casts a responsibility on the
participating director as well. The Chairperson will ensure compliance of Rule
3(2)(e) and the director will need to satisfy the Chairperson that Rule 3(4)(d)
is being complied.
‘A’ further submitted that
Secretarial Standard on Meetings of the Board of Directors provide that
participation through video conferencing or other audio-visual means can be
done only “if the Company provides such facility”. NCLAT however held that the
said guidelines would not override the provisions contained under the Act and
Rules.
NCLAT thus held that
provisions of section 173(2) were mandatory and the companies cannot be
permitted to make any deviations therefrom and dismissed the appeal filed
before it by ‘A’.
[Author’s note: An analysis
of this judgement has been carried in May 2018 issue of the Journal on page 93]
9. I.A. No. 594 of 2018 in Company Appeal (AT)
(Insolvency) No. 188 of 2018 – NCLAT (New Del) Rajputana Properties Pvt. Ltd.
vs. Ultra Tech Cement Ltd.
Date of Order: 15th
May, 2018
Sections 24, 29 and 30 of
Insolvency and Bankruptcy Code, 2016 – Resolution professional does not have
power to take comments on the resolution plan submitted by any of the
Resolution Applicant(s) – Procedure to be followed by the IRP and CoC explained
in light of provisions of law
FACTS
National Company Law
Appellate Tribunal (“NCLAT”) had vide an interim order dated 04.05.2018 ordered
that Committee of Creditors (“CoC”) and Adjudicating Authority would approve
one or the other resolution plans which would be subject to the decision of the
appeal.
Insolvency resolution professional
(“IRP”) gave a notice to all the parties concerned that he would decide about
the eligibility of one or more resolution applicant (“RA”).
CoC argued that it is
required to consider all the resolution plans and all the aspects of every plan
in order to approve one of the plans.
It was submitted that IRP
is required to decide whether resolution plan(s) are in accordance with
existing provisions of law and fulfil other conditions as prescribed u/s. 30(2)
of the Insolvency and Bankruptcy Code, 2016 (“the Code”) and therefore, it was
within the domain of the IRP to decide such issue.
IRP submitted that he did
not intimate RAs that he will decide eligibility of one or other RA and that he
merely called for comments of all the RAs.
HELD
The NCLAT examined the
provisions of sections 29 and 30 in order to determine the duties of the IRP.
It observed
the following:
(a) IRP is required to prepare an ‘Information
Memorandum’ for formulating a resolution plan. The IRP is required to provide
RA all the relevant information in physical and electronic form.
(b) IRP is required to examine each resolution plan
received by him to confirm that the resolution plan provides for payment of
Insolvency Resolution Process costs, payment of debts of Operational Creditor(s),
management of the affairs of the corporate debtor, implementation and
supervision of the resolution plan, other requirements as may be specified by
the Board and does not contravene any of the provisions of law for the time
being in force.
(c) In absence of any information through any
source while scrutinising the resolution plan u/s. 30(2) of the Code, IRP
cannot decide upon eligibility of the RA u/s. 29A.
(d) There is no provision in the Code conferring
power upon the IRP to decide upon the eligibility or otherwise of the RA.
(e) IRP is only required to examine whether the
plan conforms to provisions of section 30(2). He cannot disclose it to any
other person including the RA(s) who has submitted the plan.
(f) The resolution plan
submitted by a RA being confidential cannot be disclosed to any competitor RA
nor any opinion can be taken or objection can be called for from other RAs with
regard to one or other resolution plan.
(g) Joint reading of
sections 24 and 30 suggests that following persons are to take part in the
meeting of CoC at the time of approval of one or other resolution plan:
? Members of CoC
? Members of the (suspended) Board of Directors
or the partners of the corporate persons;
? Operational Creditors or their
representatives if the amount of their aggregate dues is not less than ten per
cent of the debt
? RAs
(h) CoC while approving or
rejecting one or other resolution plan should follow such procedure which is
transparent. Persons who do not have a right to vote can certainly express
their views to the CoC.
(i) CoC should record
reasons (in short) while approving or rejecting one or the other resolution
plan.
(j) Views expressed by
persons not entitled to vote have to be taken in to consideration by the CoC
before approving or rejecting a resolution plan.
(k) RAs may, in the
meeting before CoC, point out whether one or the other person (Resolution
Applicant) is ineligible in terms of section 29A or not.
(l) IRP is required to
communicate the final decision of the CoC to the Adjudicating Authority.
(m) The Adjudicating
Authority who is required to take decision as per section 31 of the Code, can
go through the reasoning to accept or reject one or other objection or
suggestion and may express its own opinion/decision.
NCLAT thus, laid down the
procedures to be followed by the IRP and the manner in which meetings of the
CoC would
be conducted.
IRP was directed to not
take any comments from any of the RA(s).
