Company Law Board
Gammon India Ltd. vs Hongkong Bank (Agency) Pvt. Ltd. And ... on 26 November, 1991
ORDER
1. This matter arises out of eighteen (18) references filed under Section 22A of the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as "the SCR Act") by Messrs. Gammon India Limited (hereinafter referred to as "the company"--"GIL") for confirming the opinion formed by its board of directors in its various meetings held on January 21, 1989, March 2, 1989, September 2, 1989, October 10, 1989, and September 20, 1990, to refuse the registration of 4,20,489 shares in favour of the respondents as detailed in annexure "A" attached to this order. After taking into consideration the material placed before the board, it has, in good faith, formed an opinion that the shares sought to be transferred in the name of the transferees, if registered, would certainly result in a change in the composition of the board of directors and that such a change in the composition of the board of directors of the company would be prejudicial to the interest of the company, its employees, creditors, Government, other shareholders and public at large.
2. Since the facts in all the references are identical and a common point of law is involved, it was decided to consider and dispose of all the references listed above together by this common order to which the concerned parties present agreed. It is noted that notices have been sent to all the respondents and have been duly served on all. In respect of three notices which have come back undelivered with the remarks "refused/ not found", Shri Telly, advocate, submitted that he is representing all these three companies.
3. Since, in the reference under Section 22A of SCR Act, material facts available to the board of directors at the time of considering the request for registration of transfer of shares are very crucial, all these 18 references inviting 4,20,489 shares covered under five board resolutions passed between January 22, 1989, and September 20, 1990, are grouped in three categories after taking into consideration the various board resolutions. Group I consists of 2,42,112 shares lodged for registration by Hongkong and Shanghai Banking Corporation and rejected by the board of directors on January 22, 1989. Group II consists of respondents Nos. 2 to 9, Alaknanda Manufacturing and Finance Pvt. Ltd. (1,61,337 shares), Tracstar Investments Pvt. Ltd. (11,550 shares), Tezpore Tea Co. Ltd. (1,727 shares), Malleswara Finance and Investment Co. Pvt. Ltd. (764 shares), Manswar Investments Pvt. Ltd. (500 shares), Cruickshank and Co. Ltd. (1,000 shares), Tribtiss Investment Trust Ltd. (500 shares) and Maharashtra Distilleries Ltd. (950 shares), involving 1,78,328 shares which are rejected in the board of directors meetings held on March 2, 1989, September 2, 1989, October 11, 1989 and September 20, 1990. However, the bulk of these shares (88%) were considered in the board meeting held on March 2, 1989. Group III consists of respondents Nos. 10 to 14 involving 49 shares lodged by Mechano Sales Agencies Pvt. Ltd. (3 shares), Saukam Trading and Investments Pvt. Ltd. (3 shares), Sanchi Business and Finance Pvt. Ltd. (5 share.s), Navsum Marketing Pvt. Ltd. (25 shares) and Saharsh Marketing and Finance Pvt. Ltd. (13 shares) all rejected in one board meeting held on October 11, 1989. This grouping also seems to be appropriate and logical as respondents Nos. 2 to 9 were represented by one common advocate who had also adopted same arguments in the hearing before us, while advocate representing respondent No. 1 had adopted a different approach. Respondents Nos. 10 to 14 neither remained present nor filed any replies to the notices issued by this Bench.
4. It is the case of GIL that, as enumerated in the board resolution dated January 22, 1989, Mr. M.R. Chhabria had entered into an agreement dated July 15, 1988, for acquisition of 2,76,913 (12.8%) shares of GIL from Mr. Andrew Gammon, one of the members of the Gammon family. Mr. Andrew Gammon had also undertaken upon himself to procure for Mr. Chhabria rest of the shares held by the other branch of the Gammon family. An application was made to the Reserve Bank of India for permission for sale of 12.8% shares to Elcano Investments, a company based in Hongkong in which Chhabria has 98% holding and an irrevocable power of attorney was executed by overseas sellers in favour of Chhabria Investments Pvt. Ltd. for exercising voting rights on the said 2,76,913 shares. Further, Hongkong and Shanghai Banking Corporation had lodged for transfer of 2,42,112 equity shares (11.39%) in favour of their subsidiary Hongkong Bank (Agency) Pvt. Ltd. who is respondent No. 1 but did not officially disclose the names of the ultimate beneficiaries for whom they have acquired shares. Further, GIL unofficially learnt that these shares were also acquired on behalf of Chhabrias and their nominees. In addition, 9,800 shares (0.45%) were acquired by employees of Shaw Wallace and Co. Ltd. and other companies of the Chhabria group. According to GIL, thus as on January 22, 1989, Chhabrias had acquired control on voting rights of over 24.4% of the equity capital of GIL and further more purchases were being made from the market.
5. In the board meeting dated March 2, 1989, the board of directors of GIL considered the request for registration of 1,56,562 shares (7.24%) lodged by the four respondent-companies Nos. 2, 3, 4 and 5. It was noted that Tezpore Tea Company is a subsidiary of Shaw Wallace and the authorised signatories of Alaknanda who are also on the board of the said company, are employees of Shaw Wallace and Dunlop India Ltd. and these four companies are parties to the various suits filed against GIL in various courts. As such, the board concluded that these are front companies of the Chhabria group and, therefore, together with earlier acquisitions, the Chhabria group has obtained directly and indirectly control over 31.7% voting rights which is the largest single shareholding. The board also came to the conclusion that, in addition to these acquisitions, as further purchases are being made in the market by the same group, such acquisitions are not for the purpose of pure investment but would only mean a determined effort for a takeover bid of GIL. In the context of notices received for appointment of nine persons to act as directors on the board of GIL, out of whom seven were employees of Shaw Wallace Ltd. controlled by the Chhabrias, one being their advocate and one being a friend and well-wisher of the Chhabrias, the board of directors of GIL concluded that this step was indubitably aimed at unsettling the present composition of the board and effecting an overall change therein and as such the change in the board of directors of GIL would not be in the interest of the company, its other shareholders and its employees and would lead to detriment of the public interest at large, registration of transfer of these 1,56,562 shares ought to be rejected considering the shareholding pattern of GIL and the dispersed shareholding of members of the public who hold these shares as an investment and who would not be in a position to attend or to participate in the deliberations at the general meeting in a concerted manner. Apart from this, in the absence of full information about the real ownership of the shares lodged by the Hongkong and Shanghai Banking Corporation, the company was not in a position to satisfy as to whether the person who had signed the transfer deed was duly authorised by the board and permission, if any, required under the Foreign Exchange Regulation Act, the Monopolies and Restrictive Trade Practices Act and other applicable provisions of the Companies Act were obtained. The board of directors also noted that the Chhabrias neither possessed the technical knowledge, nor had the experience to manage successfully a high-tech construction company like GIL or to handle highly skilled professionals and technocrats and, as such, if the take-over is allowed, the performance of the company would suffer which is not in the interest of the shareholders and the company itself. The board also noted that the ultimate important factor to bear in mind was the high-tech projects of national importance which were being executed by the company and any take-over attempt, if successful, would certainly jeopardise the completion of these projects. Based on these facts, the board of directors formed the opinion that the transfer of shares sought to be transferred, if registered, would result in a change in the composition of the board of directors of the company and such a change would be prejudicial to the interest of the company, its employees, creditors, Government, other shareholders and the public at large and, accordingly, decided to refuse registration. The 49 shares lodged by Respondents Nos. 10 to 14 were considered by the board of directors of GIL in the board meeting held on October 11, 1989. It was noted that these are front companies being associated and interconnected with Shaw Wallace and/or Dunlop India Ltd. and further these companies are parties to the various suits filed against the company and these companies have failed to furnish the relevant information called for by the company.
6. In the reply filed by respondent No. 1, it is submitted that, under Section 22A of the Securities Contracts (Regulation) Act, the company cannot refuse to register the transfer of any security in the name of the transferee except on four grounds. According to them, the resolution of the board of directors of the applicant company does not set out the precise ground under Section 22A(4) on which the transfer of the said shares was refused. According to them, the refusal of the transfer is ex facie unjustified on any of the grounds mentioned in Clause (a) of the said Section 22A(3). Hence, the refusal of the said transfer is neither bona fide nor permissible under law.
7. It is further contended that the entire application does not reveal any law which is contravened by the proposed transfer of the said shares. While Vague and reckless allegations have been made against certain individuals (other than the transferees and who are not even parties herein) in the said application the applicant-company has not been able to specify which statute, rule or regulation is being contravened by the opponents. Thus, the ground mentioned in Clause (b) above is also not available to the applicant-company to refuse the said transfers.
8. It is further contended by the respondent-bank that the applicants have been unable to indicate as to how the transfer of the said shares in the name of these respondents would result in such a change in the composition of the board of directors of the company as would be prejudicial to the interest of the company or to the public interest. They have further submitted that even assuming, without admitting, that the transfer of the said shares may lead to a change in the board of directors, there is no evidence or material at all to suggest that such a change would be prejudicial to the company or to the interest of its shareholders or to the public interest. The ground mentioned in Clause (c) of Section 22A(3) cannot be utilised to keep out prospective shareholders only because the existing board of directors apprehend a loss of their position or power.
9. It is further submitted by the respondent-bank that there is no order of any court, Tribunal or other authorities against the transfer of the shares in question. Hence, the registration of the shares cannot be refused on the ground mentioned in Clause (d) of Section 22A(3). They have further submitted that, in the circumstances, none of the conditions precedent to the exercise of powers by the board of directors of the applicant-company has been satisfied and the purported refusal to register the said shares is mala fide, arbitrary, based on extraneous grounds and made with ulterior motives.
10. The respondent-bank have further submitted in reply that, while the application is prolific in its praise of the managing director, the applicants have deliberately omitted to point out important facts showing that the company is being mismanaged by the present board of directors. In this context, references were made to the allegations regarding sale of the company's bungalow to the managing director at a price much below the market value and a show-cause notice issued to the company and managing director about alleged violation of the Foreign Exchange Regulation Act. It is submitted by the respondent-bank that refusal to transfer the said shares is not born out of any desire to promote the interest of the company and its shareholders and, on the contrary, the impugned refusal is actuated by a motive to prevent the shareholders from uncovering further acts of misfeasance and malfeasance by the directors of the applicant-company. The said refusal is patently mala fide and is done only with a view to perpetuate the present board of directors of the applicant-company in power and to save themselves from proceedings for misfeasance and malfeasance. It is further submitted that the applicant-company is a public limited company which is listed on the stock exchange. The essential attribute of such a company is the free transferability of its shares. Unless there are valid and legal grounds for refusing the transfer of any shares, the transferability of securities in the company cannot be blocked. In the instant case, the sole and real reason for refusing to transfer the said shares is that the directors on the present board of the company are interested only in perpetuating their control. It is further submitted that the mere apprehension of the so-called takeover of a public limited company when the shares are listed on the stock exchange, can never be a ground for refusal of the transfer of shares. They have further submitted that, according to the results of the 66th adjourned annual general meeting declared by the chairman appointed by the Supreme Court under its order dated January 24, 1989, the present management has not been displaced. It is further submitted that the respondent-bank has not violated any of the provisions of the law in dealing in these shares. It is further contended that the applicant-company is not entitled to go behind the transferee. The said shares are held by the bank on behalf of their own constituents and not for the Chhabrias.
11. Of the second group consisting of respondents Nos. 2 to 9 only respondents Nos. 2, 3, 4 and 5 filed their replies. However, they all have adopted one common stand. They have stated that the references are not in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956, and the rules framed thereunder. It was further submitted that the grounds on which the petitioner-company's board of directors have relied are extraneous and irrelevant and the references are misconceived, mala fide and a deliberate attempt on the part of GIL to defeat the lawful right of the respondents in respect of shares purchased in the usual course of business for valuable consideration. All the respondents have denied that they are front companies for the Chhabrias and disputed the allegation that they are directly or indirectly under the control of the Chhabrias or have any inter connection with the Chhabria group of companies. It is submitted that the only ground for rejection of the request for registration of transfer of shares, namely, "likely change in management" is, therefore, irrelevant and the subsequent three annual general meetings held after acquisition of shares by the respondents have not resulted in any change in the composition of the board of directors.
12. In the rejoinder filed by Git and also during the hearing, the advocates appearing on behalf of GIL drew our attention to the order dated September 18, 1990, passed by the Company Law Board (CLB) in the petition filed by GIL under Section 247/250 of the Companies Act, 1956, in Case No. 4 of 1989-CLB and Case No. 9 of 1989-CLB and submitted that the conclusion arrived at in the five board meetings were fully appreciated and supported by the decision of the CLB. It was further contended that the facts and circumstances in the present case are similar and there is no material change and, therefore, the conclusions arrived at by the CLB in Cases Nos. 4 of 1989 and 9 of 1989 hold good in respect of these petitions also. It was further pointed out that the RBI's speaking order refusing the transfer of 12.8% shares in favour of Elcano Investments is still not available. Explaining the circumstances that existed as on January 22, 1989, it was pointed out that over 25% of the issued capital of GIL was acquired between October, 1988, and the date of the board resolution. It was contended that the acquisition of these shares was shown in the names of various nominees with a view to concealing the fact that they have been purchased by or on behalf of the Chhabria group. In spite of the request of GIL for further information, an effort was made to suppress the identity of the real purchasers of 2,24,112 shares and only in the proceedings before the CLB in Cases No. 4 of 1989-CLB and No. 9 of 1989-CLB, the Hongkong Bank disclosed the names of the benefi-ciaries without giving other relevant information by claiming privilege under Section 251 of the Companies Act, 1956. All these circumstances clearly confirm the opinion formed by the board of directors in good faith that the constituents of the bank were Chhabrias or companies which are directly or indirectly under the control of Chhabrias. It was further argued that this subterfuge was employed by the respondents in an attempt to circumvent/bypass not only the listing agreement but also the mandatory provisions of the Monopolies and Restrictive Trade Practices Act. Referring to the spate of lodgments of shares during December, 1988, to March, 1989, it was pointed out that all the lodgments of impugned shares with the applicant-company were made by individuals who were employees/ agents of the companies controlled by the Chhabrias. During this period, various attempts were made by nominees/constituents of the Chhabria group to harass and obstruct the applicant-company and its management and to destabilise and change the present management of the applicant-company. Various false complaints were filed against the company's director/secretary and, on the basis of such mala fide, complaints, the said director/secretary was arrested by the police on December 20, 1988. On investigation, the complaint was found to be malicious and false and on January 23, 1989, the said director/secretary was discharged/acquitted. Referring to the various suits filed by the Chhabria group and stay orders obtained restraining the company from holding the annual general meeting, it was submitted that all the aforesaid purchases of shares and events are inter-related and form part of a design masterminded by the Chhabrias with the object and intent of illegally acquiring management and control of company and its resources and assets. It was denied that any favour was shown to the managing director in selling the company's property, if all the relevant facts and circumstances are taken into consideration in the proper perspective. Regarding the. Foreign Exchange Regulation Act violations, the allegations were controverted and it was submitted that, if at all, these are only technical violations committed during the ordinary course of business and in the interest of the company.
13. Shri Janak Dwarkadas, advocate for the respondent-bank, argued that the Bench has to consider whether the rejection is bona fide or not and this has to be examined with reference to the correspondence exchanged between GIL and the respondent prior to passing the board resolution and various factors considered by the management while passing the resolution refusing to register the transfer of shares. He emphatically stated that the subsequent events show that there was no material before the board of directors of GIL to come to a conclusion that there is any likelihood of change in the management. He further stated that the provisions of Section 22A should be strictly adhered to and anything which militates against the free transferability of shares should be closely looked at. He argued that the board of directors of the company had decided the matter with a prejudiced mind and wanted to perpetuate their own directorship and management of the company. Referring to the written replies filed by the respondents pointing out various irregularities committed by the present board of directors relating to sale of movable property/assets of the company, the Enforcement Directorate's enquiries and show-cause notices issued and the company's application under the Amnesty Scheme of the Foreign Exchange Regulation Act, it was pointed out that the refusal to transfer shares was a predetermined action of the board of directors which had indulged in various acts of mismanagement and wanted to perpetuate their management by refusing to transfer the shares and, therefore, the resolution passed by the board of directors of GIL is not in good faith.
14. Shri Telly, advocate appearing for respondents Nos. 2 to 9, while reiterating the submissions made by Shri Janak Dwarkadas, argued that the conduct of the management of GIL preceding the passing of various board resolutions rejecting transfer of shares alone should be considered to decide the issue of the bona fides of GIL. He further argued that the test of deciding bona fides was not to see whether the management had infringed any laws but whether there was any nexus between the infringement of laws and rejection of transfer of shares. He further contended that the sole object of rejecting the transfer of shares was to stop scrutiny of various acts of mismanagement which would have been raised in the annual general meeting to be held on March 2, 1989. In view of this, according to Shri Telly, the board had not rejected the transfer of shares bona fide and in good faith.
15. In these petitions, it is not for us to sit in judgment over the merits and demerits of the management of the board of directors of GIL which has rejected the transfer of shares with those of the new or likely changed board of directors with a view to decide which one is good and which one is bad. We have to see whether the material placed before the board of directors of GIL at the time of consideration of the registration of transfer of the impugned shares was such as to enable the board of directors to form an opinion in good faith that there is a likelihood of a change in composition of the board of directors of the company and, if so, whether such a change would be prejudicial to the interest of the company or the public interest.
16. The appellants' advocate has relied on the proceedings before the Company Law Board in Petitions Nos. 4 of 1989 and 9 of 1989 in the matter of Section 247/250 of the Companies Act wherein the Company Law Board held that, as a result of the transfer of nearly 31% shares of GIL in favour of various corporate bodies under the ultimate control of Shri M. R. Chhabria, a change in the composition of the board of directors of GIL is likely to take place and that such a change would be prejudicial to public interest and desired that, based on these findings, these references may be upheld. It would be desirable to examine the provisions of Section 247 and 250 of the Companies Act vis-a-vis Section 22A of the. Securities Contracts (Regulation) Act, 1956, so as to see whether the conclusion arrived at in these petitions referred to above will be equally applicable in these references so far as the shares which are the subject-matter of both the petitions are concerned.
17. Under Section 250 of the Companies Act, the Company Law Board can pass final orders under Sub-section (3) placing certain restrictions on the exercising of voting rights in respect of disputed shares and also in respect of giving effect to resolutions relating to change in the composition of the board of directors. As per the section, the conditions that are required to be fulfilled are "(i) where a transfer of shares in a company has taken place ; (ii) as a result thereof, a change in the composition of' the board of directors of the company is likely to take place ; and (iii) the Company Law Board is of the opinion that any such change would be prejudicial to the public interest." In respect of a reference under Section 22A(3)(c), the Company Law Board can pass final orders directing that the transfer of the securities shall be registered or need not be registered by the company. Thus, the Company Law Board cither confirms or rejects the opinion formed by the board of directors, in good faith, to refuse registration of transfer of shares "if the transfer of securities is likely to result in such a change in the composition of the board of directors as would be prejudicial to the interests of the company or to the public interest." Comparing these provisions, it will be clear that, while in the case of orders under Section 250(3) of the Companies Act, the opinion is formed by the Company Law Board, in the case of a reference under Section 22A, the Company Law Board only confirms or rejects the opinion formed by the board of directors. Secondly, in the former case, the change in tile composition of the board should be such as would be prejudicial to the public interest while, in the latter case, the change should be such as would be prejudicial to the interest of the company or to the public interest. In a case under Section 247/250, not only the material available to the board of directors is considered but the facts revealed in investigation and hearing are also considered by the Company Law Board. In a reference under Section 22A, one has to consider only the material that was available to the board of directors while considering the request for registration of transfer of shares. Thus, the decision in Section 247/250 case could at best be used for corroboration. In the present case, the first board resolution was passed on January 22, 1989, in respect of shares lodged by the Hongkong and Shanghai Banking Corporation. The facts revealed in the board resolution dated January 22, 1989, are as follows :
(1) Mr. Andrew Gammon and family agreed to transfer 12.8% shares in GIL to Mr. M.R. Chhabria or his nominee by an agreement dated July 15, 1988, and an application was made to the Reserve Bank of India for permission for sale of 12.8% shares to Elcano Investments, a company in which Chhabria has 98% holding.
(2) The respondent-bank has lodged 2,42,112 (11.2%) shares for registration in the name of Hongkong Bank (Agency) Pvt. Ltd. in folio No. H-383 without disclosing the names of actual beneficiaries and with- out furnishing relevant information about the purchases of these shares as requested by GIL. Unofficial information indicated that these shares were also to the account of the Chhabrias or their nominees. In the absence of the names of beneficiaries, the company was not in a position to ascertain whether any provisions regarding acquisition of shares contained in the Companies Act, the Monopolies and Restrictive Trade Practices Act, the Foreign Exchange Regulation Act and the Stock Exchange Listing Agreements are violated.
(3) The shareholding pattern shows that about 47% of the shares of GIL are held by the public and as it is held in small holdings dispersed all over the country, a single block holding of 20 to 25% could gain control of the company.
(4) In addition, the newspaper reports stated that nearly 30% of equity capital of GIL has been acquired by the Chhabrias from the Indian market.
(5) Certain employees of Shaw Wallace and Co. Ltd., which is under the control of the Chhabrias, have lodged 9,800 shares (0.45%).
(6) Notices Were received for candidature of nine persons for directorship on the board of the company out of which seven were employees of Shaw Wallace and Co. controlled by the Chhabrias, an advocate of theirs and a friend and well-wisher of the Chhabrias.
(7) A series of false complaints and court cases are being filed against the company and its officers by the Chhabrias or their associates.
18. Thus, the material available before the board of directors was more than enough to come to an inescapable conclusion that, because of the share transfer of about 24% of equity capital of GIL in favour of the Chhabrias or their associate companies or nominees, there is likely to be a change in the composition of the board of directors. The board of directors also considered the shareholding pattern, the high-tech nature of the jobs being undertaken by the company, the interests of its employees the track record of the Chhabrias and came to the conclusion that such a change would be against the interests of the company, its employees and shareholders and the public at large and, therefore, formed in good faith an opinion to refuse registration of shares lodged by the Hongkong and Shanghai Bank. In spite of the disclosure by the respondent-bank about the names of nominees, viz., Malleswara Finance and Investment Co. Pvt. Ltd. and Laquila Investments Co. Pvt. Ltd., and denial of any connection between the acquisition of the impugned shares and the Chhabrias, in the face of the facts available, we are not inclined to believe that there is no such connection. We do not find very convincing the argument advanced by the learned advocate for the respondent-bank that the board of directors of GIL had taken the decision with a prejudiced mind to refuse registration of shares only in order to perpetuate their control so as to avoid any investigation into their mismanagement. Considering all the circumstances and facts relating to references in group No. I, we confirm the opinion of the board of directors that the request for registration of transfer of shares lodged by the Hongkong and Shanghai Bank should be rejected.
19. In respect of group II reference, we have to consider the facts before the board of directors on the basis of which the resolution was passed in the meeting of the board of directors held on March 2, 1989. The facts available with the Board, in addition to the material relating to group I, were :
(1) Lodgments of share transfers by various constituents of me Chhabria group indicates that they control the voting rights in respect of 32.43% shares of GIL directly or indirectly.
(2) All the eight companies are front companies being associated and interconnected with Shaw Wallace directly or indirectly and are parties to various suits filed against GIL.
(3) All these companies have refused to furnish relevant information regarding purchase of shares and, therefore, GIL is not in a position to decide whether any provisions relating to acquisition of shares contained in the Companies Act, the Monopolies and Restrictive Trade Practice Act, the Foreign Exchange Regulation Act, the Stock Exchange Listing Agreements are violated.
20. In our opinion, the material available before the board was enough to form an opinion about the interconnection between these companies and the Chhabria group. Certain facts like acting in unison, demonstration of common interest in various suits filed against GIL and attempt to resist giving relevant information about acquisition of shares to GIL were sufficient for the board of directors to form an opinion that these are front companies under the ultimate control of Mr, Chhabria and, therefore, shares lodged for registration in their favour ought to be rejected as these lodgments form part and parcel of an overall plan to destabilise the management of GIL. The respondent-companies had filed affidavits before us denying any connection with the Chhabria group in spite of various facts available before us establishing interconnection and, therefore, we have no hesitation in coming to the conclusion that the denials by these respondent-companies are devoid of any force and we confirm the opinion of the board of directors of GIL refusing registration of shares in favour of the respondent-companies in the references coming in group II.
21. This leaves us to consider only the remaining references in respect of 49 shares lodged by respondents Nos. 10 to 14 constituting group III category. In the resolution passed by the board of directors in the board meeting held on October 11, 1989, in addition to the material available in respect of group I and group II references, the following additional material was considered by the board of directors :
(1) Considering the various lodgments made by the Chhabrias and their associate concerns, they will have control on voting power to the extent of 32.5% of the total equity capital of GIL and this will be the single largest shareholding under the control of one individual.
(2) In respect of 3 shares lodged by Mechno Sales Agencies Pvt. Ltd., the transfer of the shares was refused earlier on the ground that the transfer certificate was incomplete and did not contain the date of execution. Re-submission of the same transfer deed by adding the date of execution was, in the opinion of the board, illegal and void.
(3) All the five respondent-companies are front companies of the Chhabrias being associated or inter-connected with Shaw Wallace or Dunlop (India) Limited and they are also parties to various suits filed against GIL in various courts. All these companies have failed to provide the relevant information regarding purchase of shares.
22. None of the respondent-companies have filed any reply in spite of notice being served on them. They were also not represented by any advocate. On behalf of GIL, no further arguments or information were advanced except as contained in the petition. We do not agree with the conclusion of the board that, in respect of these 49 shares, a linkage between the respondent-companies and the Chhabrias or their associated companies is revealed on the basis of information placed before the board in the meeting held on October 11, 1989. These shares were also not the subject-matter of 247/250 petitions. No material has been placed before us to indicate how these respondent-companies are connected with Mr. Chhabria or his associate companies and how lie will have a direct or indirect control over the voting rights related to these 49 shares. In view of this, we are unable to agree with and confirm the opinion of the board of directors refusing registration of transfer of 49 shares lodged by respondent-companies Nos. 10 to 14. We, therefore, direct that these shares should be registered in favour of these companies within ten days of the receipt of this order.
23. We note that, on November 18, 1991, at 5.30 p.m., on behalf of respondents Nos. 1 to 9, affidavits have been filed in which a reference has been made to events which have come to their knowledge subsequent to the conclusion of hearing of references under Section 22A of the Securities Contracts (Regulation) Act on August 9, 1991, and a prayer has been made to give a further opportunity to the respondents to bring subsequent events before the Company Law Board to establish that the refusal to register the transfer of shares in their favour is mala fide and made with a collateral object. In the proceedings under Section 22A of the Securities Contracts (Regulation) Act, the Company Law Board has to either confirm or reject the opinion formed by the board of directors based on the material placed before the board at the time of consideration of the request for registration of transfer of shares. Also, the respondents had an adequate opportunity to plead their case in hearings held on a number of days. The majority of these references are filed in 1989 and are heard from November, 1990, onwards. In view of this, we do not think that any further opportunity forbearing as requested, merits any consideration since the hearing, was concluded on August 9, 1991, and a perusal of the contents of the affidavits indicate that certain subsequent developments have been mentioned which, according to us, are not relevant for deciding the present references.