1994 ALLMR ONLINE 723
BOMBAY HIGH COURT

M.L. PENDSE AND S.M. JHUNJHUNUWALA, JJ.

Alaknanda Manufacturing and Finance Pvt. Ltd., Calcutta and etc. etc Vs. Company Law Board, Western Region Bench, Bombay and others

Writ Petn. Nos.847 with 1126 and 1376 of 1992

26th August, 1994


Respondent Counsel: T. R. Andhyarujina, Advocate General with Atul Rajadhyaksha and S. K. Sen i/b. M/s. Little and Co. and A. J. Rana with R. C. Master and H. D. Rathod, .

Securities Contracts (Regulation) Act (1956),S. 22A(3)(c),, Constitution of India,,Art. 14, Companies Act (1956),,,S. 111 Companies Act (1956),S. 637A Companies Act (1956),S. 206(1)

JUDGMENT

PENDSE, J.:-As soon as these three petitions were called out for hearing, the counsel were informed that this Bench would prefer not to hear these petitions as one of us (Pendse, J.) is a share-holder of respondent No.2 Company. Shri Shah, learned counsel appearing on behalf of the petitioners, Shri Advocate General, appearing on behalf of respondent No.2 and Shri Rana, learned counsel appearing on behalf of respondent No.3 stated that not only the parties and counsel have no objection but on the other hand, insist that the Bench should take up the petitions for hearing. We have proceeded to hear the petitions in view of the specific statement made by the counsel.

The petitions under Art.226 of the Constitution were filed to challenge legality of order dated November 26, 1991 passed by Company Law Board, Western Region Branch, Bombay while disposing of three sets of references made by respondent No. 2 Company in accordance with sub-sec.(4)(c) of S.22A of Securities Contracts (Regulation) Act 1956. The facts which gave rise to the passing of the order under challenge in these three petitions are required to be set out in detail to appreciate the grievance made by the petitioners.

2. The respondent No.2 is a Public Limited Company registered under the provisions of the Companies Act, 1956. The Company undertakes construction of high-tech projects and is managed by persons with technical knowledge and the industrial experience. The Company has undertaken large number of projects which are of importance for the national economy. The authorised capital of the Company is Rs. 50,00,00,000/- divided into 5,00,00,000 shares of Rs. 10/- each. The shares of the Company are duly listed on the stock exchange in India. In the year 1989, the holding of the shares was distributed as follows :-

No.Name of share holderNo. of shares% of shares1Gammon Family (including Estate of late Mr. J.C. Gammon)5,31,39624.562Non-residence (other than Gammon family)407121.883N.R.I. Companies794743.674Directors (excluding Peter Gammon since included in Gammon Family)137900.645Director's Family522182.416Employees285601.327U.T.I.1,31,3766.078Resident Companies2,84,93113.169Others10,01,38346.29 Total21,63,840100

The public holding of 46.29% is disbursed all over the country, having very small holdings and in most of the cases, the shares are held only as an investment and these shareholders hardly attend the general meeting. The share holding of 24.56% was distributed amongst the members of the Gammon family and Peter Gammon and his group was holding 11.76% shares while Andrew Gammon and his group was holding 12.80% shares. The Board of Directors invited Peter Gammon to join the Board and that created rift between Peter Gammon on one hand-and-Andrew Gammon on the other.

M.R. Chhabria, who is in control of M/s. Shaw Wallace and Co. Ltd., decided to purchase shares of respondent No.2 Company to gain controlling power. With that object, Chhabria approached Andrew Gammon and purchased the shares standing in his name or his nominees in terms of an agreement dated July 15, 1988. The shares could not be sold without prior approval of Reserve Bank of India and an application was filed for permission of sale of 12.80% shares to M/s. Elcano Investments, a Company based in Hongkong in which Chhabria has 98% holding. Chhabria Investments Pvt. Ltd. had also secured an irrevocable power of attorney from Andrew Gammon and which authority enabled Chhabria Investments Pvt. Ltd. to issue a sub-power of attorney for exercising voting rights on 2,76,913/- shares constituting 12.80% of capital of the Company. Chhabria had also bought nearly 30% of the equity capital of the Company from the Indian market. In addition, Hongkong Bank had lodged shares of 11.39% of the capital for transfer without disclosing the name of the ultimate beneficiary. Another 9,800 shares were lodged for transfer in the names of certain employees of M/s. Shaw Wallace and Co. Ltd. and/or other Chhabria Companies which are controlled by Chhabria. The acquisition by Chhabrias of huge volume of shares amounting to 24.4% of the capital of respondent No. 2 Company was obviously not as a pure investment proposition but a determined effort for a take over bid of the Company.

3. M/s. Bhavi Investments Ltd., a shareholder of respondent No.2 Company filed two applications before Company Law Board under Sections 247 and 250 of the Companies Act. In the first application, it was claimed that large scale of shares in two blocks, 2,76,913 shares purchased by M/s. Chhabria Investments Ltd. and 2,42,112 shares lodged by Hongkong and Shanghai Banking Corporation for registration in the name of M/s. Hongkong Bank (Agency) Pvt. Ltd. were lodged with a view to reduce the control of respondent No.2 Company. M/s. Bhavi Investments Ltd. requested the Company Law Board to determine the true persons who were financially interested to take over the control of the Company. The applicants stated that M/s. Hongkong Bank (Agency) Pvt. Ltd. was not disclosing identity of the beneficiary and therefore requested to restrain the transfer and freezing the various rights of shares lodged and to be lodged by the unknown trader for a period of three years in terms of S.259 of the Companies Act. In the second application, M/s. Bhavi Investments Ltd. complained about Comering of 1,56,562 shares by satellite Companies controlled by Chhabria. The satellite Companies were M/s. Alaknanda Manufacturing and Finance Pvt. Ltd., M/s. Tezpore Tea Co. Ltd., M/s. Tracstar Investment Pvt. Ltd. and M/s. Malleswara Finance and Investment Pvt. Ltd. The applicants claimed that restrictions should be imposed on the shares lodged by these four companies for a period of three years, in respect of transfer and exercise of voting rights. The Company Law Board noticed that Hongkong Bank (Agency) Pvt. Ltd. was not prepared to disclose the identity of the beneficiary by claiming privilege under the Banking Regulation Act. The Company Law Board thoroughly investigated the matter and came to the conclusion that the transfer of shares sought by various companies and the manner of acquisition of shares leave no scope for doubt that there is a single controlling hand behind the acquisition and that hand is of Chhabria. The Company Law Board also noticed that efforts were made to install the employees of M/s. Shaw Wallace and Co. Ltd. as Directors on the Board of respondent No.2 Company and

though the attempts had failed, the manner in which the litigation was carried on by Chhabrias against the Company left no doubt that the holding-of 31% shares by Chhabrias will constitute a threat to the Company. The Company Law Board was satisfied that there is likelihood of change in the composition of Board of Directors and that would be prejudicial to public interest. In pursuance of these findings, the Company Law Board by order dated September 18, 1990 granted the reliefs sought in the two applications and directed that voting rights in respect of 6,75,587 shares forming the subject matter of the two applications shall not be exercised for a period of 15 months. The order passed by Company Law Board in exercise of powers under S.250 of the Companies Act has become final.

4. The Parliament enacted Securities Contracts (Regulation) Act, 1956 to prevent undesirable transactions in securities by regulating the business or dealing therein by prohibiting options and by providing certain matters connected therewith. The Parliament, by Securities Contracts (Regulation) Amendment Act, 1985 inserted new S.22A and which came into force in January 1986. The amended section deals with free transfer-ability and registration of transfers of listed securities of companies. The expression 'Company' under S.22A (1)(a) means a company whose securities are listed on recognised stock exchange. The section demands that a company shall before the expiry of two months from the date on which the instrument of transfer of any of its securities is lodged for the purpose of registration of such transfer, shall form an opinion in good faith and in case decides not to register on the grounds mentioned in sub-section (3)(b), (c) and (d), then shall make a reference to the Company Law Board and forward copies of such reference to the transferor and the transferee.

Between December 1, 1988 and December 30, 1988 the Hongkong Bank (Agency) Pvt. Ltd. had lodged 2,42,112 shares with the respondent No.2 Company. The Board of Directors in the meeting held on January 22, 1989 decided to refuse registration and made reference to Company Law Board on January 30, 1989. The lodgement of the shares by Hongkong Bank (Agency) Pvt. Ltd. belongs to group I. M/s. Alaknanda Manufacturing and Finance Pvt. Ltd., M/s. Tracstar Investments Pvt. Ltd., M/s. Tezpore Tea Co. Ltd., M/s. Malleswara Finance and Investment Co. Pvt. Ltd., Manswar Investments Pvt. Ltd., M/s. Cruickshank and Co. Ltd., M/s. Tribtiss Investments Trust Ltd. and Maharashtra Distilleries Ltd. form group II and had lodged shares for transfer with Company between January 30, 1989 and August 20, 1990. In respect of Lodgement of shares by these companies of group II, the decision to refuse registration was taken by the Board of Directors on March 2, 1989 and on subsequent dates and references were then made to the Company Law Board. The third group consists of M/s. Saharsh Marketing and Finance Pvt. Ltd., M/s. Mechno Sales Agencies Pvt. Ltd., M/s. Sankem Trading and Investments Pvt. Ltd., M/s. Sanchi Business and Finance Pvt. Ltd. and M/s. Navsun Marketing Pvt. Ltd. and on whose behalf, shares were lodged for transfer. The Board of Directors refused to register these shares also and references were made to Company Law Board. Hongkong Bank (Agency) Pvt. Ltd. were holding 2,42,112 shares, M/s. Alaknanda Manufacturing and Finance Pvt. Ltd. were holding 1,61,337 shares and M/s. Tracstar Investments Pvt. Ltd. were holding 11,550 shares. These are the three concerns which have filed the present three petitions. The Company Law Board heard all the references together and by common order dated November 26, 1991 came to the conclusion that the action of the Company refusing registration of Shares cannot be faulted with. The Company Law Board found that the action of the Board of Directors in declining to register 49 shares cannot be sustained and relief was granted only in respect of those 49 shares, on the ground that the transfer will not directly or indirectly affect the voting rights of the Company. The Company Law Board came to the conclusion that the share transfer of about 24% of equity capital of respondent No.2 Company in favour of Chhabria or his associate companies or nominees is likely to

change the composition of Board of Directors and such change is detrimental to the interest of the Company, its employees, shareholders and public at large. The decision of the Company Law Board is under challenge in these three petitions, Shri Shah, learned counsel appearing on behalf of the petitioners, challenged the constitutional validity of sub-section (3)(c) of S.22A of Securities Contracts (Regulation) Act 1956 claiming that the provision violates Art.14 of the Constitution. It was also claimed that the section does not confer power upon the Company Law Board to do justice in case where transfer is refused, though such power was available to Company Law Board under S.111 (5) of the Act and consequently the provision should be construed as unreasonable. Shri Shah submitted that the finding recorded by the Company Law Board that the action of the Board of Directors in declining to register transfer was bona fide and the transfer would have led to change in the constitution of the Board of Directors and would have adversely affected the Company and the public interest is not correct. The learned counsel also submitted that the Company Law Board was in error in not permitting the petitioners, to tender affidavits on November 18, 1991 to bring on record subsequent events, only on the ground that the arguments were already concluded and the proceedings were adjourned for passing orders. Shri Advocate General and Shri Rana on the other hand submitted that the challenge to the constitutional validity of sub-section (3)(c) of S.22A of the Act is without any substance. Shri Advocate General submitted that the Company Law Board has approved the decision of the Board of Directors on references made and the findings recorded by the Company Law Board are mere findings of fact and cannot be disturbed in exercise of writ jurisdiction. Shri Advocate General further submitted that even on merits the findings recorded by Company Law Board does not suffer from any infirmity. It was urged that the Company Law Board was perfectly justified in not taking affidavits which were tendered long after the arguments were over on record and even otherwise the contents of the affidavits do not affect the correctness of the stand taken by the Board of Directors. In view of these rival submissions, the first question which requires determination is about the constitutional validity of sub-section (3)(c) of S.22A of the Act.

5. Section 22A of the Securities Contracts (Regulation) Act, 1956 was inserted by Amending Act No.48 of 1985. The statement of reasons and objects of the Amendment Act sets out that Ss.82 and 111 of the Companies Act permit Board of Directors of Companies to assume powers under the Articles of Association to refuse registration of transfer of securities without assigning any reason. Though there is a provision for appeal against such a refusal to the Company Law Board, it placed an undue burden on an aggrieved person who often happened to be a small investor. The position was also, not conducive to the free marketability of listed securities and healthy growth of the capital market. Unrestricted transferability is particularly necessary for securities of public limited companies which are listed on the Stock Exchanges. In this context, it was announced in the Budget Speech dated March 16, 1985 that the Securities Contracts (Regulation) Act, 1956 would be amended to ensure free transferability of securities of public limited companies whose securities are listed on the Stock Exchanges with adequate safeguards against undesirable take over bids or destabilisation of management. The companies would be entitled to refuse registration of transfer of securities on the ground that any requirement under law has not been complied with, but it has to notify the transferor and the transferee of the same within two months from the lodgement of the instrument of transfer. In other cases, the company will have to make a reference to the Company Law Board and act according to the directions of the Board.

Sub-section (1) of S.22A defines the expressions 'company' and 'security' and provides that all other words and expressions used in this section and not defined in this Act, shall have the same meanings as are assigned to them in the Companies Act. Sub-section

(2) provides that the securities of companies shall be freely transferable. Sub-sections (3), (4) and (6) read as follows :-

"(3) Notwithstanding anything contained in its articles or in S.82 or S.111 of the Companies Act, 1956 (1 of 1956), but subject to the other provisions of this section, a company may refuse to register the transfer of any of its securities in the name of the transferee on any one or more of the following grounds and on no other ground, namely :-

(a) that the instrument of transfer is not proper or has not been duly stamped and executed or that the certificate relating to the security has not been delivered to the company or that any other requirement under the law relating to registration of such transfer has not been complied with;

(b) that the transfer of the security is in contravention of any law;

(c) that the transfer of the security is likely to result in such change in the composition of the Board of Directors as would be prejudicial to the interests of the Company or to the public interest;

(d) that the transfer of the security is prohibited by any order of any court, tribunal or other authority under any law for the time being in force.

(4) A company shall, before the expiry of two months from the date on which the instrument of transfer of any of its securities is lodged with it for the purposes of registration of such transfer, not only form, in good faith, its opinion as to whether such registration ought not or ought to be refused on any of the grounds mentioned in sub-section (3) but also

(a) if it has formed the opinion that such registration ought not to be so refused, effect such registration;

(b) if it has formed the opinion that such registration ought to be refused on the ground mentioned in clause (a) of sub-section (3), intimate the transferor and the transferee by notice in the prescribed form about the requirements under the law which has or which have to be complied with for securing such registration; and

(c) in any other case, make a reference to the Company Law Board and forward copies of such reference to the transferor and the transferee.

(6) On receipt of a reference under sub-section (4), the Company Law Board shall, after causing reasonable notice to be given to the company and also to the transferor and the transferee concerned and giving them a reasonable opportunity to make their representations, if any, in writing by order direct either that the transfer shall be registered by the company or that it need not be registered by it."

It is required to be stated that sub-section (3)(b) was substituted at a later stage.

6. The plain reading of sub-section (3)(c) makes it clear that the company can refuse to register transfer of any of the securities if such transfer is likely to result in such change in the composition of the Board of Directors as would be prejudicial to the interests of the company or to the public interest. Sub-section (3)(c) demands compliance with two requirements - (a) that the transfer is likely to change the composition of Board of Directors and (b) such change would be prejudicial to the interests of the company or to the public interest. Sub-section (4) prescribes that in case the company decides to refuse to register transfer, then reference to the Company Law Board shall be made and then the question as regards transfer would depend upon the decision of the Company Law Board. In other words, the decision of the Board of Directors is not final but is subject to the approval of the Company Law Board. Shri Shah submitted that the provisions of sub-section (3)(c) is violative of Art.14 of the Constitution because the powers have been conferred upon the Board of Directors without prescribing the guidelines as to how the powers should be exercised. The submission is devoid of any merit. The plain reading of S.22A(3)(c) makes it clear that there is in-built guideline prescribed by the Parliament. The Board of Directors is required to examine whether the transfer is likely to

result in change in composition of the Board and even if so, the transfer cannot be refused unless such change would be prejudicial to the interest of the company or to the public interest. It is, therefore, obvious that the Parliament did not confer unregulated powers on the Board of Directors but specified the cases where it is permissible to refuse transfer. Initially, it was open for the Company to refuse to register the transfer without assigning any reason, but after the enactment of S.111 of the Companies Act, it is incumbent to give reasons for such refusal. The provision of S.111 applies to all the companies but after the enactment of S.22A of the Securities Contracts (Regulation) Act, the transferability and registration of shares of company whose securities are listed on recognised stock exchanges are regulated only by the provisions of S.22A. The contention that undesirable and unregulated powers are conferred in the Board is not correct because the Parliament in its wisdom has provided that the decision of the Board of Directors is not final but in case the Board decides to decline to register transfer then reference shall be made to Company Law Board. It is, therefore, obvious that the Parliament was anxious that the Company Law Board should have a control over the decision of the Board of Directors. The statement of reasons and objects clearly reflects the intention of the Legislature in enacting S.22A of the Act and in our judgment, the challenge to the validity of sub-section (3)(c) on the ground of infringement of fundamental rights under Art.14 of the Constitution is without any substance.

7. Shri Shah then Submitted that S.22A deprives the transferee whose application for registration of transfer is turned down by the company, from seeking any other relief to safeguard the interest in respect of the consideration paid. Shri Shah submitted that in cases covered by S.111 of the Companies Act, the Company Law Board can give direction to protect the interest of the transferee in exercise of powers under S.637A of the Companies Act. It was urged that in the absence of such power to the Company Law Board, provisions of S.22A should be held as unreasonable. It is impossible to accede to the submission of the learned counsel. Section 111(3) of the Companies Act provides for an appeal against the decision of the Board of Directors declining to register the transfer. Section 111 of the Companies Act applies in cases of those companies whose securities are not listed on a recognised stock exchange. The appeal is provided to Company Law Board and the powers of the Company Law Board are set out in S.111(5) of the Companies Act. The Company Law Board can either dismiss the appeal or reject the application or by order direct that the transfer should be registered by the company and the company shall comply with the order within ten days of the receipt of the order or direct rectification of the register. Sub-section (6) of S.111 of the Companies Act authorises the Company Law Board to issue interim orders as well as pass incidental and consequential orders regarding payment of costs or otherwise. Shri Shah submitted that S.637A confers power in the Company Law Board to give any direction in relation to any matter and consequently the Company Law Board even after dismissal of the appeal preferred under sub-section (3) of S.111 can direct the company to purchase the shares and pay the amount of consideration to the transferee whose application for registration of transfer stands rejected. In support of the submission, Shri Shah invited our attention to order dated April 11,1972 passed by Member, Company Law Board in Appeals Nos.6 to 16 of 1971. It is impossible to accede to the submission of the learned counsel that S.637A of the Companies Act empowers the Company Law Board to give any such direction while disposing of the appeal under sub-section (5) of S.111 of the Companies Act. Company Law Board while exercising powers of an appellate authority under sub-section (3) of S.111 cannot travel beyond the powers set out under sub-section (5) of S.111 and cannot issue direction under the guise of adjusting the equities. The plain reading of S.637A makes it clear that the powers conferred on the Company Law Board under this section cannot be imported while disposing of appeal under S.111 of the Companies Act. The mere

fact that the Member of Company Law Board has passed such an order in year 1972 cannot justify the contention that the Company Law Board can pass equitable orders. The complaint of Shri Shah that the provision of S.22A of the Securities Contracts (Regulation) Act should be struck down because of absence of provision to adjust the equities, is required to be turned down. It is necessary to make it clear that we are not acceding to the claim of Shri Shah that there is any equity whatsoever in favour of the present petitioners. The challenge to the constitutional validity of sub-section (3)(c) of S.22A is without any merit and is required to be repelled.

8. Shri Shah then submitted that the impugned order suffers from serious infirmity because the Company Law Board was in error in accepting the claim of the company that the decision of the Board of Directors to refuse registration of transfer of shares was justified. The contention urged by the learned counsel cannot be accepted for more than one reason. In the first instance, the writ petition cannot be converted into an appeal and it is not permissible to examine the merits of the rival contentions. The Company Law Board has examined all the facets of the matter and has recorded findings of fact which cannot be disturbed in exercise of writ jurisdiction. Secondly, even on merits, we are unable to find any infirmity either in the reasoning or the conclusion recorded by the Company Law Board. The impugned order very rightly points out that what is necessary to be ascertained is whether the material available to the Board of Directors of the Company at the time of consideration of registration of transfer of shares was such as to enable the Board of Directors to form an opinion in good faith that there is likelihood of a change in the composition of the Board of Directors and if so, whether such change is prejudicial to the interest of the Company or public interest. The impugned order exhaustively sets out the reasons which appealed to the Company Law Board to conclude that the opinion of the Board of Directors was justified. The minutes of the meeting of the Board of Directors held on January 22, 1989 and March 2, 1989 clearly set out the reasons which prompted the Board of Directors to decline to register the transfer. The perusal of the minutes leaves no manner of doubt that the decision of the Board was perfectly justified in the facts and circumstances of the case. The Company Law Board has also referred to the earlier order passed under S.215 of the Companies Act and which order exhaustively discusses the modus operand adopted by Chhabria to raid respondent No.2 Company and to gain control. The order sets out in detail the manner in which Chhabria and the various companies set up by Chhabria were trying to gather shares only with a view to gain control over the Company. The detailed discussion in the order passed by the Company Law Board while exercising powers under Ss.247 and 250 of the Companies Act and the discussion in the impugned order, leave no manner of doubt that the petitioners and Chhabria were clearly attempting to get the shares transferred with a view to change the composition of the Board of Directors. In our judgment, the decision of the Board of Directors on this count, and which is approved by the Company Law Board, cannot be faulted with.

8A. Section 22A(3)(c) of the Securities Contracts Act permits refusal of transfer of securities provided the change in the composition of the Board would be prejudicial to the interest of the company or public interest. The Company Law Board noticed that the facts of the case unmistakably establish that the change in the composition of Board would be detrimental to the interest of the company as well as public interest. The Company Law Board took into consideration the fact that the Company is engaged in prestigious nation-building activities and is managed by technocrats of high-tech sophisticated skill and expertise. The Company Law Board noticed that Chhabrias do not possess any such qualities and the change in the Board of Directors would inevitably result in a shift in the top personnel and would lead to the detriment of the Company. The Company Law Board also took into consideration that

not only Chhabrias do not possess technical knowledge or the industrial experience to manage successfully a high-tech sophisticated company, but the past record of Chhabrias who had taken over several companies is far from satisfactory. The Company Law Board also noticed that the interest of the employees engaged by the Company would be seriously hampered by Chhabrias taking over a successful company and that would be detrimental to the interest of the Company. One more fact which impressed the Company Law Board is that the shares were purchased by M/s. Shaw Wallace and Co. Ltd. which is controlled by Chhabria group by taking loans from the financial institutions and the nationalised banks. The Company Law Board noticed that had this diversion of funds not taken place for an activity which is not germane to its main purpose, there would have been reduced dependence on public funds given by the banks, thereby releasing part of the public funds from banks for financing the activities of economic development of the country. The Company Law Board noticed that Chhabrias had misused the funds from the financial institutions for capturing respondent No.2 Company and the change in management would obviously affect the public interest. One more factor which appealed to the Company Law Board is that the small shareholders have got total bidding of 46.29% of the capital of the Company and their interest would be seriously jeopardised by the change in management of the Company. In our judgment, the reasons furnished by the Board of Directors of respondent No.2 Company and which are approved by the Company Law Board are extremely sound and justified. We are satisfied that the action of the respondent No.2 Company was in good faith and bona fide and does not suffer from any infirmity. It is therefore obvious that the impugned decision is not required to be disturbed in exercise of writ jurisdiction.

9. Shri Shah then submitted that the Company Law Board was in error in not permitting the petitioners to file additional affidavits on November 18,1991. The learned counsel urged that the petitioners were desirous of an opportunity to bring subsequent events on record and refusal by the Company Law Board has caused prejudice to the petitioners. It is impossible to accede to the contention. The impugned order sets out that arguments were concluded on August 9, 1991 and the order was reserved for more than two months thereafter. On November 18, 1991 the petitioners had tried to file affidavits to claim that the refusal to register the shares was mala fide and made with collateral object. The Company Law Board points out that the petitioners had adequate opportunity to plead their case at the time of hearing held on number of days. The references were filed in the year 1989 and were heard from November 1990 onwards. The Company Law Board held that any further opportunity for hearing on merit was not necessary. We do not find any error on the part of the Company Law Board in declining to take the affidavits on record. Shri Shah invited our attention to the affidavit which was to be tendered before the Company Law Board. The affidavit nowhere recites that any new fact which was not known earlier had come to the light after the conclusion of the arguments. In paragraphs 4 of the affidavit, it is claimed that subsequent to the conclusion of the hearing, few facts have come to the knowledge and as the final order is not yet passed, the contents of the affidavit should be considered. The petitioners cannot as a matter of right claim that the facts which they could have easily ascertained and possibly knew can be brought on record after the arguments were concluded. The perusal of paragraph 5 of the affidavit indicates that the petitioners were desirous of claiming that Dr. Subba Rao has ceased to be Managing Director with effect from June 30, 1991 and some other additional Directors were co-opted. If Managing Director had ceased to be in office in June 1991, there was no difficulty for the petitioners to bring this fact to the attention of the Company Law Board before the hearing was concluded on August 9,1991. Shri Shah submitted with reference to the affidavit that the contention of the Company that Chhabrias lack expertise or requisite knowledge to run high-tech sophisticated company and therefore registration of shares

was rightly refused was belied by the fact that additional Directors who were co-opted, also suffers from identical infirmity. In our judgment, apart from the fact that the claim made by the affidavit cannot be accepted as a gospel truth, the alleged subsequent facts have no bearing whatsoever to the decision taken by the Board of Directors in the meetings held on January 22, 1989 and March 2,1989. What is required to be examined are the facts and material available to the Board of Directors on the date of refusal to register the transfer of shares and it is not permissible to find fault with that decision by taking into consideration the subsequent events which are controverted. In our judgment, the petitioners have not suffered any prejudice whatsoever by action of the Company Law Board in declining to take affidavits on record after the hearing was concluded. In our judgment, the contentions in all the three petitions are without any merit and the petitions must fail.

10. Accordingly, rule in each of the petitions stands discharged with costs.

At this juncture, Shri Shah submits that the Company should be restrained by an injunction from transferring the ownership in shares in dispute, making payment of dividend or from issuing right shares or bonus shares. The learned counsel submitted that the right to dividend, rights shares and bonus shares should be kept in abeyance for a period of two months to enable the petitioners to approach the Supreme Court and in support of the submission, reliance is placed on S.206(1) of the Companies Act. We are unable to find any substance in the contention. The section comes into operation during the interregnum between the date of lodgment of application of transfer of shares and the date of registration. The section has no application whatsoever when the transfer is refused. There is one more factor which is required to be mentioned at this juncture. During the pendency of these petitions, the petitioners had taken out notice of motion for several interim reliefs and interim relief claimed in prayer (d) was that the petitioners should be allowed to sell the shares pending the hearing and final disposal of the petitions. This Court, by judgment dated September 29, 1992 directed the petitioners to file application within 15 days of the judgment for return of the share certificates and the transfer forms. This Court passed the said order in view of the statement made by Shri Advocate General that the respondent No.2 Company has no objection to give such direction. Shri Advocate General points out that in spite of the order, the petitioners have taken no steps whatsoever to get back the share certificates which were lodged for transfer. In these circumstances, in our judgment, the request of Shri Shah to restrain the Company from payment of dividend or issue of right or bonus shares cannot be accepted.

Order Accordingly