KINETIC ENGINEERING LIMITED Vs. UNIT TRUST OF INDIA

JUDGEMENT

(1.) THE appellants who are a public limited company and listed on the Stock Exchange, Bombay, have preferred this Appeal against the order passed by the Company Law Board (hereinafter referred to as "the CLB") in Company Petition Nos. 10 and 11/sc/clb/wr/92, 1 to 92 of 1993, 94 to 103, 106 to 129, 132, 143, to 154, 156 to 161, 167 to 173, 177 to 187, 190, 191, 195 and 196 of 1993 and 1 of 1994.

(2.) BRIEFLY stated facts giving rise to the present appeal are as under:

(3.) UNIT Trust of India (hereinafter referred to as "the UTI") the respondents, as part of its market operations, bought from the market 99,075 shares of the appellant-Company over a period of time and lodged the instruments of transfer with the appellants for registration the details of which are set out in Annexure `a to the order passed by the CLB. The said transfer applications were considered by the Board of Directors of the appellants in its various meetings and the Board decided to refuse registration of transfers on the ground that the registration of these transfers in favour of the UTI which already holds about 4. 9% shares in the Company of the appellants would take a total holding of the UTI in the appellant Company beyond 5% of the paid up capital of the Company carrying voting rights, which, according to the Board, is against the guide-lines of the Government of India or Regulations of SEBI in respect of Mutual Funds, in accordance with the provisions of section 22-A (3) (b) of the Securities Contract (Regulation) Act, 1956. According to the appellants, the UTI is a Mutual Fund and therefore, as per Regulation 41 read with Schedule VI of the SEBI Regulations of 1993, the guide-lines issued by the -Government of India in 1992, Mutual Funds are not supposed to hold more than 5% of the shares carrying voting powers in any company. It appears that the Board of Directors of the appellants relied on some cases of the Government on the Government guide-lines of 1992 and later on the Regulation of 1993, and the opinion formed by the Board of Directors was on the basis that the UTI is a Mutual Fund and is prohibited from holding more than 5% of the shares of the Company. In one of the Resolutions, the Board also appears to have referred to a letter written by them to the SEBI authority seeking clarification from the SEBI whether UTI is the Mutual Fund and whether the provisions of the Regulations are applicable to the UTL. The Board of Directors of the appellants also took into consideration the reply received from the SEBI wherein it was indicated that the appellants may follow a procedure as per Securities Contract (Regulation) Act, 1956 / Companies Act, while taking decision with regard to the registration of transfer. As required by section 22-A (4) (c) the Appellants made a reference to the CLB and forwarded copies of such reference to the transferor and transferee. In the said reference, after hearing the appellants and the present respondents i. e. the UTI who are the transferee, held that though UTI is a mutual fund is not governed by the guide-lines issued by the Government of India in 1992 or the SEBI Regulations of 1993, and therefore, the refusal to register the transfer of equity shares in favour of the UTI was erroneous, and therefore, directed the appellants to register the transfers in favour of the UTI in respect of all the shares within 10 days from the date of receipt of the order. The CLB, however, held that the decision of the Board refusing to register the transfer was not mala fide and was taken in good faith. Being aggrieved by the said order of the CLB the Appellants have come to this Court under section 10-F of the Companies Act. According to the appellants, the appeal raises the following amongst other questions of law, and the same is preferred on the grounds stated below which are without prejudice to each other :-