METRO INFRASTRUCTURE DEVELOPMENT LTD Vs. GNB CREDIT PVT

JUDGEMENT

(1.) Two points have been urged in this appeal under section 10F of the Companies Act from an order disposing of a prospective shareholder's petition for registration of the shares acquired. The company is in appeal. The company says that the Company Law Board erred in law in failing to appreciate the import of Article 5A of the articles of association of the company and the Company Law Board erred in law in permitting the respondent to have the share transfer form validated despite the form having once been used for lodging the shares for transfer with the company. The company considers the respondent undesirable to be made a member thereof. It is not necessary in the present context to go into the reasons for the company harbouring such a view. Upon the respondent lodging the share transfer form along with the share certificates with the company for registration of the transfer thereof in the name of the respondent, the company invoked Article 5A of its articles of association to decline to register the transfer. The relevant article provides as follows;

(2.) Following the company's rejection of the request to register the transfer, the respondent applied to the Company Law Board under section 111A of the Act since the company in this case is a public company. The Company Law Board referred to the concept of free transferability of shares in a public company that the amended provisions of the Companies Act now recognise. However, the Company Law Board found that the share transfer form was not complete in all respects as the period of its validity has expired. While the Company Law Board upheld the respondent's contention that it was entitled to have the registration of the shares in its favour, since it found that the share transfer form was invalid when it had been deposited, it permitted the respondent to lodge the relevant documents afresh upon taking steps in accordance with law. The Central Government is authorised to extend the period of validity of a share transfer form. It, therefore, appears from the order of the Company Law Board that the registration of the shares in the respondent's favour may be a mere formality upon the respondent lodging the share certificates along with a valid share transfer form.

(3.) The argument that the appellant company makes is that the discussion by the Company Law Board on such aspect of the matter in the impugned judgment rules out the possibility of an unlisted public company retaining any discretion as to the desirability of the persons who seek to become members thereof. This, according to the appellant, may neither be the mandate of the statute or of any fundamental principle of company law. However, the issue that is raised by the appellant company cannot be received or assessed in the abstract since there is no factual foundation therefore. In an appropriate case, the Court may be called upon to evaluate whether any authority conferred by the articles of association on the directors of an unlisted public company to ascertain the desirability of having some persons as its members would be valid or not; but such question does not arise in the facts of this case. It is evident that the appellant company was once a private company. The appellant is now a public company. Article 5A of its articles of association has not been altered consequent upon the appellant converting itself from a private company to a public company. In such circumstances, Article 5A appears to have been rendered otiose upon the company becoming a public company.