BAJAJ AUTO LTD. versus COMPANY LAW BOARD AND ORS.

Citation: [1998] 3 S.C.R. 881 · Decided: 22-07-1998 · Supreme Court of India · Bench: B.N. KIRPAL · Disposal: Appeal(s) allowed

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Judgment (excerpt)

BAJAJ AUTO LTD. 
A 
v. 
COMPANY LAW BOARD AND ORS. 
JULY 22, 1998 
[B.N. KIRPAL AND S.S.M. QUADRI, JJ.] 
B 
Companies Act, 1956 : Section 82. 
Transfer of shares-Public limited company-Listed with Stock 
Exchange-Refusal of-By Board of Directors-Power and Scope-Transfer C 
of shares refused for the reasons that the purpose of purchase of shares was 
for ulterior motives with a view to destabilising the management of the 
Company and apprehension that its company might get inter-connected 
with the purchasing Company-Held : "Absolute and uncontrolled" power 
conferred on Board of Directors by Articles of Association of the Company D 
to decline to register transfer of shares-But the discretion has to be exercised 
bona fide and not arbitrarily and for the benefit of the Company and the 
general body of shareholders-Supreme Court in exercise of its power of 
judicial review does not sit in appeal over question of facts but only has to 
see whether there was bona fide exercise of power by the Board of Directors-
Merely because the purchasing Company wanted to increase its shareholding E 
or get a controlling interest cannot by itself be a ground for refusing to 
transfer of shares-Hence, the two reasons for refusing to the transfer the 
shares neither made out on records nor warranted-It was not a bona fide 
exercin of power by the Directors to take into account further acquisition 
of shares which may take place, leading to inter-connection-Monopolies F 
and Restrictive Trade Practices Act, 1969, Ss. 25, 26 and 2(9) Expln, JV. 
The appellant-Bajaj Auto Ltd. was the holding company of Bajaj Auto 
Holdings Ltd. while "Bajaj Group" had the control of the appellant it was 
"Firodia Group" which controlled Bajaj Tempo Ltd. The said two appellant-
companies (Bajaj Auto Ltd. and Bajaj Auto Holdings Ltd.) along with other G 
individuals who were members of their group (all of whom are appellants in 
these appeals) were existing shareholders of Bajaj Tempo Ltd. which was a 
public limited company. Bajaj Auto Limited purchase 50 shares of Bajaj 
Tempo Limited and Bajaj Auto Holdings Limited purchased 13150 shares of 
the said company. 
H 
881 
882 
SUPREME COURT REPORTS 
[1998] 3 S.C.R. 
A 
However, the transfer of shares was rejected by the respondent-Bajaj 
Tempo Ltd. By resolutions of its Board of Directors. The Board of Directors 
gave four reasons for rejecting the transfer of shares. The Company Law 
Board rejected two of the four reasons, viz., that the appellants were 
competitors of Bajaj Tempo Ltd. and that the transferees were not desirable 
B persons from the larger point of view of interest of Bajaj Tempo Ltd. The 
other two grounds were that the appellants were not bona fide investors and, 
secondly there was a genuine apprehension about inter-connection of 
respondent-company with the appellants. 
As regards the first ground, the Company Law Board came to the 
C conclusion that as Bajaj Auto Holdings Ltd. was an investment company, it 
was not convincing that it would invest in the shares of Bajaj Tempo by way 
of investment It further came to the conclusion that the proposed investment 
in thr shares of the respondent-company by the appellants was to increase 
its share holding and was motivated. It also noted that the return on the 
shares of the company did not appear to be adequate enough warranting 
D successive purchases of the share by the appellants. 
As regards the second ground, the Company Law Board noticed that 
on 29-8-1983, the total holding of the appellants' group was about 23.2% 
in Bajaj Tempo Ltd. At that time the inter-connection limit under the 
Monopolies and Restrictive Trade Practices Act, 1969 was 33 1/3% and the 
E said limit has been reduced to 25% w.e.f. 1-9-1984 as a result of amendment 
in M.R.T.P. Act The Company Law Board was of the opinion that even though 
at the time of lodgment of shares the said amendment had not been made, 
there was a feeling prevalent in trade and industry that the inter-connection 
limit would be reduced to 25%. It then held that the limit up to which shares 
F may be allowed to be acquired by any group, in the share holding of the 
respondent-company in such circumstances, has to be the subjective opinion 
of its Board of Directors and when the acquisition of the appellants "had 
already reached critical limit of over 23%, which is not widely off the mark 
of 25%, the apprehension existing in the mind of the Board of Directors of 
the respondent-company ca

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