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PETITIONER: BAJAJ AUTO LTD.

       Vs.

RESPONDENT: COMPANY LAW BOARD & ORS.

DATE OF JUDGMENT:       22/07/1998

BENCH: B.N. KIRPAL, SYED SHAH MOHAMMED QUADRI

ACT:

HEADNOTE:

JUDGMENT:                             With                CIVIL APPEAL NOs. 3420-79/1980                       J U D G M E N T KIRPAL, J.      These appeals  by special  leave arise  from the common order of the Company Law Board (respondent No. 1 ) which had partly  upheld   the  decision   of  Bajaj   Tempo   Limited (respondent No.  2) in declining to register the transfer of it’s shares  in favour  of M/s. Bajaj Auto Limited which had been purchased  by the appellants. These are essentially two groups of  shareholders which control these companies. While ’Bajaj Group’  has  the  control  of  the  appellant  it  is "Firodia Group" which controls Bajaj Tempo Ltd.      Bajaj Auto  Limited  (appellant  in  Civil  Appeal  No. 3480/86) is  the holding  company  of  Bajaj  Auto  Holdings Limited (appellant  in C.A.  Nos. 3480/86  & 3420-79/86) and they, along with other individuals who were members of their group (all  of whom  are appellants  in  these  appeals  are existing share-holders  of Bajaj  Tempo Limited  which is  a public Limited  company. Bajaj  Auto Limited   purchased  50 shares of  Bajaj  Tempo  Limited  and  Bajaj  Auto  Holdings Limited purchased  13150 shares  of the  said company. These purchases were  made in  the  year  1983  through  different brokers and  they were sent to M/s. Bajaj Tempo Limited  for transfer of  shares  in  the  appellants’  names.  By  three different  resolutions   dated  29.8.1983,   27.9.1983   and 19.11.1983, the  transfer of  shares was  rejected by  Bajaj Tempo Limited.  The minutes  of the  meeting dated 29.8.1983 contained the  reasons  for  refusal  to  transfer  and  the resolution passed  thereto. The relevant portion of the said minutes is as under:      " The  Directors, therefore,  after      due  deliberation  and  considering      all  aspects  unanimously  resolved      not to  approve the  said transfers      and declined  to register  the said      transfers  considering   the  facts      briefly stated  above  and  grounds      briefly summarised as under:      (1) Further  acquisition of  shares

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    of this  Company by  Bajaj Group if      permitted     will      lead     to      interconnection    between     this      Company and  the Companies  of  the      Bajaj Group  which is not desirable      in the interest of this Company.      (2)  The   Bajaj   Group   is   not      acquiring  the   shares   of   this      Company with  a view  to or for the      purpose of  genuine investments but      with ulterior  and  oblige  motives      and purposes  including with a view      to  destablise  the  management  of      this company.      (3) Bajaj  Auto  Limited  and  this      Company are competitors in business      in   as    much   as    both    the      manufacturing   light    Commercial      Vehicles.  The   attempt  of  Bajaj      Group  to   make  inroads  in  this      Company by acquiring large block of      shares is  to cause  detriment  and      prejudice to the company.      (4) In  view of  the  facts  stated      above although  absolute discretion      is  conferred   under  Articles  of      Association  of  the  Company,  the      Board has  carefully considered the      matter and has decided to refuse to      register   the    transfers.    The      Transferees  in  the  circumstances      are also not desirable persons from      the larger  point of  view  of  the      interest of Bajaj Tempo Limited, as      a whole.      Therefore, the  proposed  transfers      are not  in  the  interest  of  the      Company.      "RESOLVED  that   in  pursuance  of      Article No.  52 of  the Articles of      Association  of  the  Company,  the      transfer  of  shares  submitted  of      this  meeting   and  herein   below      mentioned be  and  are  hereby  not      approved and the Board of Directors      do decline  to  register  the  said      transfers and the Secretary to give      to  the   parties  notice  of  this      decision    refusing    the    said      transfers in the following terms:      "I  have  to  advise  that  in  the      meeting of  the Board  of Directors      held on 29th August, 1983 the Board      has decided  that it  will not give      its approval to the transfer of the      following  shares.   The   transfer      forms and  share  certificates  are      being  returned  under  a  separate      cover."      It is  for the  same reason  as above  that  the  other transfers were  declined by  the Resolutions dated 27.9.1983 and 19.11.1983.      Appeals were  the filed by the appellants under Section 111 of the companies Act, 1956 before the Company Law Board. On the  basis of  the pleading before it and the submissions

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of the  counsels for  the parties,  the  Company  Law  Board formulated the following five issues for its consideration: " 1. whether the  appellants and  the respondents are rivals      in business ? 2.   whether the purchases of impugned shares were bona fide      investments ? 3.   Whether the  appellants can  be termed  as  undesirable      persons ? 4.   Whether Apprehension  of inter-connection of respondent      company with Bajaj Group is well founded and whether it      can be a good ground for refusal to transfer shares ? 5.   Whether  transfer   of  7,600   shares,  sought  to  be      transferred by Smt. Suman Jain was intra-group transfer      and if  so, whether respondent company was justified in      refusing transfer of these shares ? "      By a reasoned order, issue Nos. 1,3 & 5 were decided in favour of the appellants. It came to the conclusion that the appellants  were   not  rival  in  business  nor  were  they undesirable persons  and by registering the transfer of 7600 shares, which  transfers were intra-group, there would be no change in  the overall  holding and,  therefore, Bajaj Tempo was not  justified in refusing the said transfer. Issue Nos. 2 &  4 were, however, decided against the appellants and the effect of  this was  that refusal  to transfer  50 shares in favour of  Bajaj Auto  Limited and  5550 shares in favour of Bajaj Auto Holdings Limited was upheld.      In deciding  Issue No. 2, the Company Law Board came to the conclusion  that as  Bajaj Auto  Holdings Limited 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 the  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 successive purchases of the shares by the appellants.      Dealing with Issue No. 4, 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 (hereinafter  referred to  as  ’M.R.T.P. Act) was  33 1/3% and the said limit has been reduced to 25% w.e.f. 1.8.1984  as a  result of  amendment in  the 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 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 of  the mark of 25%, the apprehension existing in the mind of  the Board  of Directors  of the  respondent Company cannot be  assailed."  It,  therefore,  concluded  that  the apprehension of  Bajaj Tempo  Ltd. that it was likely to get inter-connected  with   the  appellants,  in  the  event  of impugned transfer  of shares being allowed, was not baseless or ill-found.      Assailing the  aforesaid decision  of the  Company  Law Board Shri  Shanti Bhushan  and Shri  Harish Salve,  learned Counsels for  the appellants submitted that the power of the Directors to  refuse transfer  is by  way of an exception to the  rule  that  the  share  transfer  should  generally  be

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accepted by  a listed  company. Impugning  the  findings  in connection with  Issue Nos.  2 & 4 of the Company Law Board, it was  contended that  the conclusion of the Broad that the return by  way of dividend on the shares was very low is not the only  relevant factor  in order to determine whether the purchases of  shares was  by way of investment. An important factor which  has been  ignored by  the Board  was that  the capital appreciation  was more than ample to off-set the low dividend return.  It was  submitted that refusal to transfer was not  in the interest of the company and the non-transfer by the Firodia Group, which controls Bajaj Tempo, was with a view to  protect that group’s personal interest. It was also submitted that even if the transfers were allowed the share- holding of  the appellants would be below 25% limit. In this connection, it  was submitted that it was in the hand of the Bajaj Tempo  Ltd. to  avoid  inter-connection  if  any  more transfers of  shares  was  sought  for,  it  with  the  said transfer the  transferability would  reach the limit of 25%. Our attention  was also  drawn  to  the  fact  that  at  the relevant point of time, Bajaj Tempo was already a company to whom the  provisions of Chapter 3 of M.R.T.P. Act applied by virtue of  the provisions  of Section  20(a) of the said Act inasmuch as  its assets  exceeded 20  crores and, therefore, inter-connection would not have made any difference. For the view, we are taking, it is not necessary to refer to or deal with the  other contentions  raised by  the learned counsels for the appellants.      The crucial  question is  as to  what is  the power and scope of  Directors to  refuse to  register the  transfer of shares in  the case of a public limited company whose shares are listed  on the  Stock Exchange. In declining to register the transfer  of shares, power is sought to be derived  from Article 52  of the  Articles of  Association of  the Company which reads as follows:       "  52. The  Board may  at its  own      absolute      and      uncontrolled      discretion decline  to register  or      acknowledge any transfer of shares,      and in particular may so decline in      any cases  in which the Company has      lien upon  the  shares  or  any  of      them,  or   whilst  any  moneys  in      respect of the shares desired to be      transferred or  any of  them remain      un-paid, or unless he transferee is      approved by  the  Board,  and  such      refusal shall  not be  affected  by      the   fact    that   the    refused      transferee is already a member. The      registration of a transfer shall be      conclusive evidence of the approval      of the transferee by the Board.      Provided that  the registration  of      any transfer  shall not  be refused      on the  ground  of  the  transferor      either alone  or jointly  with  any      other person or persons indebted to      the   Company    on   any   account      whatsoever except as stated above."      The  power   of  the   Board  of  Directors  to  refuse registering the transfer of shares is now settled when these two  adversaries   had  on   earlier  round   of  litigation culminated in  the decision  reported as Bajaj Tempo Limited Vs. N.  K. Firodia  and another  etc. 1970 (2) SCC 550. That was the  case where  Firodia Group (who controls Bajaj Tempo

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Limited )  had applied  to Bajaj  Auto Limited,  on  of  the appellants in  this appeal,  for transfer of shares of Bajaj Auto Limited  which had been purchased by the Firodia Group. The Board  of Directors  of Bajaj  Auto Limited  refused  to register  the  transfers,  inter  alia,  stating  that  N.K. Firodia  and  his  representatives  had  acted  against  the interest of  the company  and that it was in the interest of Bajaj Auto  to refuse  the transfer.  The Company  Law Board directed Bajaj  Auto to  register the  transfer which led to the filing  of the  appeal in  this Court.  Bajaj  Auto  had placed reliance  on  its  Article  52  of  the  Articles  of Association, which  was identical  to Article  52  of  Bajaj Tempo, and it contended that it gave the Directors absolutes and uncontrolled  discretion  to  decline  to  register  any transfer of  shares. Dealing  with the  question relating to the discretion of the Directors, it was observed at page 554 as follows:      "  Article   52  of  the  appellant      company provided  that the Director      might   at   their   absolute   and      uncontrolled discretion  decline to      register any  transfer  of  shares.      Discretion does  not  mean  a  bare      affirmation  or   negation   of   a      proposal. Discretion  implies  just      and  proper  consideration  of  the      proposal   in    the   facts    and      circumstances of  the case.  In the      exercise  of  that  discretion  the      Directors   will    act   for   the      paramount interest  of the  company      and for the general interest of the      share-holders because the directors      are in  a fiduciary  position  both      towards  the  company  and  towards      every share-holder.  The  Directors      are therefore  required to act bona      fide and  not arbitrarily  and  not      for any collateral motive."      This Court  then observed that where the Directors give reasons,  the   Court  would   consider  whether  they  were legitimate and whether the Directors proceeded on a right or wrong  principle.  In  such  a  case,  the  reasons  of  the Directors have  to be  decided from  three points  of  view. Firstly, whether  the Directors acted in the interest of the Company, secondly,  whether they acted on a wrong principle; and thirdly,  whether they  acted with  an oblique motive or for a  collateral purpose.  In this connection reference was made to  the observations  of this  Court in  M/s. Harinagar Sugar Mills Ltd. Vs. Shyam Sunder Jhunjhunwala & Ors. (1962) 2 SCR 339  where it was observed that "the discretion of the Directors would be nullified if it were established that the Directors acted  oppressively, capriciously  or corruptly or in some  other way  mala  fide."  After  referring  to  some English decisions,  this Court in Bajaj Tempo’s case at page 557 observed thus:      "  It   follows  that   where   the      Directors  have   uncontrolled  and      absolute discretion  in  regard  to      declining registration  of transfer      of shares,  the Court will consider      if the  reasons are  legitimate  or      the Directors have acted on a wrong      principle or  from corrupt  motive.      If  the   Court  found   that   the

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    Directors gave  reasons which  were      legitimate,  the  Court  would  not      overrule that  decision  merely  on      the ground   that  the court  would      not   have   come   to   the   same      conclusion."      The Court  then examined the facts of that case dealing with three  reasons given  by the Bajaj Auto for refusing to transfer the  shares it  observed that  the Directors  had a hostile feeling  against Firodia  and they  had the dominant desire to  keep Firodia out of the company. They did not act in the  interest of  the company  and their  discretion  was tainted by unfair conduct and unjustifiable attitude against Firodia. The  Court rejected  the ostensible  reasons  which were given  for refusing  the  transfer  of  shares  and  it observed that  the "the  reason given by the Directors was a camouflage to  cover their  collateral and corrupt motive of preserving the  hegemony of  the Bajaj  Group. The motive is corrupt because  the Bajaj  Group acted  for their  personal interest and  not in  the bona  fide general interest of the company". Dealing  with the third reason, it was observed as follows:      " The  third reason  given  by  the      appellant  company   was  that  the      shares were  being acquired  by the      Firodia group  not with  a view  of      bona fide  investment  but  with  a      mala fide  purpose and  evil design      of obstructing  the business of the      appellant  company  Acquisition  or      transfer  of   shares   under   the      Articles of  the present  case does      not  suffer  from  any  restrictive      impediment   like    promotion   or      personal    objections    to    the      transferees. There  is no  evidence      that the  transferees belonged to a      rival concern. Equally, there is no      evidence  that  the  Firodia  Group      ever obstructed  in the  Management      of the  Company. On  the  Contrary,      the Firodia  group  advanced  large      sums of  money. Firodia was largely      responsible for  the gradual growth      of the  appellant company  and  for      the prosperity  of the  company. It      was  therefore   an  abuse  of  the      fiduciary power of the Directors to      refuse  to   register  transfer  of      shares."      In the  end, this  Court  noted  that  the  refusal  to register the  shares was  a sequel to the termination of the appointment of Firodia as Chief Executive and it is manifest that the Directors acted for collateral reasons and in their own interest.      The shoe  now is  on the  other foot.  Whereas  in  the aforesaid case,  it is  Bajaj  Auto  which  had  refused  to register the transfer the shares in favour in N.K. Firodia & Group,  in   the  present  case,  it  is  the  N.K.  Firodia controlled company  namely Bajaj  Tempo which has refused to register the  transfer of shares in favour of Bajaj Auto and its subsidiary company. The stained relationship between the groups, and  the animosity  among  them,  has  been  clearly brought out in the aforesaid judgment of this Court.      Mr. R.F.  Nariman, learned Counsel for respondent No. 2

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however contended  that there  were no  personal reasons for declining to  register the  transfer of  shares in favour of the appellants. In this connection, he submitted that during the period  September, 1982  to July  1983, the Directors of Bajaj Tempo Limited had approved the registration of as many as  42350  shares  in  favour  of  the  appellants.  It  was contended that  the Board  of Directors  of Bajaj Tempo Ltd. had acted in bona fide and reasonable manner even though the share acquisitions  by the appellants were part of a plan of action on  its part  to acquire  a large  block of shares of Bajaj Tempo  Limited. He  submitted that it is only when the said share  acquisitions had  crossed the limit of 24% and a razor thin  margin remained  before the  danger limit of 25% was reached that the Board decided to draw a line and to put an end  to any further share acquisition by the Bajaj Group, leaving an  extremely slender margin of safety of only about 0.7%. He  further submitted  that the Board of Directors had acted bona  fide in  rejecting the  share transfer  and  the Court should not interfere even though it may not agree with the decision of the Board. There was a genuine apprehension, it was  submitted, that  if the  appellants were directed to continue to  acquire further  shares in Bajaj Tempo Limited, it might result in the company becoming inter-connected with the  Bajaj  Group  which  would  result  in  highly  adverse consequences for the company.      We have  to consider  whether the  said apprehension in the mind  of the  Board of  Directors of  that  company  was genuine and was it the real reason for rejecting to register the transfer  of shares.  In other  words, what  has  to  be determined, keeping  in mind  the principles  enunciated  by this Court  in Bajaj  Tempo Ltd. case (supra) is whether the Board Directors  had acted in the interest of the respondent company.      As we  see it  the power  of the  Board of Directors to refuse registration  of transfer  of shares  must be  in the interest of  the company  and  the  general  body  of  share holders. No  doubt in  the year,  1983, Section  82  of  the Companies Act  provided that the shares or other interest of any  member  in  the  company  shall  be  movable  property, transferable in  the manner  provided by the Articles of the Company. Article 52 sought to give absolute and uncontrolled discretion to  the Board of Directors to decline to register or acknowledge  any transfer of shares. Even then as already held in  Bajaj Tempo  Limited case (supra), the Board has to act bona  fide, and  not arbitrarily  and for the benefit of the company  as a  whole. In  the case  of a  public limited company which  is listed  with Stock  Exchange, an important right of  share holder is to be able to sell his shares at a favourable price.  It is  seldom  in  the  interest  of  the general-body of  share-holders that  transfer of  shares  be refused because  that will  have an  adverse impact  on  the market price  of the  shares. Free transferability of shares will not  artificially deprive  its market  price. This does not mean  that if  there is a good reason then the Board has no power  to refuse to register the transfer of shares. This Court while  examining the  action of the Board of Directors is not  expected to exercise original appellate jurisdiction and sit  in appeal  on question of fact. The judicial review while hearing in appeal from the decision of the Company Law Board would  be limited to see whether there was a bona fide exercise of  power by  the Board of Directors while refusing to register the transfer of shares.      The Company  Law Board  in the present case came to the conclusion that  at least  two of  the reasons stated by the Company while  refusing to  register the  transfer of  share

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were not  correct. It  held that  the appellants  and  Bajaj Tempo were  not rivals in business and even though there was hostility between  the managements of the companies but that by  itself   could  not   mean  that   the  appellants  were undesirable persons in the matter of transfer of shares. The only two  reasons of  the Directors  which found favour with the Company Law Board 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.      Reverting  to   issue  No.  2.  we  find  that  in  the Resolution of  29.8.1983 what  had been  stated was that the appellants were  not acquiring  the shares with a view to or for the  purpose of  genuine investment  "but with  ulterior motives and purposes including with a view to destablise the management of  the company".  The alleged reason, therefore, was that  the shares  were  being  purchased  with  ulterior motives and  purposes and  with a  view  to  destablise  the management of  the company. The Company Law Board appears to have mis-understood  this reason  and framed  the  issue  as "whether the  purchases of  impugned shares  were bona  fide investments". It opined that being an investment company, it was not  convincing, that  the appellants  would  prefer  to invest  in   the  shares  of  the  company  other  than  the respondent company  and the  purchases were  made so  as  to increase its  share-holding in  the respondent  company  and are, thus,  motivated. It  also observed  that the return on the shares  of respondent  company  did  not  appear  to  be adequate  enough  warranting  successive  purchases  of  its shares and  appeared to  be lacking  in bona  fide.  In  our opinion, this was not a correct approach. Merely because the appellants wanted  to increase  the share-holding  cannot by itself be  a ground  in law  for refusing  to  transfer  the shares. Realising  this in  the resolution  of the  Board of Directors it was alleged that the purchase was not by way of genuine  investment   but  was  made  with  ulterior/oblique motives and  with a view to destablise the management of the company. There  is nothing  placed on  the record  which can possibly persuade  anyone to come to the conclusion that the intention of  the purchase  of shares  by the appellants was with a  view to  destablise the management of the company or with an  ulterior/oblique motive.  Prima facie it appears to us that  even if  it is  assuming that  the appellants  were trying to  purchase shares  with a view to get a controlling interest in  the company  that itself cannot be a ground for refusing to  transfer the  shares unless and until it can be shown that the purchasers were undesirable persons and after gaining control  of the  company they  will act  against the company and  the shareholders  interest. In the instant case the appellants would not even have 25% shares of the company even if the transfer of share was registered and, therefore, the threat to the management, assuming that could be a valid reason, could not be regarded as genuine.      It was  submitted on  behalf of the appellants that the Company Law  Board over-looked  the fact  that the return on the investment  of such  shares is  not only  by  reason  of divided which  is obtained  but the  main income  which  was expected to  arise was from the appreciation in value of the shares. It  was submitted  by the  learned counsel  for  the appellants that  at the  time when  the purchases were made, the share  price was  around Rs. 145 per share and presently it is  around Rs.  210/- per  share. In our opinion there is merit in  this contention.  Price appreciation, which may in future lead  to issuance of bonus shares or right shares, in the event  of increase  in capital, is a very valid and good

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reason for  purchasing shares  of reputable  companies by an investor. Therefore, the reason, which is given for refusing to transfer  the share  namely inadequate  return on shares, cannot be regarded as being bona fide.      As regards  the  fear  of  being  regarded  a  dominant undertaking, in  the event  to  the  being  inter-connection between  the  appellants  and  the  respondent  company  are concerned, it has been contended on behalf of appellant that the sections  pertaining to  concentration of economic power in Chapter  III of  M.R.T.P. Act  i.e. Sections 25 & 26 have been omitted w.e.f. 27.9.1991 and, therefore, as on today it would make  no difference  and the  said  reason  cannot  be regarded as  valid. While  it  is  true  that  the  fear  of respondent company  being regarded as a dominant undertaking as on  today may  not arise but what has to be seen is as to whether this  could be a genuine apprehension in the mind of Board of  Directors  when  in  1983  they  had  declined  to register the  transfer of  shares. The admitted fact is that as  on   that  date,   inter-connection  could   have   been established only  if the  appellants had  acquired  33  1/3% shares of  the respondent company. But, it is contended that in  view   of  Sachar   Committee’s  Report,   the   company apprehended that the Act would be amended so that instead of 33 1/3%   shares,  it should  be 25%.  We would,  therefore, proceed on  the assumption  that the figure of 25% had to be avoided by the respondent company.      It is an admitted fact that even if the purchase of the shares was  registered, the total percentage of the holdings of the  appellants group would be short of 25%. the existing share holding, at that time, was 23.232% had the transfer of shares  been  registered  then,  according  to  the  figures supplied  by  Mr.  Nariman  at  the  time  of  hearing,  the percentage of the holding of the appellants group would have risen  to   only  23.408%.  The  learned  counsels  for  the appellants are  right in  contending that  if  fear  of  the inter-connection was the real reason in refusing to register the transfer  then such  a reason  could not  exist at  that moment because  even with  the registration  of the transfer the total  mark of  25% would  not be  reached.  We  are  in agreement with  the appellant’s  submission and  are of  the opinion that  if the  number of  shares which were purchased had been  such that  the total  mark of 25% could be reached then the  action of  the Board  of Directors  could not have been faulted.  But with  the registration of the transfer of shares in  question that  danger mark  would not  have  been reached. We  are unable  to accept as correct the appellants contention that  because the total holding of the appellants group would  then become "dangerously close" to 25% it was a good enough  reason to  refuse transfer.  There may not have been anything to prevent the company if, after the shares in question had been registered, any further purchase of shares was made  which would have the effect to push the holding of the appellants  to 25%  mark,  to  reject  those  subsequent transfers. As  the transfers  in  question  would  not  have resulted in reaching the 25% mark that cannot be regarded as a  valid   reason  or   consideration   for   refusing   the registration of transfer of shares.      Faced with  this, Mr. Nariman, learned counsel, however contended that  because of the provisions of M.R.T.P. Act in determining the  inter-connection,  the  shares  held  by  a financial  institution  are  required  to  be  excluded.  He submitted that  even if  the appellants did not purchase any further   shares   but   further   purchase   by   financial institutions of  more shares could possibly lead to the same result namely of the percentage of holding of the appellants

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group  going   beyond  25%.   While  it  is  true  that  the shareholding of  the financial  institutions is  not  to  be taken into account in determining whether or not two or more bodies corporate  are under  the same  management because of Explanation IV to Section 2(g) of M.R.T.P. Act, we find that if the  shares in question had been registered, and existing share-holding of  the financial  institutions excluded, then the total percentage of shares of the appellants group would come to only 24.405%. for this percentage to push up to 25%, the   financial   institutions   would   have   to   acquire approximately  27740   additional  shares   of  Bajaj  Tempo Limited, which  may not be very likely. In any case, if such a  situation   did  arise   namely  financial   Institutions purchasing more  shares which would result in danger mark of 25% to  reach, there  is nothing  in law  which  would  then prevent the  Board of  Directors of  Bajaj Tempo  Limited to refuse the  registration of  transfer in favour of Financial institutions. In  other words  just as  the  Directions  can refuse to register transfer of shares in the appellants name in order  to avoid  inter-connection similarly,  and for the same reason,  they could refuse to register transfer of such further purchases by financial institutions if such purchase would have  had the  effect of  making the appellants inter- connected with  Bajaj Tempo  Limited. The  Company Law Board was, therefore,  wrong in  rejecting  a  contention  of  the appellants that  the apprehension  of the respondent company that  it   was  likely   to  get  inter-connected  with  the appellants in  the event  of the impugned transfer of shares being allowed was baseless and/or ill-founded.      In order  to see  whether the  Board of  Directors  had acted in  furtherance of  a  personal  interest  or  in  the interest of  company, the  resolution dated 29.8.1983 should be read  as a  whole. It is apparent that being aware of the state of  law, every  possible reason  was  stated  in  this resolution which  could justify the Directors in refusing to register a transfer. Of the four reasons given by the Board, two of  them were  rejected by the Company Law Board, namely that the  appellants were competitors of Bajaj Tempo Limited and that the transferees were not desirable persons from the large point  of view  of interest  of Bajaj  Tempo  Limited. There is also nothing on record to show that the purchase of shares by  the appellants  was with ulterior/oblique motives and purposes and with a view to destablise the management of the  company.  Lastly,  we  find  that  the  acquisition  in question would  not have  led to the interconnection between the companies  and it  was not a bona fide exercise of power by the  Directors to  take into account "further acquisition of shares"  of Bajaj  Tempo Limited  which may take place in future which  may then  lead to  inter-connection. It is the extent of  share-holding at  that point of time which had to be taken into consideration and not future acquisition which may  or  may  not  take  place.  It  was  submitted  by  the appellants counsel that because of the provisions of Section 108A of  the Companies Act as it stood at that time, further acquisitions could  not take  place so  as to  bring up  the share-holding  to   25%  without   first   getting   central Government approval.  We, however,  need  not  examine  this aspect because,  in our  opinion, on the facts which existed on the  record,  we  are  satisfied  that  the  exercise  of discretion by the Board of Directors in refusing to register the shares  in the  name of the appellants was not bona fide or in  the interest of the company or general-body of share- holders. Accordingly,  its decision  not a  to register  the transfer of shares was not correct.      For the aforesaid reasons, the appeals are allowed. The

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impugned order  dated 28.7.1986  of the Company Law Board is set aside and the Resolutions dated 29.8.1983, 27.9.1983 and 19.11.1983 of M/s Bajaj Tempo Limited are set-aside and as a consequence thereof,  direction is given to respondent No. 2 to register  the shares  in question  within four weeks from the date  of this  judgment. The appellants will be entitled to cost.