The National Company Law Tribunal ("NCLT"), Mumbai dismissed the appeal against the refusal to register a share transfer in a public company in the case of Riverdale Infrastructures Private Limited v. Kirloskar Ebara Pumps Limited, Ebara Corporation, and Kirloskar Brothers Limited (decided on May 26, 2020), upholding the legality of the joint venture agreement's clauses and the articles of association.
In the instant case titled Riverdale Infrastructures Private Limited v. Kirloskar Ebara Pumps Limited, Ebara Corporation and Kirloskar Brothers Limited the issue raised for clarification before the NCLT was:
Considering that KEPL is a public business, which by definition cannot limit the transfer of shares as is allowed in a private company, is the refusal by KEPL to carry out the registration of the shares that the Appellant purchased from Ebara permissible within the legal framework?
With regard to this issue, The proviso to Section 58(2) of the Companies Act's provision enshrining a legal concept does not contradict Section 2(71) of the Companies Act's definition of a public corporation. Nothing in the law prohibits two or more shareholders from agreeing to a covenant with pre-emption provisions. The proviso to Section 58(2) of the Companies Act, 2013, recognised this through judicial declarations made under the earlier Companies Act, 1956, and it was later included therein. Both sides were fully aware of the implications of their agreement. Ebara essentially accepted its liability under the JVA and transferred it to the Appellant pursuant to Clause 7.6 of the SSPA, which requires the Appellant to sign and deliver to KBL a letter agreeing to comply with and be bound by the requirements of the JVA. This demonstrates that neither Ebara nor Appellant thought the JVA's terms were burdensome or illegal. The option to request a contract modification from a civil court was always available to the appellant in the event that it believed the conditions of JVA to be unfair.
The NCLT categorically stated that,
“Therefore, we must come to the conclusion that even now, neither R2 nor the Appellant find the terms of the JVA to be onerous or contrary to the law. 8.10. We find merit in the contention of Mr Janak Dwarkadas, learned Senior Counsel appearing for R3, in case the Appellant found the terms of the JVA to be unfair, the choice was always open to it to approach a civil court for alteration of the contract. The Appellant has not chosen to do so. 8.11. Further, let us consider a continuum with private company at one end and public company at the other. The proviso to section 58(2) enables a company to exist anywhere in the continuum subject to agreement between the parties. To read it otherwise, as Mr Somasekhar would like us to do, would be to render the proviso to section 58(2) a nullity. It is not for this Tribunal to go into the vires of the legislation itself, that is something that only the constitutional courts can go into. “