[1964]
34 COMP.CAS. 394 (ALL.)
HIGH COURT OF
v.
JAGDISH
SAHAI AND M CHANDRA, JJ.
FIRST
APPEAL FROM ORDER NO. 224 OF 1960
JANUARY
9, 1964
JUDGMENT
JAGDISH
SAHAI, J.-This First Appeal
from Order by Messrs. Basant Company (hereinafter referred to as the appellant)
has been filed under section 202 of the Indian Companies Act, 1913 (hereinafter
called the Act), against the Benares Cotton and Silk Mills Ltd. (in
liquidation) (hereinbelow described as the company) and is directed against the
order of the learned District Judge, Varanasi, dated 3rd March, 1960.
It would
contribute to a clear understanding of the points raised in this appeal if the
following facts were given :
By means of
the resolution dated 17th March, 1954, the company decided to issue some
debentures and on 2nd April, 1954, they did so. On 11th April, 1954, 125
debentures were allotted to one M.K. Jhunjhunwala but before that date on 4th
April, 1954, Jhunjhunwala had already sold 50 debentures to the appellant and
on 7th June, 1954, transfer deeds in respect of the same were executed. On 17th
June, 1954, on the appellant's instructions the Allahabad Bank Ltd.
(hereinafter referred to as the bank) requested the company to pay them
interest on those fifty debentures. On 6th July, 1954, the company refused to
make the payment on the objection that the name of the appellant had not been
entered in the registers of the company. On 4th May, 1955, the company went
into liquidation and on 8th May, 1956, Jhunjhunwala filed with the official
liquidator a claim under section 177A of the Act inclusive of the 50 shares
mentioned above. On 10th October, 1957, he sent the debenture scrips and the
transfer deeds to the official liquidator with a request that the name of the
appellant be entered on them. On 6th November, 1957, the official liquidator
sent a reply to the appellant saying that he was unable to do anything in the
matter until the orders of the Company Judge had been obtained. On 4th January,
1958, Jhunjhunwala declared before a Magistrate at Calcutta that on or about
4th April, 1954, he had transferred in favour of the appellant 50 debentures
and the appellant had become the owner thereof. Thereafter, the appellant made
an application purporting to be under section 123 of the Act with a prayer that
in the register of debentures the name of the appellant be included in respect
of 50 debentures in the place of Jhunjhunwala. That application was dismissed
with costs on 3rd March, 1960, by the learned District Judge, Varanasi, and it
is against that order that the present first appeal from order has been filed.
The learned
District Judge decided against the appellant on the ground that "there are
certain circumstances which go to show that the claim of the applicant is not
genuine but is of a very suspicious character".
We have heard
Mr. Rajeshwari Prasad for the appellant and Mr. Jagdish Swaroop for the
official liquidator. Apart from reiterating that the claim of the application
is not genuine, Mr. Jagdish Swaroop has tried to support the order of the
learned District Judge, Varanasi, on the ground that the application was not
maintainable, the transfer of the shares had not been proved and in any case
was colourable and that the company had a right to refuse to register the name
of the appellant.
We will first
deal with the question as to whether or not the application made by the appellant
in the court of the District Judge, Varanasi, was maintainable. The application
was made under section 123 of the Act which reads :
"123.
Company's register of mortgages.-(1) Every company shall keep a register of
mortgages and enter therein all mortgages and charges specifically affecting
property of the company and all floating charges on the undertaking or on any
property of the company, giving in each case a short description of the
property mortgaged or charged, the amount of the mortgage or charge and (except
in the case of securities to bearer) the names of the mortgages or persons
entitled thereto.
(2) If any
director, manager or other officer of the company knowingly and wilfully
authorises or permits the omission of any entry required to be made in
pursuance of this section, be shall be liable to a fine not exceeding five
hundred rupees."
Admittedly, in
the present case, the debentures are not "bearer". Consequently, the
same are not hit by the exception to section 123 of the Act. The question,
however, requiring consideration is whether that section also requires entires
being made in respect of transfers of mortgages or debentures by their holders
in favour of third parties. Mr. Jagdish Swaroop contends that the section
cannot be read so as to comprehend the recording entires relating to the change
in the ownership of the debentures and the mortgage deeds. Section 38 of the
Act confers on the court the power of rectify a register. The submission of Mr.
Rajeshwari Prasad who has appeared for the appellant is that section 123 read
with section 38 of the Act confers on the court the power to direct that the
transfer made by Jhunjhunwala in favour of the appellant in respect of fifty
debentures be entered in the registers of the company.
There cannot
be any manner of doubt that if section 38 was comprehensive enough to include
not only rectification of the register of members but also the register of
mortgages including debentures, the court would have the power to grant the
prayer made by the appellant. Mr. Jagdish Swaroop, however, submits that the
provisions and the scheme of the Act disclose that the legislature made a
distinction between the registers of members and registers of mortgages and
debentures and that it is only by means of the amendment introduced by Act LXV
of 1960, in the shape of section 155 of the Act, that for the first time the
court has been given the power, which it did not have before, to direct
rectification of the register of debentures. Sub-section (5) of section 155 of
the 1956 Act reads :
"155.
(5) The provisions of sub-sections (1) to (4) shall apply in relation to the
rectification of the register of debenture holders as they apply in relation to
the rectification of the register of members."
Sub-section (1)
of section 155 deals with the right of a member of a company to apply for the
rectification of the register of members of the company. Sub-section (2) gives
the power to the court either to reject the application or order rectification
of the register. Sub-section (3) confers on the court the power to decide any
question relating to the title of the person who is a party to the application
for rectification and clause (4) provides a right of appeal on the grounds
mentioned under section 100 of the Code of Civil Procedure to the High Court if
the order is passed by a District Court and to three or more judges if the
order is of a Single Judge of a High Court. It is true that there was no
specific provision in the Act before 1960 under which a rectification of the
register of mortgages could be made. The only provision that existed was
section 120 which reads :
"120.
Rectification of register of mortgages.-(1) The court, on being satisfied that
the omission to register a mortgage or charge within the time required by
section 109, or that the omission or mis-statement of any particular with
respect to say such mortgage or charge, or the omission to give intimation to
the registrar of the payment or satisfaction of a debt for which a charge or
mortgage was created was accidental, or due to inadvertence or to some other
sufficient cause, or is not of a nature to prejudice the position of creditors
or shareholders of the company, or that an other grounds it is just and
equitable to grant relief, may, on the application of the company or any person
interested and on such terms and conditions as seem to the court just and
expedient, order that the time for registration be extended, or, as the case
may be, that the omission or mis-statement be rectified, and may make such
order as to the costs of the application as it thinks fit.
(2) Where the
court extends the time for the registration of a mortgage or charge, the order
shall not prejudice any rights acquired in respect of the property concerned
prior to the time when the mortgage or charge is actually registered."
Mr. Jagdish
Swaroop contends that the rectification could only be made in the circumstances
enumerated in the section and not for other reasons. The learned counsel
submitted that the legislature deliberately maintained the distinction between
the register of members and the register of mortgages inclusive of the
debenture holders. The reasons which he suggests for the distinction are :
(1) It is in the interest of all
concerned and the general public to know who the members are in order to
facilitate their dealing with them and in order to be known to what extent they
can deal with the company. In this connection the learned counsel placed
reliance upon the following passage in Palmer's Company Law, 20th edition, page
450, under the heading "Publicity of register" where the famous words
of Lord Cranworth have been quoted :
"Publicity of Register :
It is
important to note the fact that the register of members is, by the Act, open to
the public. Lord Cranworth observed :
"When
the legislature enabled shareholders to limit their liability, not merely to
the amount of their shares but to so much of that amount as should remain
unpaid, it is obvious that no creditor could safely trust the company without
having the means of ascertaining, first, who the shareholders might be, and,
secondly, to what extent they would be liable....The legislature took care to
provide the register as the means of enabling persons dealing with the company
to know to whom and to what they might trust."
Mr. Jagdish
Swaroop also placed reliance upon section 34 of the Act which provides for
transfer of shares and sub-section (4) of which provides that "if a
company refuses to register the transfer of any shares or debentures, the company
shall, within two months from the date on which the instrument of transfer was
lodged with the company, send to the transferee and the transferor notice of
the refusal."
(2) The second ground for distinction suggested by the learned counsel
is that in the case of debenture holders, it is not necessary to maintain an
up-to-date register because it would make no difference whether A or B is the
mortgagee and what is of substance is whether or not there is a mortgage and if
so for what amount, which can always be found out from the register of
mortgages and which did not required up-to-date entires with regard to the
mortgagees' name.
(3) Relying upon M.K. Ranganathan v. Government of Madras [1955] 25
Comp. Cas. 344 ; [1955] 2 S.C.R. 374., learned counsel contended that a
debenture holder has two courses open to him, i.e., he may either keep out of
the winding up proceedings and file a suit to enforce the mortgage and thus
sell the property out of court if the mortgage deed permits that or to give up
the security and come up as an ordinary creditor. The submission is that if the
debenture holder would ask for the permission of the court to file a suit it
would naturally be granted. It is on the basis of the considerations enumerated
above that the learned counsel urged that there is a clear distinction between
the register of debentures and the register of members and, consequently, the
law did not provide for the rectification of the register of debenture holders.
We are unable to agree with the learned counsel. It is true that there is a
distinction between the register of members and the register of mortgages
including the debenture holders. But the outside public would be equally
interested in knowing who the members are as in knowing who the mortgagees inclusive
of the debenture holders are. We are not prepared to accept the argument of the
learned counsel for the liquidator that the public is only interested in
knowing who the members are and is indifferent with regard to the names of the
secured creditors or debenture holders. There may be some difference in the
degree of the importance of the two registers but it cannot be said that it
would neither serve public interest nor would it contribute to better
management of the affairs of the company if an up-to-date register of mortgages
is maintained. The management of the company itself would require an up-to-date
register of mortgages to know who its creditors are and in order to deal with
them inclusive of payment of interest. Members of a company on liquidation may
become contributories and the debenture holders are and continue to remain the
creditors of the company. It cannot be disputed that in order to have a correct
and overall picture of the affairs of the company so necessary for its proper
functioning, it is necessary to have both the registers posted up-to-date.
Apart from
it, it is clear beyond controversy that the law requires that a register of
mortgages be maintained. In view of that mandatory legal requirement, it would
be subversive of the scheme of the Act and also violative of common sense to
hold that though the law requires a register of mortgages to be maintained, it
does not require it to be posted up-to- date ; there is no sense in maintaining
register which is not up-to-date. Besides, the words "or persons entitled
thereto" after the words "the names of the mortgagees" occurring
in section 123 of the Act clearly reveal that not only the names of the
original mortgagees but also those of their transferees, who become entitled by
virtue of the transfers, be included in the register which obviously means that
the register of mortgages has got to be rectified from time to time.
Another way
of looking at the matter and getting the same result would be to peruse clause
(3) of section 34 of the Act, which reads :
"34. (3) It shall not be lawful for the company to register a
transfer of shares in or debentures of the company unless the proper instrument
of transfer duly stamped and executed by the transferor and the transferee has
been delivered to the company along with the script :......"
The
sub-section clearly legalises and visualises the transfer of debentures also.
It would, therefore, be difficult to hold that even though the law requires the
maintenance of a register of mortgages, inclusive of debenture holders which
gives the court the power to extend the time for the registration of the same
and whereas the law not only visualises but also legalises the transfer of
debenture scrips, no entry in respect of the transfer can be made in the
registers of the company. It is well settled that courts are bound to construe
the words in statute in a manner which would carry out the purposes of the Act
or a section. (See Biswambhar Singh v. State of Orissa [1954] S.C.R. 842 ;
A.I.R. 1954 S.C. 139.). That being the position, we do not see how the
submission of the learned counsel for the official liquidator can be accepted
that the application made by the appellant to the District Judge, Varanasi, for
the rectification of the register of mortgages so as to make an entry in
respect of the transfer of the 50 debenture scrips in favour of the appellant
by Jhunjhunwala be made was not legally maintainable. We, therefore, overrule
this submission of the learned counsel and hold that the application was
competent.
We are also
not impressed with the connected submission made by the learned counsel that in
any case such an application is not maintainable after a winding up order has
been passed. Nothing has been brought to our notice which may result in accepting
that the provisions of section 123, 34 and other sections mentioned above stand
paralysed or suspended during the period following the passing of the winding
up order. In fact, during the winding up proceedings, the court assumes greater
responsibility than it has while the company functioning normally. We are,
therefore, unable to accept even this submission of the learned counsel. We
also see no merit in the submission of the learned counsel that a company has a
right to refuse registration. No company has got a right to refuse to do a
thing which the law requires it to do. Nothing has been pointed out to us to
justify the conclusion that it has any such right. We have already said above
that under the law a transfere is entitled to get a register of mortgagees
rectified so as to include the transfer of a debenture in his favour. In that
view of the matter, we see no justification for the liquidator to submit that
the company has got a right to refuse registration.
The only
question that remains to consider is whether or not, in the circumstances of
the present case, it can be said that there was no transfer of the shares in
favour of the appellant by Jhunjhunwala. The learned District Judge has called
the transaction as "suspicious". The learned counsel for the official
liquidator has described it by the name of "colourable". The pith and
substance of both the objections is that in fact the transaction was not
genuine, in other words, it was not gone through. The learned District Judge has
given some circumstances which, in his opinion, created a doubt or suspicion
with regard to the genuineness of the transaction. We will come to those
circumstances a little later. At the outset,we would like to point out that
there is no doubt-in fact the registers of the company show it and it is
admitted-that Jhunjhunwala was the holder of 125 debentures. He has clearly
stated before a Magistrate at Calcutta as shown earlier that he had transferred
50 out of those 125 debentures to the appellant. There is no reason to
disbelieve the statement of Jhunjhunwala. The appellant examined Sri Kishori
Lal Gupta, the cashier of the appellant, before the learned District Judge,
Varanasi. This witness clearly stated that on 7th April, 1954, Jhunjhunwala
transferred 50 debentures to the appellant the transfer deeds were written and
the consideration of Rs. 50,000 paid in his presence. His cross-examination has
not revealed anything so as to justify the rejection of his statement and we
have no reasons to disbelieve him. That being the position,it must be held that
it has been proved as a fact that 50 debentures were transferred by
Jhunjhunwala to the appellant.
There are two
circumstances on the basis of which the learned District Judge considered the transaction
to be suspicious. One was that even though Jhunjhunwala was allotted debentures
only on the 7th April, 1954, he is purported to have transferred 50 debentures
on 4th April, 1954. It is admitted that Jhunjhunwala had 125 debentures in his
name. He was a director and if he knew that 125 debentures would be allotted to
him, there was no legal hurdle in his transferring 50 out of those expected but
certain debentures even before the formal allotment in his favour was made.
The second
suspicious circumstances, according to the learned District Judge and the
learned counsel for the liquidator, is that Jhunjhunwala has shown all the 125
debentures in his return filed under section 177A of the Act. This
circumstances is clearly explainable. The law requires that unless a transfer
is registered for the purposes of the Act, the original holder will retain a
right over the shares. Inasmuch as the registers of the company were not
corrected either by the company or by the liquidator by showing 50 debentures in
the name of the appellant, it was only proper that Jhunjhunwala showed all the
125 debentures in his own name.
The learned
District Judge was also influenced by the circumstances that the payment of Rs.
50,000 was not made by cheque but by cash. In our judgment, this was a
completely colourless circumstances and the learned District Judge was not
justified in inferring from this that no payment was made.
Considering
all the material before us, we are of the opinion that the transaction of the
sale of 50 debentures by Jhunjhunwala to the appellant has been fully proved
and that the transaction was neither suspicious nor colourable.
For the
reasons mentioned above, we allow the appeal, set aside the order passed by the
learned District Judge, Varanasi, and direct the official liquidator to enter
the name of the appellant in respect of 50 debentures in the register of
mortgages of the company. In the circumstances of the case, the parties will
bear their own costs.
Appeal
allowed.
[1983] 54 COMP. CAS. 432
(BOM.)
HIGH COURT OF
v.
Dhanraj Mills Pvt. Ltd.
P.B. SAWANT AND SUJATA V. MANOHAR, JJ.
APPEALS NOS. 344 AND 345 OF 1981 IN COMPANY APPLICATION NO. 169 OF 1981
SIN COMPANY PETITION NO. 196 OF 1981
SEPTEMBER 4, 8, 9, 1981
I.M. Chagla,
J.D. Dwarkadas, Kumari D.H. Cooper, J.P. Avasia, J.I. Mehta, Y.H.
Muchhala for the Appellant.
Suresh Parekh, M.O. Chinoy, S. Ganesh. J.I. Mehta,
Y.H. Muchhala, I.M. Chagla with J.D. Dwarkadas, Kumari D.H. Cooper and J.P.
Avaisa for the Respondent.
Sawant, J.—These are two appeals against the
interim order in Company Petition No. 196 of 1981, under s. 155 of the
Companies Act, 1956 (hereinafter referred to as "the Act"), filed for
rectifying the register of members. Appeal No. 344 of 1981 is filed by original
respondent No. 1-company and Appeal No. 345 of 1981, is filed by original
respondent No. 2-shareholder. Since both the appeals seek to challenge the same
order and on the same grounds we are disposing of them by this common judgment.
For the sake of convenience we will take facts from Appeal No. 344 of 1981.
The appellant is a public limited company and is
hereinafter referred to as "the Company" Respondent No. 1 is a
private limited company and is a shareholder of the Company; respondent No. 2,
is both a shareholder as well as a director of the Company. Respondents Nos. 3
and 4 are the Controller of Estate Duty and the Regional Director of the
Company Law Board respectively, whereas respondent No. 5 is the Union Bank of
Respondent No. 1 has filed the present petition, as
stated earlier, under s. 155 of the Act for rectifying certain entries in the
appellant company's register of members. The said entries relate to five
different lots of shares, made in the name of respondent No. 2. In the
petition, respondent No. 1 has also prayed for the appointment of a receiver in
respect of the said shares and for an injunction restraining the
appellant-company from recognising respondent No. 2 as the registered
shareholder in respect of the said shares pending the disposal of the petition.
In the petition, respondent No. 1 took out a judge's summons for interim
reliefs in terms of the above prayers. However, the only interim relief which
need be considered in this petition and which was pressed before the learned
single judge was as follows :
"That pending the hearing and final disposal of
the petition respondent No. 1, i.e., the Company be restrained by an interim
order and injunction of this Hon'ble Court from recognising respondent No. 2 as
the owner of and from allowing respondent No. 2 to exercise voting or any other
right in respect of the said five lots of shares which are Exs. A, B, C, D and
F, respectively, to the petition."
The summons was resisted by the appellant-company and
respondent No. 2. Affidavits and counter-affidavits were filed by the parties
in support of their respective contentions. The grounds urged for the
rectification of the register of members in the petition as well as in the
affidavit in support of the judge's summons were different in respect of the
different lots of shares. We are concerned in this appeal only with the lots of
shares which are Exs. A, B and F to the petition since the learned single judge
has granted the interim relief prayed for only in respect of the said shares
and the present appeal has been preferred against the said order there being no
appeal preferred by respondent No. 1 against the refusal of relief with regard
to the other lots of shares.
We may briefly indicate at this stage the grounds on
which the rectification is prayed for in the petition and on the basis of which
the interim relief was sought by the judge's summons. The entries in respect of
shares at Exs. A and B are sought to be rectified on the ground, firstly, that
the said entries were made during the period the register of members was closed
under s. 154 of the Act and, secondly, on the ground that no transfer in
respect of the said shares could have been effected without obtaining the
certificate from respondent No. 3, the Controller of Estate Duty, under s. 84
of the E.D. Act, 1953. The rectification of the entry in respect of the shares
at Ex. F is sought on the ground that the intermediate entry, prior to the
present entry, was made firstly in the name of Shantaben Kapadia, who was dead
on the date the entry was so made, and, therefore, the subsequent entry in the
name of respondent No. 2 and the said Shantaben had also become illegal and,
secondly, on the ground that the Company being registered under the Monopolies
and Restrictive Trade Practices Act, 1969 (hereinafter referred to as "the
MRTP ACT"), was barred by the provisions of ss. 108A to 108H of the Act,
without the consent of the Central Govt. Although both in the petition as well
as in the affidavits in support of the judge's summons, several other grounds
were urged. It appears that at the time of the hearing of the judge's summons,
the attack was confined only to the aforesaid grounds and the learned single
judge has also granted interim relief to the petitioner only on the said
grounds and, therefore, we need consider the validity of the said grounds only,
in this appeal. The learned judge, as stated earlier, by his impugned order
dated July 31, 1981, has restrained respondent No. 1 to the petition, i.e., the
appellant-company from recognising respondent No. 2 as the owner of and/or from
allowing respondent No. 2 to exercise voting or any other right in respect of
the said shares at Exs. A, B and F and has also restrained the
appellant-company from acting on the proxies that may have been filed by
respondent No. 2 in respect of the said shares. It is this order which is
challenged in both the appeals.
Shri Chagla, the learned counsel for the
appellant-company raised four preliminary objections to the maintainability of
the petition itself and submitted that in view of the fact that the petition
itself is not maintainable, no interim relief could have been granted to the
petitioner, in the petition. His first contention is that the petition is not
maintainable for the reliefs claimed in prayers (a) and (c) in the petition in
respect of the said shares at Exs. A, B and F. By prayer (a), the petitioner
desires that the shares at Exs. A and B be registered in the name of Navin P.
Kapadia or in the name of Shantaben Kapadia both of whom are admittedly dead.
By prayer (c) the petitioner wants the name of the Union Bank of India to be
entered in respect of shares at Ex. F, although the Union Bank of India is
uninterested in such entry. The Bank, though a party to the petition and to the
summons, had never appeared nor has it ever made any grievance about the entry
in respect of the shares in the name of respondent No. 2. Inasmuch as,
therefore, the petitioner has prayed for the said reliefs which are either
incapable of being granted or unnecessary to be given, the petition is not
maintainable to that extent. In this connection, he submitted that it was
obligatory on the company to maintain its books and registers in such a manner
as to reflect the reality and no Company could be asked to correct its
registers to show incorrect situations. In this connection, he pointed out that
the present appeal is concerned only with regard to the said three lots of
shares, viz., Exs. A, B and F and if no relief can be given in the petition in
respect of the said three lots of shares, there is all the more reason why the
application such as the judge's summons for an interim relief in respect of the
said shares should be rejected. However, prayers (a) and (c), on which Shri
Chagla relies to make good his point, do not read as suggested by him. The
relief claimed by prayer (a) in that the shares at Exs. A and B should be shown
as they were in the name of the said Navin P. Kapadia before they were
transferred in favour of the said Shantaben or in any event in the name of the
said Shantaben before they were transferred in favour of respondent No. 2. In
other words, the substance of this prayer is to restore the status quo ante of
the entries in the register. It is one thing to argue that today in effect the
grant of prayer (a) would be to show the said shares in the names of dead persons,
i.e., either Navin Kapadia or Shantaben and quite a different thing to submit
that the relief claimed in the petition being to show the shares in the name of
dead persons, the petition itself is not maintainable. The sum and substance of
the contents of the petition read with the said reliefs claimed by the
petitioner is that the basis on which the transfers were effected first in the
name of Shantaben and, thereafter, in the name of respondent No. 2 being itself
incorrect, the entries should be restored to the status quo ante. That being
the gist of the petition as well as the relief claimed in prayer (a), it can
hardly be contended that the petition is not maintainable on the ground
suggested by Shri Chagla. The same is the case with regard to the relief
claimed in prayer (c). Here again what is challenged is the basis on which the
change has been effected in the register of members from the Union Bank of
India to respondent No. 2. The relief claimed by prayer (c) again is to restore
the status quo ante before the name of the Union Bank of India came to be
deleted from the register of members. As stated earlier, it is possible to
argue that the relief if granted would result in making an entry in the name of
an uninterested or an unwilling member and the court should not grant such
relief. But that fact does not go to the root of the maintainability of the
petition as such.
The second preliminary objection raided by Shri
Chagla was that the petitioner, i.e., respondent No. 1 to this appeal being
only a shareholder or a member of the Company, has no locus standi to file the
present petition. According to him, the petition can be filed only by persons
having some interest or equity which requires intervention of the court. In
this connection, he submitted that only a person who is aggrieved by an
incorrect or a wrong entry in the register such as either the transferor or
transferee will be entitled to file the petition. According to him unless a
person shows that he is in some way or the other aggrieved by the incorrect
entry he will have no right to file a petition under s. 155. Developing his
argument further, he contended that expression "any member" in s. 155
must mean a person who is in a position to show that some prejudice is caused
to him by such wrong or mistaken entry and the said expression should be read
as such, taking into consideration the purpose and the scope of the section. It
is not possible to accept the said contention. The language of s. 155 is
crystal clear. Section 155 reads as follows :
"155.
Power of court to rectify register of members.—(1) If—
(a) the
name of any person—
(i) is
without sufficient cause, entered in the register of members of a company, or
(ii) after having been entered in the
register, is, without sufficient cause, omitted therefrom ; or
(b) default is made, or unnecessary delay takes
place, in entering on the register the fact of any person having become, or
ceased to be, a member;
the person aggrieved, or any
member of the company, or the company, may apply to the Court for
rectification of the register." (Underlining ours).
Thus, the section makes it clear that not only the
person aggrieved but also any member of the Company may apply to the court for
a rectification of the register of members. If the intention of the Legislature
was to confine the remedy only to the aggrieved persons as contended by Shri
Chagla, then there was no need to add a further category of "any member of
the Company" after giving such right to "the person aggrieved".
The clear provisions of the section, therefore, militate against accepting the
limited construction sought to be placed by Shri Chagla on the provisions of
the said section. Secondly, the object of the said provisions does not support
his contention. Read as a whole, it appears that one of the intentions of the
Legislature is to ensure a register of members, which reflects reality at any
particular point of time. That is why the Legislature has extended this right
to any member of the Company without compelling him to show a particular or a
special prejudice caused to him by an incorrect or a wrong register of members.
Hence, to confine the right to file the application only to an aggrieved member
or a member who is in a position to show some special prejudice, will go
counter to the object of the section. For both these reasons, we are unable to
accept the said contention.
The next preliminary objection was that the petition
was barred by principles analogous to the principles of res judicata or by the
principle of issue estoppel. In this connection, Shri Chagla pointed out that
in respect of the shares at Exs. A and B, the very petitioner, i.e., respondent
No. 1, herein has filed a civil suit being Suit No. 2145 of 1980 in the Bombay
City Civil Court, Bombay, which is pending. The relief claimed in the said suit
is to restrain respondent No. 2 herein from getting the said shares at Exs. A
and B transferred in her name and restraining the appellant-company from
transferring the same in her name: The grounds urged against such transfer are
the same which are urged in the present petition for rectifying the register of
members in respect of the said shares. In the said suit the petitioner,
respondent No. 1, had applied for an interim relief by taking out a Notice of
Motion for restraining respondent No. 2 from getting the said shares
transferred in her name and restraining the appellant-company from transferring
the said shares. The motion was dismissed by the City Civil Court on April 21,
1980, and the appeal preferred by respondent No. 1 against the said dismissal
was summarily rejected by this court on May 28, 1980. After waiting for a
period of more than one year, the present petition was filed on June 10, 1981,
for rectifying the entries which were since made.He, therefore, submitted that
at least so far as the shares at Exs. A and B are concerned, the present
petition is barred by the said principles. There is no doubt that the substance
of the relief claimed in the present petition so far as the shares at Exs. A
and B are concerned, is the same as that claimed in the suit, viz., to prevent
respondent No. 2 from exercising her rights as a shareholder in respect of the
said shares. However, the present petition seeks to rectify the entries not
only in respect of the shares at Exs. A and B but also shares at Exs. C, D and
F. Further, it is debatable whether the relief claimed under s. 155 of the Act
for rectifying the register of members can be granted by a civil court and
whether the jurisdiction given to the company court in that behalf is an
exclusive one. Secondly, technically the relief claimed for rectification under
s. 155 will be different from the relief of injunction claimed in the suit. In
any case, at this interlocutory stage, it is not necessary to decide the said
issue. The facts pointed out by Shri Chagla are certainly relevant for
considering whether the interim relief as prayed for by respondent No. 1 ought
to be granted. This will be done at the proper stage.
The last of the preliminary objections was directed
not so much against the maintainability of the petition but against the
maintainability of the judge's summons for interim relief and this objection
was raised also by Shri Mehta on behalf of respondent No. 2. The argument was
that the proceedings under s. 155 being themselves summary in nature, an
application for interim relief in such a proceeding was not maintainable. In
this connection, Shri Chagla submitted that the provisions of s. 155 of the Act
do not provide for making any such application unlike the provisions of some
other sections in the Act such as ss. 388C, 391(6), 403 and 443. He also
further referred us to [1918] 2 Ch D 324 (CA) (Siemens Bros. & Co. Ltd. v.
Burns), where it is observed that as to the question of registering a portion
of the shares in the names of persons who are already on the register by
transposing the order of their names, it is not a matter which ought to be
dealt with on an interlocutory application and the proper course would be to
discharge the order on that motion. Relying on these observations, Shri Chagla
submitted that in the present case also it was no more than substituting one
name for the other and, therefore, the same principles should apply. We are not
impressed by this contention. In the first instance, although it is true that
s. 155 like the other sections does not in so many words make a provision for
interlocutory reliefs, it does not and cannot mean that the inherent power to
grant interim reliefs is unavailable to the court while exercising the powers
under this section. As in any other proceeding, so in a proceeding under this
section, the court is not powerless to grant interim reliefs if they are
warranted by the facts and circumstances of the case. All powers which are
necessary to effectually exercise the duty conferred on it will be deemed to be
available to the courts, unless expressly barred. The absence of an express
provision has never been interpreted to take away such powers of the court
which are necessary to do justice between the parties. A look at the express
provisions made under ss. 388C, 391(d), 403 and 443 will show that they cover
situations where the Legislature itself envisaged that there may arise a need
to make interim orders to protect the affairs of the company and interests of
the parties and, therefore, it was necessary to clothe the courts with express
powers and not leave it to their inherent powers. That, however, does not mean
that where no such express provision is made by the Legislature, either the
Legislature intended to forebear the courts from exercising their otherwise
inherent and necessary powers or that the courts were powerless to exercise the
same. As regards the decition relied on by Shri Chagla and the observations
made therein, we fail to understand how the same can help his contention. The
said observations have been made on the peculiar facts of that case. It appears
that the question which fell for consideration there was whether the order of the
names of the two trustees which stood on the register of membership of the
company required to be transposed as regards one moiety of their shares at the
interlocutory stage of the proceedings and it is while dealing with this
question that the court took the view that it was not a matter which ought to
be dealt with on an interlocutory application. On the other hand, these
observations go to show that some interlocutory reliefs may be granted though
not all reliefs. We are, therefore, of the view that it cannot be laid down as
a rule of law that no application for interlocutory relief in proceedings under
s. 155 is maintainable. On the contrary, we take the view that as in all other
proceedings, in proper cases, an application for interlocutory relief even
under s. 155 is maintainable, notwithstanding its summary nature. The fact that
the proceeding is summary may be relevant while considering whether a
particular relief claimed in such proceeding should or should not be granted.
That, however, is a different proposition.
Coming now to the merits of the case, it is necessary
first to state a few facts relating to the shares in question. Respondent No. 2
is the sister of one Navin Kapadia, who died on April 19, 1979, and Shantaben Kapadia
died on April 2, 1980. On the death of Navin Kapadia, Shantaben was the heir
entitled to the shares, which stood in the name of Navin Kapadia, and on the
death of Shantaben Kapadia, respondent No. 2, being the sole heir, was entitled
to the shares which stood in the name of Shantaben Kapadia.
Out of the shares in dispute in this appeal, shares
at Ex. A, which numbered 11,350, originally stood in the name of Navin
Kapadia.They were transferred on May 2,
1979, in favour of Shantaben, who was admittedly entitled to the same, after
the death of Navin Kapadia on April 19, 1979. On the death of Shantaben on
April 2, 1980, they were transferred from the name of Shantaben to the name of
respondent No. 2 on May 8, 1980, respondent No. 2 being the sole heir of
Shantaben.
The shares at
Ex. B, which numbered 3,298, originally stood in the joint names of both Navin
Kapadia and his mother, Shantaben Kapadia, who is also the mother of respondent
No. 2, as stated earlier. The entry in the name of Navin Kapadia was deleted in
the register of members on May 2, 1979, and, therefore, from that date the said
shares stood in the name of Shantaben alone. On the death of Shantaben on April
2, 1980, the said shares also came to be transferred in the name of respondent
No. 2, her sole heir on May 8, 1980.
Shares at Ex.
F, which numbered 4,978, originally belonged to the Union Bank of India. On
December 21, 1979, by a transfer deed executed between the Union Bank of India
on the one hand, and Shantaben and respondent No. 2 on the other, they were
sold by the Bank to Shantaben and respondent No. 2 jointly. On April 22, 1980,
an entry was made in the company's register of members in the name of Shantaben
and respondent No. 2 as the joint shareholders in respect of the said shares.
On June 13, 1980, Shantaben's name was deleted from the said entry and on and
from that date, the shares have been standing in the sole name of respondent
No. 2. Having narrated the admitted facts in respect of the said three lots of
shares, it will now be convenient to deal with the said shares separately on
the basis of the grounds on which a rectification of the entries in respect
thereof is sought in the present petition.
The grounds
on which rectification of the entries in respect of the shares at Exs. A and B
is sought are common and, therefore, they will be dealt with together and
separately from shares at Ex. F. Taking first the shares at Exs. A and B, it is
the grievance of respondent No. 1 petitioner that the entires in respect of the
said shares in the membership register are illegal, firstly, because the said
entires were made during the period the Company's Register of Members was
closed from April 24, 1980, to May 23, 1980, under s. 154 of the Act and,
secondly, because no such entry could have been made in the said register
unless there was a certificate from respondent No. 2—the Controller of Estate
Duty—read with art. 56 of the company's articles of association.
As regards
the objection to the entry on the ground that it was made during the period of
closure, the specific allegation in that respect is that when shares at Exs. A
and B were transferred from the name of Shantaben to the name of respondent No.
2 on May 8, 1980, the register of members of the Company was admittedly closed
under s. 154 of the Act. Under the provisions of sub-s. (2) of s. 163 of
the Act, the said register, among others, is not available for inspection to
the members and, therefore, it is not permissible for the Company to make any
entry in the register of members during the said period and any entry so made
becomes ipso facto illegal. We are unable to accept the submission for reasons
more than one. The normal rule is that the register of members and other books
and documents should be available to the members, debenture holders or any
other persons throughout the year. The provisions of s. 154, however, empower
the Company to close its register of members, for a certain period and,
therefore, are enabling one. There is nothing in the said Act or any other law
to compel the Company to close its register of members or any other books for
any period whatsoever. On the other hand, the provisions of the said section
make it clear that if the Company does want to close its register of members,
it must comply with the requirements of the said section. The requirements are,
firstly, that not less than seven days' previous notice has to be given by
advertisement in some newspaper, and, secondly, the register should not be
closed in the aggregate for more than 45 days in each year and not for more
than 30 days at any one time. If the Company closes its register of members
without complying with the aforesaid conditions, then a penalty is provided in
the section itself. Thus, the provisions make it abundantly clear that they are
not only enabling but that there is nothing in law to compel the Company to
close its register of members if it does not desire to do so. Secondly,
although the provisions of s. 163(2) of the Act state that during the period
that the Company closes its books under s. 154, the members, i.e., the
shareholders or the debenture-holders or other persons are not entitled to an
inspection of the same, there is nothing either in s. 163(2) or s. 154 or for
that matter any other provision of that Act, which prevents the Company from
keeping the said register and books open for inspection even during the said
period of closure, if it desires to do so. Neither in s. 154 nor in any other
provisions of the Act is there any such bar against the Company. It appears
that the powers which have been given to the Company under the said ss. 154 and
163(2) to close the register of members and to disentitle the members and
others to an inspection of the Company's books during the particular period
have been given for the benefit and convenience of the Company such as of
bringing its register of members up to date for the purpose of calculating
dividend and bonus, etc. These powers further can be exercised at any time
during the year. For example—and this is relevant against the background of the
allegations in the present petition— the register of members and other books
may be closed either prior to, during or subsequent to the annual general
meeting. These powers further have nothing to do with the entries regarding the
transfer or transmission of shares as such, although if the Company so chooses,
it may refuse to register such transfers or transmissions during the said
period. In this connection, it would be interesting to note the provisions of
the Model Regln. No 23 given in Table A of Sch. I to the Act. That regulation
states that "subject to the provisions of s. 154, the registration of
transfers may be suspended at such times and for such periods as the Board may
from time to time determine:
Provided that such registration shall not be
suspended for more than thirty days at any one time or for more than forty-five
days in the aggregate in any year". The provisions of this regulation
again emphasise the enabling powers of the Company and also further stress the
fact that it is for the Company to suspend or not, the registration of
transfers, during the said period of closure. There is no obligation on the
Company to do so. If, however, the Company does so, it will be protected by the
provisions of s. 154. Incidentally, it may also be pointed out that the Company
has not adopted the said model regulations and there is no provision similar to
the said Model Regln. No. 23, in the articles of association of the Company.
Nor has it been shown to us that the Company had otherwise declared that during
the said period of closure from April 24, 1980, to May 23, 1980, the
registration of transfers or transmissions would be suspended. We may in this
connection also refer to a passage from Palmer's Company Law, 22nd Edn., Vol.
I, p. 544, para. 49-12, which has been referred to by the learned single judge
in his judgment and on which reliance was placed by both sides. The said
passage is as follows:
"It should be noted, however, that even if the
register of members is closed, action must be taken in regard to the
registration of probates and letters of administration, notices of change of
name or address and court orders, such as charging orders, etc."
While Shri Chagla for the appellant contended that this
passage showed that during the period of closure of register of members,
certain entries still had to be made, it was contended by Shri Parekh on behalf
of respondent No. 1, that the said passage showed that during the period of
closure, only the entries referred to therein could be made. It also appears
that the learned judge has accepted Shri Parekh's contention in that behalf. We
are, however, unable to accept the said interpretation. According to us, the
interpretation put on the said passage by Shri Chagla is more in consonance
with the scheme of the Act and the purpose and object of sections 154 and 163
thereof. We have already stated that the provisions of the said section are
enabling and there is nothing either in the said section or any other provision
of the Act which prohibits the Company from making the entries in respect of
transfers or transmissions or for that matter any other entry. The aforesaid
passage from Palmer only highlights the. said position by making it clear that
even if the Company suspense making certain entries during the period of
closure the company is under an obligation to make the entries referred to in
the passage and cannot refuse to do so. We are, therefore, of the view that
there is nothing in law to prohibit the Company from making entries with regard
to the transfer or transmission of shares such as the ones which have been made
in respect of the shares at Exs. A and B in the present case. Therefore, we are
more than satisfied that the entries in respect of shares at Exs. A and B in
the register of members on May 8, 1980, are not illegal on that account. Apart
from the above legal position, as has been stated by the appellant-Company, in
para. 22 of the affidavit dated June 30, 1881, filed on its behalf by one P. J.
Kapadia, the Company had also obtained legal advice in the matter and their
legal advisors had advised that since the said shares were to be transmitted by
operation of law to respondent No. 2 and were not to be transferred in her
favour, it would be competent and legal for the Company to register her name as
a shareholder in respect of the said shares even during the said period of
closure. The Company, therefore, could not be said to have made the entries in
question "without sufficient cause."
As regards the contention that the said entries could
not have been made without obtaining a certificate from the Controller of
Estate Duty, the argument was that s. 84 of the E.D. Act, 1953, prohibits any
Company from registering the transfer of shares belonging to a deceased
shareholder unless a certificate from the Controller is produced before the
Company to the effect that the estate duty in respect of such shares has been
paid or will be paid or that none is due, as the case may be. The relevant
provisions of s. 84(1) are as follows :
"84(1). Where a company within the meaning of
the Companies Act, 1956, has knowledge through any of its principal officers of
the death of any member of or debenture-holder in the company, it shall, within
three months of receipt of intimation of the death, furnish to the Controller
such particulars as may be prescribed in respect of the interest of the
deceased in the company; and it shall not be lawful for the company to register
the transfer of any shares or debentures standing in the name of the deceased
unless the transferee has acquired such shares or debentures for valuable
consideration or a certificate from the Controller is produced before the
company to the effect that the estate duty in respect of such shares or
debentures has been paid or will be paid or that none is due, as the case may
be."
Article 56 of the articles of association of the
Company incorporates the said provision and makes it unlawful for the Company
to register transfers of such shares unless the relevant certificates are
produced from the Controller of E.D. Admittedly, in the present case, no such
certificate was produced and, hence, the argument is that the entire transfer
made in respect of shares at Ex. A, first in the name of Shantaben on May 2,
1979, and, thereafter, in the name of respondent No. 2 on May 8, 1980, and in
respect of shares at Ex. B in the name of respondent No. 2 on May 8, 1980, is
unlawful. In the first instance, a careful reading of the provisions of the
said s. 84, show that the prohibition enacted therein relates to the transfer
of shares and not to their transmission by the operation of law. We do not see
anything in the said section which prohibits the Company from registering the
transmission of shares by the operation of law. There is a clear distinction
between a transfer by an act of the parties and transmission by the operation
of law such as on succession, etc. The articles of association of the Company
on which reliance is placed on behalf of respondent No. l also, according to
us, do not prohibit the Company from registering such transmissions without the
relevant certificate. In fact, we notice a clear distinction made both in the
Act and in the articles of association between a transfer and transmission of
shares. To illustrate, while the main provision of s. 108(1) and that of the
first proviso thereto deal with transfer, the second proviso thereof deals with
the transmission of shares. Section 111 of the Act also emphasises this
distinction. As regards the articles of association, art. 55 states that the
Company shall recognise only the executors or administrators of a deceased
member as having any title to the share. However, the said article gives a
discretion to the board of directors to dispense with the production of probate
or letters of administration and register the name of any person who claims to
be absolutely entitled to such shares. Article 57 then states that subject to
the provisions of arts. 54 and 55, any person becoming entitled to any shares
in consequence of the death, lunacy, bankruptcy or insolvency of any member, or
by any lawful means other than by a transfer (underlining ours) may
with the consent of the board of directors, and upon producing such evidence,
show that he has a title and get himself registered as a holder of shares. This
article, therefore, clearly makes a distinction between a transmission by
operation of law and transfer of shares by an act of parties. The same
distinction is retained in art. 60, where both the words "transfer"
and "transmission" have been used to change of hands of the shares by
two different means. Therefore, when art. 56 talks of an embargo on the
Company's power to register a transfer of shares without obtaining the relevant
certificate, the article has a reference not to the transmission of shares by
operation of law but to the transfer of shares by an act of the parties. Thus,
neither s. 84 of the E.D. Act nor art. 56 of the articles of association
prohibit the Company from registering the names of the shareholders without
obtaining the relevant certificate from the Controller of Estate Duty when the
transmission is by the operation of law. This is on the interpretation of the
said s. 84 and art. 56 of the articles of association. However, in the present
case, the appellant-company as well as respondent No. 2 had, in addition,
relied upon a circular issued by the Central Govt. as early as on June 20,
1968, which in terms has made it clear that "transfer of shares"
referred to in s. 84(2) of the E.D. Act, 1953, does not include transmission of
shares by the operation of law, such as occurs when the shares/devolve on the
legal heirs of a deceased member or on the survivor or survivors of two or more
joint shareholders. Therefore, the provisions of s. 84(2) are not considered to
be applicable to cases where the heirs or the survivor or the survivors of two
or more joint holders apply for registration, in their names, of the shares
held by the deceased. The circular further hopes that in view of the said
clarification, the Companies would not insist on the production of the estate
duty clearance certificate in such cases. Shri Parekh, for respondent No. 1, no
doubt, contended that, according to him, the provisions, both of s. 84 of the
E.D. Act as well as of art. 56 of the articles of association were applicable
also to cases of transmission of shares by the operation of law and the
circular issued by the government being inconsistent with the said provisions
of law, had no operative value. Assuming that we are wrong in our
interpretation both of s. 84 of the E.D. Act as well as of art. 56 of the
articles of association, we are not satisfied that in the present case the
appellant as well as respondent No. 2 were not entitled to rely upon the said
circular for the purpose of the interpretation of the said s. 84 of the E.D.
Act. As stated earlier, art. 56 of the articles of association does no more
than incorporate bodily the provisions of the said s. 84. If, therefore, they
had relied on the said circular issued on June 20, 1968, i.e., long before the
present controversy arose between the parties, it could hardly be said that the
Company had not acted bona fide or without sufficient cause, while registering
the transmission of the said shares either on May 2, 1979, or on May 8, 1980.
We are, therefore, of the view that the grievance made by the petitioner in
respect of the entries made either on May 2, 1979, in favour of Shri Shantaben
or on May 8, 1980, in favour of respondent No. 2 in the register of members has
no substance in it on either count. In any case, it can hardly be said that the
said entries were made "without sufficient cause", the absence of
which alone entitles the court to direct a rectification under s. 155 of the
Act.
Coming now to the share at Ex. F, the undisputed facts in respect of the said shares as stated above are that the shares were purchased by the deceased Shantaben and respondent No. 2 jointly, as early as on December 21, 1979, from the Union Bank of India. In all, six different transfer forms were executed by the Union Bank of India as transferor and by respondent No. 2 on behalf of herself and her mother, Shantaben, as transferees on that day. As far as the present petition goes further, it cannot be disputed that respondent No. 2 was the only heir of Shantaben and after Shantaben died, respondent No. 2, both as her sole heir as well as the surviving joint holder, was entitled to be placed on the register of members as the sole shareholder in respect of the said shares. In fact, on and from June 13, 1980, it is the name of respondent No. 2 alone which has been standing in the register of members as such sole shareholder in respect of the said shares. It is against this background that we have to examine the grounds of attack against the transfer of shares in the name of respondent No. 2 and Shantaben on April 22, 1980.What is alleged is that the entry made in the register of members on April 22, 1980, in the joint names of respondent No. 2 and Shantaben was illegal for three reasons. Firstly, the Company had not received the said shares till April 21,1980, and, yet a resolution was passed by the board of directors on April 21, 1980, allowing the transfer of the said shares from the Union Bank of India to respondent No. 2 and Shantaben. Secondly, it is contend ed that on April 21, 1980, when the resolution was passed transferring the shares both in the name of respondent No. 2 and Shantaben, Shantaben was already dead, she having died on April 2, 1980.Hence, there could be no transfer in the name of a dead person and inasmuch as the resolution purported to transfer the said shares in the name of a person who was dead, the transfer itself was illegal. The last ground of attack is that by virtue of sections 108A to 108H of the Act, the transfer of the said shares could not have been effected without obtaining the prior sanction of the Central Govt. In this connection, it is pointed out that the Company was registered under the provisions of the MRTP Act, and stood so registered on the date the transfer of the shares was made in the name of respondent No. 2 and Shantaben on April 21, 1980.
In support of the contention that the shares were not
received by the Company till April 22, 1980, two things have been pointed out.
Firstly, the receipt issued by the Company in respect of the said share is
dated April 22, 1980, and the same in turn mentions that the shares were
received subject to the approval of the board of directors. Secondly, it is
pointed out that although it is the contention of the appellant-company as well
as respondent No. 2 that the shares were lodged on March 27, 1980, the, entry
made in the relevant books show a clear interpolation and the same has not been
made in the normal course of business. The contention, therefore, is that since
the shares were in fact received for the first time on April 22, 1980, neither
the resolution could have been passed on April 21, 1980, in anticipation of the
receipt of the said shares nor a transfer in favour of a dead person could have
been made on the footing that the transfer deed was lodged on March 27, 1980,
i.e., prior to April 2, 1980, on which date Shantaben expired. As against this,
both the appellant as well as respondent No. 2 rely upon the fact that in the
relevant book showing lodgment of the shares, there is admittedly an entry
dated March 27, 1980, which shows that the said shares were lodged with the
company on the said date. Secondly, there is an affidavit of the secretary of
the Company filed in the present proceedings, in which the secretary has
affirmed on oath that the said shares were in fact lodged with the Company on
March 27, 1980. In addition there is also the affidavit of respondent No. 2,
who in addition to being the shareholder in respect of the said shares is also
a director of the Company. In this affidavit also it is affirmed on oath that
the shares were in fact lodged by her with the Company on March 27, 1980. Next,
an opinion was obtained on March 31, 1980, in respect of the transfer of the
said shares in favour of respondent No. 2 and Shantaben, in view of the
provisions of the Act. That is evident from the affidavit filed by the
secretary of the Company on July 20, 1981, as well as from the minutes of the meeting
of the board of directors of the Company held on April 21, 1980, where there is
a reference to such opinion having been obtained on March 31, 1980. This would
also show that the shares in question were in fact lodged prior to March 31,
1980, and, therefore, the date of lodgment, viz., March 27, 1980, should be
accepted as the correct date. Under s. 195 of the Act, there is a presumption
with regard to the correctness of the minutes and so long as the minutes are
not challenged, it will have to be presumed that, what is stated in the said
minutes is correct. With regard to the receipt dated April 22, 1980, it is
pointed out on behalf of the appellant-company, that the said receipt is
admittedly a temporary one and not a final receipt. No doubt the said temporary
receipt came to be issued on April 22, 1980 ; however, the mere fact that the
said receipt is dated April 22, 1980, would not necessarily go to show that the
shares in fact were received on April 22, 1980. This is particularly so because
there are other circumstance's on record, as pointed out above, to show that
the shares in fact were lodged on March 27, 1980. It is also pointed out on
behalf of the appellant-company that, in any case, whatever might have
transpired in between, as surely as on June 13, 1980, the name of the deceased,
Shantaben, was deleted and the shares have since come to stand in the name of
respondent No. 2.
As regards this controversy between the parties with
regard to the actual date of the lodgement of the shares, according to us, the
controversy for all practical purposes of the present petition is a futile one
since it will not affect the present entry made on June 13, 1980. The whole
purpose of raising this controversy is to show that the shares were not in fact
lodged with the Company prior to the death of Shantaben. The argument is that
if they were not so lodged prior to the death of Shantaben, then they could not
have been lodged after her death in the manner done. According to respondent
No. 1, the whole purpose of showing that they were so lodged on March 27, 1980,
was to make out a case that the subsequent transfer of the said shares in
favour of respondent No. 2 and Shantaben were both legal and proper. Apart from
that, in the first instance, the question whether the shares were lodged on
March 27, 1980, or not is not capable of resolution on the basis of the
affidavits in view of the allegations and counter-allegations in that behalf.
In order to resolve this point conclusively, oral evidence of the parties is
absolutely necessary. Therefore, at this interlocutory stage, it will not be
correct to proceed on the basis that the books of the appellant-company do not
reflect the correct position. As pointed out earlier in support of the said
entry of lodgement on March 27, 1980, there are the affidavits of the secretary
of the Company and of respondent No. 2 and also the minutes of the meeting of
the board of directors held on April 21, 1980, referring to the advice obtained
on March 31, 1980, which, according to the appellant-company, was in respect of
the said shares. It will be, therefore, improper to proceed on the presumption,
in the face of these facts on record, that the said entry of lodgement is
incorrect. Secondly, it must not be forgotten that the allegations, made by
respondent No. 1 in this behalf amount to alleging a fraud on the part of the
Company as well as respondent No. 2. It is, however, interesting to note that
neither in the petition nor in the affidavit-in-rejoinder there is any averment
of fraud against either the appellant-company or respondent No. 2 in this
behalf. In fact, in the original petition, there is no allegation with regard
to the fact that the shares were not lodged on March 27, 1980, or that there
was any such interpolation of the entry in the register of lodgement or that
the shares were not received prior to April 22, 1980. The entry in respect of
the shares at Ex. I is attacked in the petition only on the ground that the
Company could not have recognised Shantaben who was a dead person, as its
member, on the date the entry was made, viz., on April 22, 1980. There is no
other ground alleged against the said entry. It is only when the Company filed
its affidavit-in-reply to the judge's summons and pointed out that the shares
were in fact received on March 27, 1980, that in their affidavit-in-rejoinder
respondent No. 1 came out with the allegation that the said shares were not in
fact received by the Company on March 27, 1980, and that the entry made in the
lodgement register in that behalf was an interpolation. However, even there,
respondent No. 1 has stopped short of alleging fraud on the part of the
appellant or respondent No. 2. The most that can be said with regard to the
allegations made in the affidavit-in-rejoinder in that behalf is that they
point out suspicious circumstances with regard to the said entry on March 27,
1980. There is, therefore, no reason why, in the absence of specific
allegations of fraud and the details thereof and without proof of such fraud,
the court should act at this interim stage to restrain respondent No. 2 from
acting as the shareholder in respect of the said shares, when she has exercised
her. said rights all along till this date including in an annual general
meeting held in the last year.
Proceeding on the footing that the shares were not
lodged on March 27, 1980, but on April 22, 1980, the next argument advanced on
behalf of respondent No. 1 was that respondent No. 2 had not applied to the
company to transfer the said shares in her capacity as a joint shareholder and
also in her capacity as the legal representative of Shantaben. Further, the
transfer effected by the resolution dated April 21, 1980, and shown by the
entry in the register on April 22, 1980, was in favour of both respondent No. 2
and Shantaben, who was admittedly a dead person on that date. Shri Parekh
relying on these facts, therefore, contended that there could not be a contract
with a dead person. According to him, when a transferee makes an application to
the company for transferring the shares in his name, he makes an offer to the
company for entering into a contract with the company and the contract with the
company is complete only when the company passes a resolution approving such a
transfer. In the present case, in the first instance, an application was made
by respondent No. 2, on behalf of a dead person and not in her capacity as the
legal representative of the dead person. Secondly, when the company passed the
resolution on April 21, 1980, accepting the offer and entering into a contract,
it had accepted the offer on behalf of a dead person and had entered into a
contract with a dead person and, therefore, the contract was void. In, this
connection, he referred us to the provisions of s. 45 of the Contract Act and
ss. 41 and 111 of the Act, i.e., the Companies Act, and art. 53 of the articles
of association of the company. Under s. 45 of the Contract Act, when there are
two or more joint promisees, the right to claim performance rests with all the
promisees jointly during their joint lives, and, after the death of any one of
them, with the representative of the deceased promisees jointly with the
survivor or survivors and, after the death of the last survivor, with the
representatives of all jointly. Relying on the analogy of these provisions, he
argued that in the present case, respondent No. 2 and Shantaben were joint
shareholders. After the death of Shantaben, respondent No. 2 could have applied
for transferring the shares in her capacity as any of the joint holders as well
as in her capacity as the legal representative of Shantaben. However, there is
nothing on record to show that respondent No. 2 had made an application for the
transfer of the shares in her capacity as the legal representative of
Shantaben. All that can be said is that she had applied in her capacity only as
one of the joint holders of the said shares. Section 41 of the Act defines
"member of a company" and states that persons other than the
subscribers to the memorandum of a company have to agree in writing to become
members of the company and a member is one who not only agrees in writing to
become such a member but whose name is also entered in the register of members
of the company. No person who does not fulfil the said condition can be called
a member of the company. Section 111 of the Act to which he next referred in
support of his said contention states that a company has power to refuse
registration of any transfer of shares and, therefore, to refuse admission to
any person as its member, if the company has reserved such power under its
articles of association. This power given to the company by the said section
read with the relevant articles of association is in addition to the power
which the company has by virtue of the provisions of sections 108, 109 and 110
of the Act, which contain statutory restrictions on transfer of shares. As far
as the appellant-company is concerned, art. 53 of the articles of association
of the company reserves such power to its board of directors and the provisions
of the said article show that the board of directors, subject to the provisions
of s. 111 of the Act, may, at its own absolute and uncontrolled discretion and
without assigning any reason, decline to register or acknowledge any transfer
of shares. Shri Parekh, therefore, submitted that unless the transfer of shares
is accepted by the company, the transferee does not become a shareholder in
respect of the said shares. It, therefore, necessarily implies that it is not
enough that there is a contract between the transferor and the transferee for
sale of the shares but there has to be a further contract between the
transferee and the company in order to entitle the transferee to become a
member or shareholder of the company. Unless such a contract is completed, no
transfer can be recognised by the company. Inasmuch as, as contended by Shri
Parekh, in the present case, before the contract was completed with the
company, one of the joint holders had already died, the contract with the
company purported to have been completed on April 21, 1980, was ab initio void.
He, therefore, submitted that on this ground, the entry made in the names of
Shantaben and respondent No. 2 on April 22, 1980, was void ab initio. The
illegality is patent on the face of it and hence the entry needed to be
rectified. Developing the very argument, Shri Parekh contended that the board
of directors had knowledge of the death of Shantaben when they passed the
resolution on April 21, 1980. In spite of this knowledge, they had proceeded to
execute the contract between the company and the dead person and made a dead
person their member. The directors are the trustees of the shareholders and
they are expected to act in good faith and yet in spite of the knowledge that
Shantaben was dead, they had entered into a contract with her. This act on
their part itself would show that the parties were not acting in good faith. In
support of this submission, he relied upon certain passages from the learned
author, Karr, in his Treatise on the Law of Fraud and Mistake, 7th edition. In
Chap. I, on p. 1, the learned author has observed as follows :
"Fraud, in the contemplation of Civil Court of
Justice, may be said to include properly all acts, omissions, concealments
which involve a breach of legal or equitable duty, trust or confidence, justly
reposed, and are injurious to another, or by which an undue or unconscientious
advantage is taken of another."
The next passage is on p. 6 under the caption
"jurisdiction over every species of fraud" and is as follows :
"Civil Courts have an original, independent, and
inherent jurisdiction to relieve against every species of fraud not being
relief of a penal nature. Every transfer or conveyance of property, by whatever
means it be done, is vitiated by fraud. Deeds, obligations, contracts, awards,
judgments, or decrees may be the instruments to which parties may resort to
cover fraud, and through which they may obtain the most unrighteous advantages,
but none of such devices or instruments will be permitted by a Court of Equity
to obstruct the requirements of justice. If a case of fraud be established, the
court will set aside all transactions founded upon it by whatever machinery
they may have been effected, and notwithstanding any contrivance by which it
may have been attempted to protect them."
In order to appreciate these arguments, it is in the
first instance important to note that there is no instrument other than the
instrument of transfer prescribed either under the Act or under the articles of
association which is required to be lodged with the company when either the
transferor or the transferee desires that the name of the transferee be brought
on the register of members of the company. In particular, there is no separate
form of application prescribed any where which has to be made to the company
for the said purpose. The instrument o! transfer which has to be lodged with
the company is incorporated in the articles of association under art. 50. There
is no dispute that six such forms of transfers were executed between the Union
Bank of India, on the one hand, and respondent No. 2 and Shantaben, on the
other, in respect of the shares in dispute, as early as on 21st December, 1979.
There is also further no dispute that these instruments of transfers were
lodged with the company, although the date on which they were lodged is the
subject-matter of controversy. It is acting on these instruments of transfer
that the board of directors passed its resolution on April 21, 1980, accepting
the transfer and directing that the transferees under the said deeds or
instruments be registered in the register of members, as the joint shareholders
in respect of the said shares. Both as a matter of requirement of law as well
as of practice, therefore, it is not correct to say that after the instrument
of transfer is executed between the transferor and the transferee, a separate
application is required to be made either by the transferor or the transferee
for registering the transferee as a member of the company. This is because the
prescribed form for the transfer of shares itself shows on the face of it that
the transferees have agreed to become the members of the company. Hence, all
that is required is to lodge the transfer deeds or the. instruments. It is for
this reason that it is not correct to say that the transferee has to make an
offer which requires to be accepted by the company. Hence, the provisions of
the Contract Act to which Shri Parekh referred have no relevance in the case of
transfer of shares. There is yet another and more important reason why the said
provisions of the Contract Act will not be applicable to the case of a transfer
of shares. As soon as the transfer deed is executed between the parties the
transferee gets rights not only against the transferor, such as to receive
dividends from the transferor after the date of the transfer and to give him
directions including the direction to vote as he desires, but he also gets a
right against the company to call upon the company to register him as a
shareholder. If the company refuses to register him as a member, he can file an
action at law requiring the company to do so. That the company may have, in a
particular case, a valid reason to refuse such registration, is no argument
against the legal position that a transferee does get such a right to require
the company to accept him as a member. This position in law is not disputed. In
fact, the provisions of s. 155(1)(b) of the Act themselves make it clear that a
transferee has a right to get his name entered in the register of members, and,
if a default is made or unnecessary delay takes place in registering him as a
member, the transferee has a right to approach the court for a rectification of
the register by calling upon the company to enter his name as a member. If that
were not so, the provisions of the said s. 155(1)(b) would be rendered
nugatory. Once, therefore, it is admitted that a transferee gets this valuable-
right to call upon the company to register him as a member, then, the theory of
offer to and acceptance by the company and that of the non-accrual of any
rights against the company, unless the contract is complete between the
transferee and the company, propounded by Shri Parekh, stands exploded. On the
contrary, there is much force in the contention advanced by Shri Chagla that the
contract between the transferor and the transferee being complete when the
transfer instrument is executed, all that is necessary is to intimate to the
company the fact of the said transfer. By getting his name registered in the
register of members, the transferee only perfects his title to the shares and
becomes entitled in his own right to claim all the privileges which were
hitherto claimed by the transferor in his name. It is, therefore, not correct
to say that there is a contract between the transferee and the company when the
board of directors accept the transfer of shares and decide to enter the name
of the transferee in the register of members. It may be that as a result of the
transferee becoming a member of the company, a contractual relationship may
come into existence between the company and the member by virtue of s. 36 of
the Companies Act, with the articles of association constituting the terms of
the contract between the parties. But this "statutory" contract has
nothing to do with the contract of transfer of shares, entered into between the
transferor and the transferee. This being so, it is not possible to accept that
on April 21, 1980, there was a contract between the company and the said
Shantaben, and since Shantaben was dead, the said contract was void. The
transfer in her favour along with respondent No. 2 was complete on December 21,
1979. All that happened on April 21, 1980, was that the company took cognisance
of the transfer as was effected on December 21, 1979, approved of the said
transfer as was effected on that date and made entry in its register to reflect
the said transfer.
It is true as pointed out by Shri Parekh that,
normally, by virtue of the transfer deed in his favour, the transferee is not
substantially entitled to become a member of the Company because the Company
has an absolute discretion to refuse to accept any transferee as its member and
unless the transferee is so accepted, he does not become a member of the
company. However, it must not be forgotten, that, firstly, it is not in every
case that there is such restriction on the rights of the transferee. As s. 111
of the Act itself makes it clear, apart from the statutory restrictions on the
power of the company, if a company by its articles of association does not reserve
the power of refusal to register a transferee as a member, the company will
have no power to refuse membership to a transferee. It is common knowledge that
all companies do not reserve to themselves such power. Some companies may
reserve such powers. In that case, there is no doubt that the transferee is not
entitled to become a member merely by virtue of the transfer deed. However,
even where such power is reserved and, in exercise of such power, the company
refuses such a transfer, the provisions of sub-s. (2) of s. 111 of the Act
casts an obligation on the company to intimate within a period of two months
from the date of the instrument of transfer or the intimation of transfer or
transmission, the fact of such refusal, and if no such intimation is sent, the
company and every officer of the company makes itself or himself liable to
punishment. Further, on receipt of such intimation of refusal, the transferee,
the transferor or the person giving the intimation of transmission, has a right
to prefer, an appeal to the Central Govt. and apply for a direction to the
company to register the transferee as its member. In the present case, apart
from the provisions of the said section, art. 53 of the articles of
association, on which reliance was placed by Shri Parekh, itself makes a
provision for the intimation of a refusal to be given to the transferee and the
transferor within two months from the date of the instrument of transfer. In
view of the said provision of intimation, penalty and the appeal, it cannot be
said that the power of refusal given to the. company is an absolute one. The
company can refuse to recognise a particular transfer only for legal and valid
reasons. Otherwise, it can be compelled to register the transfer. Ordinarily,
the company will have to register the transfer. As regards the other
restrictions on the transfer, admittedly, the same are statutory and are
applicable to all transfers without discrimination. Further, s. 82 of the Act
itself recognises the fact that the shares as well as the other interests of a
member in a company are the movable property which are transferable in the
manner provided by the articles of the company. Except for the said art. 53 of
the articles of association of the present company, there is no other hindrance
for the transferability of the shares of the appellant-company. As regards the
statutory restrictions, s. 108(1) of the Act merely provides that the
instrument of transfer should be in a proper form and properly stamped before
the transfer could be demanded on the basis of such instrument. Sub-section
(1A) of the said section is a provision specifically incorporated to avoid
malpractices of blank transfers and it requires that before a transfer is
effected, the transfer instrument has to be presented to the prescribed
authority. The restrictions contained in sections 108A and 108H are applicable
to the shares of the companies covered by the MRTP Act, 1969. Section 109
provides for an application for transfer by the legal representative of the
deceased member, although the legal representative himself may not be a member
of the company. Section 110(2) relates to the partly paid shares, and, it is
only in the case of partly paid shares that the company is required to give
notice to the transferee inviting his objection to the transfer of such shares
in his name. We have already referred to the provisions of s. 111 of the Act
which in terms state that apart from the statutory restrictions contained in
sections 108, 109 and 110, the company may reserve a power to refuse to
register transfers under its articles of association and also to art. 53 of the
articles of association of the company in that behalf. These are all the
statutory restrictions on the transfer of shares and, apart from this, there is
no hindrance to the transferability of the shares of the company. We have
further pointed out that even where the company reserves an absolute power to
refuse to register a transfer, it can refuse to register a transfer only in a
particular case and it has no powers of refusal of transfers in general. The
said power is further circumscribed by the right of appeal given to the
aggrieved person. This right is apart from the right of the transferee to get
the shares registered in his or her name under sub-s. (1)(b) of the present s.
155 of the Act. This being the position in law, it is not possible to subscribe
to the view that no rights accrue to the transferee against a company before it
enters into a contract with him. If this is so, and if there is no fresh contract
required to be entered into between the transferee and the company, then it
will have to be held, as stated earlier, that when the transferee intimates a
transfer to the company, the company merely either recognises such transfer or
refuses to recognise it. When, however, it recognises -the transfer, it
recognises the transfer deed as was executed on the date it was so executed and
after such recognition, the transferee perfects his title as the legal holder
thereof notwithstanding the fact that he is in enjoyment of all the rights as
against the transferor as the beneficial owner thereof. If this is so, then
further, all that the company is required to do on the date it accepts the
transfer is to recognise the transfer deed and accept the transferee under such
deed as its member, without investigating further as to whether the transferee
named in the deed is in fact capable of accepting the transfer or not or
whether he is dead or alive on the date the transfer is accepted by the
company. The company is not bound to go beyond the deed of transfer and to
embark on its own on an inquiry into the validity of the transfer on the said
count. The company would be perfectly justified in acting on the transfer deed
as it is presented to it and proceeding on the basis that what is represented
by the transfer deed is true.
It is for this reason again that we find there is
much force in the contention advanced by Shri Chagla that when the company
accepts a transfer, the transfer relates back to the date of execution of the
transfer instrument between the transferor and the transferee. We find that if
this were (not ?) so, many insoluble complications would arise which will throw
in doldrums the share market. In the first instance, every time the company
accepts a transfer, it will have to investigate as to whether the transferee or
all the transferees, when there are more transferees than one, are living or
dead or are capable of contracting. It may also happen that the persons
concerned may be living or capable of contracting on the date of the execution
of the transfer but might have died or incurred a disqualification between the
date of the execution of the transfer deed and that of lodgement of the shares
or between the date of the lodgement of the shares and the date of resolution
of the board of directors accepting the transfer or even between the date of
the resolution and the actual entry in the register of members. If we accept
the theory as is propounded on behalf of respondent No. 1, it would mean, say
in the case of the death of one of the transferees, where there are more
transferees, the entry made in the register in respect of all the joint
transferees will be invalid and illegal. That would also mean that if the
original entry is illegal on this account, then all the subsequent transfers
and entries made in respect of the said shares would also become invalid. In
fact it would necessitate cancelling all the subsequent transfers and requiring
the surviving transferees either to make a fresh application for transfer
jointly with the legal representative of the deceased transferee or requiring
them to approach the transferor for executing a fresh instrument of transfer in
their favour, and if, after they accept a fresh transfer from the transferor
(assuming that they succeed in tracing their transferor), at that stage and
before a new entry is made on the basis of such transfer deed, again one of the
transferees dies, they will have to resort to the same exercise over again.
This may in a given case have to be repeated a number of times. It is for this
reason that the theory of relation back in the case of transfer of shares will
have to be accepted both as a matter of law as well as of practical commercial
reality. The reliance placed by Shri Chagla on certain decisions to support his
contention in that behalf appears to be justified.
In AIR 1959 SC 775 and [1959] 29 Comp Cas 282 (SC)
(Howrah Trading Co. Ltd. v. CIT), the court in para. 9 of its judgment, after
approving a passage in Nanney v. Morgan [1888] 37 Ch D 346 (CA) at page 396,
stated that in India, the completion of the transaction by having the name
entered in the register of members relates it back to the time when the
transfer was first made.
In a decision of the Kerala High Court [1972] 42 Comp
Cas 569, (Travancore Electro Chemical
Industries Ltd. v. Alagappa Textiles (Cochin, Ltd.), in para. 10 of its
judgement, the court has observed as follows (at p. 576):
"It is, therefore, clear that no rights can
arise in favour of a transferee as between him and the company until his name
is registered as a shareholder in the books of the company. When once the
transfer is completed and recognised by the company it relates back to the time
when the transfer was first made."
In that decision a reference was made to the Supreme
Court decision cited above.
The decision of the Calcutta High Court [1942] 12
Comp Cas 206 (Cal) (In the matter of Bengal Silk Co. Ltd.) also reinforces the
theory of relation back. That was a case of transfer of shares in a blank form
where the transferor had died before the company had accepted the transfer. The
court dealing with the situation observed that in the case of a transfer of
shares of a company in blank, the transferee is entitled to fill in the
necessary particulars including his own name as transferee and the date of the
transfer, after the death of the original transferor, and the transfer so made
will be a valid one.
We, therefore, find that the legal position that
emerges is that when the company accepts the transfer, such transfer relates
back to the date of the execution of the instrument of transfer between the
transferor and the transferee. If this is so, then in the present case when the
company passed its resolution on April 21, 1980, accepting the transfer deed
executed between the Union Bank and respondent No. 2 and Shantaben, the
transfer related back to December 21, 1979. The company had to merely recognise
the transfer deed as it was executed on December 21, 1979, and, therefore, the
transferees as they appeared in the said deed.
As against this, Shri Parekh referred us to various
provisions of the Act and tried to point out that if the theory of relation
back is accepted, some anomalous consequences will follow. The said provisions
are contained in ss. 12, 36, 41, 42, 68A, 86, 87, 108A to 108H, 109, 110, 115,
72, read with ss. 53(4) and 205(5)(b) read with s. 206. We have carefully gone
through all the said provisions of the Act and we are unable to be persuaded
that the theory of relation back would result in any such consequences as
feared by Shri Parekh. We, therefore, do not think that it is necessary to
enter into a detailed discussion of the said provisions. Suffice it to say that
there is no inconsistency between the provisions of the said sections and the
theory of relation back.
As regards the attack on the resolution of the board
of directors on April 21, 1980, on the ground that the said resolution was
passed in spite of the fact that the board of directors had knowledge of the
death of Shantaben, we fail to appreciate the argument advanced in that behalf.
Either the entry made in the name of respondent No. 2 and Shantaben in the
register on April 22, 1980, was bad in law, because on the date of the entry,
one of the joint shareholders, viz., Shantaben, was dead or it was not. As
pointed out earlier, whether the board of directors had knowledge of the death
or not will be irrelevant if. the proposition advanced by Shri Parekh is to be
accepted, viz., that no transfer can be accepted by the company if the
transferor or any of the transferees dies between the date of the execution of
the transfer and the date of acceptance by the company. The fact of the
knowledge of such death is, therefore, immaterial. We will, therefore, proceed
on the footing, as indeed it will have to be in the circumstances of the case,
that the board of directors when they passed the resolution on April 21, 1980,
knew of the death of Shantaben. However, if we are right in holding that on the
acceptance of the transfer by the company, the transfer related back to the
date of the instrument of transfer, then it is immaterial that Shantaben had
died between the date of the instrument and the date of the resolution of the
company. This is apart from the contention advanced by Shri Chagla that the
company was not bound to act on the knowledge of its directors, and the company
could not have acted to the contrary unless there was an application made for a
transfer of the shares on the basis of the death. The contention advanced by
Shri Chagla in this behalf is that the knowledge of the directors of the
company is no knowledge of the company itself. Section 51 of the Act as well as
art. 181 of the articles of association of the company lay down the manner in
which a notice is to be given to the company. The only article which provides
for knowledge of the principal officer of the company being treated as the
knowledge of the company itself is art. 56. But the said article covers only
the specific cases covered by the E.D. Act, where the transfer of shares
belonging to a deceased member of the company is prohibited without producing
the relevant certificate from the Controller of E.D. In no other case the
knowledge of the principal officer or of the directors of the company is
construed as knowledge of the company. Developing this argument, Shri Chagla
further submitted that it will create chaos if the company was to initiate
changes in its register of members acting on its own on the basis of its
purported knowledge without a formal application in that behalf made by an
interested person. We find much force in this argument. The company is not
expected to act and make changes in its books and registers acting on its own
knowledge. It is, however, possible to argue in the present case that what was
expected of the board of directors was to forbear from making the transfer in
favour of Shantaben along with respondent No. 2 once they had knowledge of the
death of Shantaben. But this would be so if the action of the company in making
the entries on the basis of the transfer deed is held to be unwarranted,
unjustified or improper. However, as we have held already, since the transfer
accepted by the company relates back to the date of the deed of transfer, the
fact that the board of directors had knowledge of the death of Shantaben is
unimportant. We will proceed on the basis that they had the knowledge and that
they had yet effected the said transfer. If we are right in holding that the
transfer relates back to the date of the instrument, then, according to us, the
company had no option but to effect in its books such entries as were
consistent with the instrument of transfer and that is exactly what the company
has done.
We may in this connection also point out that all
that was sought to be canvassed on the basis of this limb of the argument was
that on the date the company passed the resolution, viz., on April 21, 1980,
the company ought to have insisted upon an application from respondent No. 2 in
her capacity as the joint holder of the shares and also in her capacity as the
legal representative of Shantaben. It is not disputed that if such an
application was made by respondent No. 2, the transfer in the name of
respondent No. 2 would have been valid. However, it appears that the company
instead of following the said procedure adopted the present mode. The company
first acted on the basis of the instrument of transfer, as it was, and made
entries consistent with the said instrument, i.e., in the name of both
respondent No. 2 and Shantaben. Within about two months thereafter, on the
basis of the application made by respondent No. 2, the company deleted the name
of Shantaben on June 13, 1980, and on and from that date retained the name of
respondent No. 2 alone. It will thus appear that eventually the entry came to
show all the shares in the name of respondent No. 2.At the cost of repetition,
we may emphasise that it is not disputed in the petition that respondent No. 2
is the sole heir of Shantaben and as such sole heir, she was entitled to the
share of Shantaben in the said shares. Hence, the entry in the name of
respondent No. 2, which has been standing since June 13, 1980, reflect the true
legal and factual position. In spite of this, however, the contention raised on
behalf of respondent No. 1 is—and that is all that the said contention comes
to—that the intermediate entry made on April 22, 1980, in favour of respondent
No. 2 and Shantaben being illegal, the present entry in favour of respondent
No. 2, although it reflects the true legal position today, is also illegal and,
therefore, the register of members requires a rectification under s. 155 of the
Act. In other words, the contention is that the company, instead of following
the procedure which it did, should have adopted the method suggested on behalf
of respondent No. 1, viz., that the company should have insisted on April 21,
1980, on an application from respondent No. 2, in her capacity both as the
joint shareholder as well as the legal representative of Shantaben and on
receipt of such an application, should have directly made an entry in favour of
respondent No. 2 alone, instead of first making an entry in favour of
respondent No. 2 and Shantaben and then changing it to the name of respondent
No. 2 alone, which it did. That having not been done, the entry dated April 22,
1980, is illegal and, therefore, the subsequent entry dated June 13, 1980, in
favour of respondent No. 2, is also irregular. We are unable to appreciate this
argument. Even assuming that the procedure adopted by the company was illegal,
that will not make the present entry illegal. This is apart from the fact that
while adopting the course which it did, the company had acted on the legal
opinion obtained by it from its legal advisers. In any case, it can hardly be
contended that the other entry made on April 22, 1980, or the present entry is
without a sufficient cause.
The last attack against the entry in respect of the
said shares at Ex. F was that the company had accepted the transfer in respect
of the said shares from the Union Bank of India in favour of respondent No. 2
and Shantaben, contrary to the provisions of the MRTP Act. In support of this
contention, it was pointed out on behalf of respondent No. 1, that the company
was registered under the MRTP Act on November 10, 1975, and it continued to be
so registered till November 27, 1980, on which day the registration was
cancelled. The transfers were admittedly accepted by the company on April 21,
1980, and inasmuch as there was no permission from the Central Govt. obtained
for such transfers, the said transfers were illegal and hit by the provisions
of ss. 108A to 108H of the Act. As against this, Shri Chagla pointed out that
the company had made an application for deregistration of the company under the
MRTP Act as early as in February, 1978, because its capital fell below Rs. 20
crores. Thereafter, respondent No. 2 had made an application in August, 1979,
for a sanction of the transfers of the said shares. However, neither her
application was replied to nor the application for deregistration was disposed
of till November 27, 1980, on which day eventually the company did stand
deregistered. The company was, however, of the opinion that its capital having
fallen below Rs. 20 crores, no permission for the sanction of the transfers of
the shares was necessary on and from the date that its capital so came below
the said limit. The company by way of abundant precaution also sought legal
opinion on the subject. The legal opinion supported the stand which the company
was taking. The said opinion dated March 31, 1980, was available to the company
when it passed its resolution accepting the transfer of the present shares on
April 21, 1980.The eventual transmission in the name of respondent No. 2, on
June 13, 1980, was also effected acting on the very same opinion. In fact,
ultimately the company was deregistered on November 27, 1980, vindicating the
stand taken by the company. It was, therefore, contended by Shri Chagla that,
in the circumstances, it could not be said that the transfer of the shares in
favour of respondent No. 2 and Shantaben on April 22, 1979,and in favour of
respondent No. 2, on June 30, 1980, was hit by the provisions of ss. 108A to
108H of the Act. In any case, contended Shri Chagla, there is no need now to
indulge in the futile exercise of first deleting the entries and then making
the very same entries, assuming that the contention of the other side is
correct. We find much substance in the said argument. Assuming, without
accepting the contention advanced on behalf of respondent No. 1 that on the
date the transfers were effected, viz., April 21, 1980, and June 13, 1980, the
same could not have been so effected unless the permission of the Central Govt.
was obtained, all that was necessary after the company was deregistered in
November 27, 1980, was to pass a fresh resolution transferring the shares in
favour of respondent No. 2. Since the entry made on June 13, 1980, reflects the
true legal and factual position, it was unnecessary to undergo the said
exercise. Further, in the circumstances, it can hardly be said that the entries
made on April 22, 1980, or on June 13, 1980, were without sufficient cause. We
are, therefore, satisfied that even this attack against the said entry is not
capable of being sustained.
We may further like to point out that even if a court
were to accept all the contentions advanced on behalf of respondent No. 1 with
regard to the entry in respect of the shares at Ex. F, all that would have
become necessary was to require respondent No. 2 to make a fresh application in
her capacity both as a joint shareholder and also as the legal representative
of Shantaben and get the shares registered in her name alone. But that is
exactly what has been done now as is reflected by the entry dated June 13,
1980. We do not think that, in the circumstances, any court would accept such
invitation under s. 155 of the Act for indulging in a futile exercise of the
kind. The provisions of the said section are certainly not meant for correcting
such procedural or formal errors.
We may mention here that the position that respondent
No. 2 was the sole heir of Shantaben was sought to be disputed by filing an
affidavit-in-rejoinder in the present interlocutory proceeding on behalf of
respondent No. 1 and the contention which was for the first time taken in the
said affidavit was that Navin Kapadia was not a Hindu but a Muslim and,
therefore, the law of succession applicable to his estate as well as to the
estate of Shantaben would be different and respondent No. 2 would not be the
sole heir. In the first instance, no such contention has been raised in the
petition itself. Secondly, even the contention raised in the
affidavit-in-rejoinder is vague inasmuch as it is not averred whether the
Muslim law applicable to the succession was Sunni or Shia. Further, if such
contention is raised in the petition, that will certainly have to be decided by
oral evidence and cannot be decided on affidavits since the allegations made in
that behalf are vehemently denied on behalf of both respondent No. 2 and the
appellant-company. What is more, such a disputed question cannot be decided in
a summary enquiry under s. 155 and the proper proceeding to decide the same
would he a civil suit. Much less can it be decided, at this interlocutory
stage, we have, therefore, not permitted respondent No. 1 to raise the said
question and. it must be said in fairness to Shri Parekh for respondent No. 1,
that he has also not pressed his arguments on the basis that succession to
respondent No. 2 was governed by the Muslim law. We have, however, made a
mention of this fact because the said allegations do find a place in the
affidavit-in-rejoinder and to which there is a passing reference made in the
judgment of the learned judge.
This is with regard to the merits of the different
grounds of attack against the entries in respect of the shares in dispute,
viz., at Exs. A, B and F. Apart from the merits which, as shown hereinabove are
in favour of the appellant-company and respondent No. 2, the shareholder, we
may also point out that there is no equity whatsoever in favour of respondent
No. 1 to entitle it to the interim relief prayed for in the judge's summons. On
the other hand, there are reasons more than one why the court should set its
face against granting any such relief to respondent No. 1. In the first
instance, the provisions of s. 155 themselves show that they can be invoked
only when the entries made in the register are "without sufficient
cause". It necessarily implies that it is not each and every incorrect
entry which would be corrected by the court, while exercising its power under
the said section, if there is some basis, a basis on which a reasonable person
or body of persons would act to make the entries in question, then the court will
not exercise its powers under the said section. If this is so, then can it be
said that in the present case, the entries made in respect of the said shares
have been made by the appellant-company without any basis or to use the
language of the section "without sufficient cause" ? According to us,
the answer to the said question must be in the negative. We have pointed out on
scrutinising the merits of the attack against the said entries, that the
company had acted on credible and legitimately acceptable material and cannot
be said to have acted either unreasonably or unjustifiably while making the
said entries. To repeat, the entries at Exs. A and B were attacked only on two
grounds, viz., that they were made during the period the company was closed and,
secondly, they were made in contravention of the provisions of s. 84 of the E.
D. Act read with art. 56 of the company's articles of association. We have
shown that there is nothing in law to prevent the entries with regard to the
transmission of shares being made during the period the company is closed under
s. 154 of the Act. We have also further pointed out that neither s. 84 of the
E. D. Act nor art. 56 of the articles of association prevents the entries
consequent upon the transmission by the operation of law. In any case, on the
latter point, the circular issued by the Govt. of India as early as in the year
1968 supports the action of the company in making the said entries. Therefore,
it could hardly be said that the entries in respect of Exs. A and B were made
by the company without sufficient cause. As far as the shares at Ex. F are
concerned, we have pointed out that even assuming that all that is said by
respondent No. 1 is correct, the gist of the grievance of respondent No. 1 is
that instead of following the course which the company did, the company should
have followed a different course suggested by respondent No. 1. In view of the
fact that eventually on June 13, 1980, the entry was made in the name of
respondent No. 2 which would also be the result by adopting the course
suggested by respondent No. 1, the exercise suggested by respondent No. 1 was
unnecessary. Further, no prejudice was shown to have been caused to anybody
much less to respondent No. 1 by the course adopted by the company. As regards
the alleged contravention of the provisions of the MRTP Act, the company
admittedly stands de-registered under the said Act from November, 1980.
Assuming, without accepting that as long as the company was not so
deregistered, the entry in question should not have been made, the most that
the company would have been required to do was to require respondent No. 2 to
make a fresh application for transfer of the said shares in her name. That was
an exercise uncalled for in the circumstances of the case. Further, the company
was supported in its action by an expert legal opinion. Hence, it could hardly
be said that the entry in question was made by the company "without
sufficient cause". This factual and legal position itself is sufficient to
displace the petitioner.
Secondly, the entries in respect of the shares at
Exs. A and B have been standing in the register of members right from May 8,
1980, whereas the entry in respect of the shares at Ex. F has been there on and
from June 13, 1980. Since these entries were made, there was already an annual
general meeting held on July 18, 1980, and respondent No. 2 exercised her
voting rights in respect of all the said shares in the said meeting and has
been exercising all other rights in respect thereof since that date. The
present petition was filed on June 10, 1981, There is, therefore, an
unexplained and inordinate delay in questioning the said entries.
Thirdly, it is not disputed that respondent No. 1,
who is the petitioner in the present case, has itself filed a suit in the City
Civil Court, Bombay, which is pending, viz., Suit No. 2145 of 1980. The said
suit was filed in April, 1980, for an injunction restraining respondent No. 2
from getting the shares at Exs. A and B transferred in her name and restraining
the company from transferring the same in her name. The grounds alleged against
the said transfer are the same as are alleged for the rectification of the
entries in the present petition. After filing the suit, respondent No. 1 took
out a notice of motion for an interim injunction on the lines of the prayers in
the suit. That motion was dismissed by the city civil court on April 21, 1980,
and the appeal filed therefrom also came to be summarily rejected by this court
as early as on May 28, 1980. After waiting for more than a year, respondent No.
1 filed the present petition on June 10, 1981, which is obviously for
preventing respondent No. 2 from exercising her voting rights in respect of the
said share in the annual general meeting for the year 1981, which was to be
held on July 31, 1981, There is no reason why respondent No. 1 should be
allowed to use the processes of the courts in the manner particularly by a
grant of the interim relief as prayed for by it.
Fourthly, as emphasised earlier, it is not disputed that
respondent No. 2 is the sole heir of Shantaben and in her capacity as such sole
heir, she would be entitled to all the said shares. All that is sought to be
done by respondent No. 1 is to prevent respondent No. 2 from getting the
benefit of the said shares as such sole heir and to prevent her from exercising
her legitimate rights in respect of the said shares in her said capacity. Even
assuming, without accepting that all the contentions advanced on behalf of
respondent No. 1 are correct and, therefore, the entries made in respect of all
the said three lots of shares require rectification and the petitioner would
succeed in the petition, all that would mean is that respondent No. 2 will be
entitled to the said shares from a subsequent date when a fresh entry would be
made in her name. Such entry would only formally perfect her title to the
shares which she today holds beneficially. She has already been exercising her
legal rights in respect of the shares hitherto. There is no reason why she
should be prevented from the exercise of the said rights at this stage if
eventually she would be entitled to the said rights. An interim relief as
prayed for by respondent No. 1, if granted, would only result in freezing the
rights which she is already exercising and has been so exercising from
May/June, 1980. The court should lean in favour of maintaining the status quo
which has been prevailing for more than a year. There is no special reason
shown by respondent No. 1 to disturb the status quo at this interim stage. Lastly,
as we have pointed out repeatedly above, the gist of the allegations of
respondent No. 1 comes only to this that the company and respondent No. 2 have
not followed the proper procedure in making the entries in question. It has not
been shown to us that even, after following the procedure suggested, the
resultant entries would be any different from the ones which are standing in
the register. That, according to us, is the most important reason for not
interfering with the entries and granting any relief to the petitioner at least
at this stage.
For all these reasons, we allow both the appeals and
set aside the impugned order. Respondent No. 1 will pay costs of the appeals to
the appellants separately in each appeal.
This also disposes of Notices of Motions Nos. 1119 of
1981 and 1128 of 1981 in the appeals.
[1985] 58 COMP. CAS. 162 (KAR.)
HIGH COURT OF KARNATAKA
v.
M.P. CHANDRAKANTARAJ
URS, J.
Company Petition No. 3 of 1983
OCTOBER 30, 1984
V.K. Varadachari, S. Ramaswamy and K.S. Nagaraja Rao
for the Petitioner.
Jayaram and Jayaram for the Respondent.
Chandrakantaraj Urs, J.—This is a petition
under s. 155 of the Companies Act, 1956 (hereinafter referred to as "the
Act"). The petitioners are the transferees of certain shares of M/s Mysore
Lachia Setty and Sons P. Ltd., which is the respondent company in this
proceeding represented by its director in-charge. The prayer in the petition is
for an order of this court directing the respondent company to recognise the
transfer of 40 shares (8 to each of them) and make the alteration in the
register of members in accordance with the transfer.
The petition was filed on January 3, 1981, and notice
was ordered to the respondent on February 7, 1981. The respondent after service
of notice has entered appearance and contested the petition. The facts which
themselves are not in dispute as can be made out from the pleadings of the
petitioners as well as the respondent may be briefly stated and they are as
follows: Eight brothers joined together and incorporated Mysore Lachia Setty
and Sons P. Ltd. under the Act on November 26, 1946, with a paid up capital of
Rs. 1,00,000 divided into 400 shares of Rs. 250 each. The father of the
petitioners, late M.L. Manjunatha Setty, together with his seven brothers
contributed Rs. 12,500 each and were allotted 50 shares each. However, in the
year 1964, differences between the shareholders surfaced and the petitioners'
father together with one other brother, M.L. Janardhana Setty, formed a group
while the remaining brothers formed the opposite group. In that circumstance, a
partition suit came to be filed to which all the shareholders were parties and
it is stated that that suit is in the final decree stage on the date of
petition. It is alleged that the group of brothers opposed to late Manjunatha
Setty and. Janardhana Setty despite the pendency of the partition suit in the
Supreme Court of India, effected a partition in the family on January 6, 1978,
ignoring Manjunatha Setty and Janardhana Setty. On account of the differences
among the brothers, late Manjunatha Setty was not elected as a director of the
company. It is stated that Manjunatha Setty has, besides the petitioners, a son
by his first wife by name M. Madhava Murthy, who is the applicant in C.A. No. 7
of 1984 and who has sought to implead himself in this proceeding. He filed a
suit for partition in the court of the Civil Judge, Chickmagalur, in O.S. No.
218 of 1965 which has stood transferred since to one of the City Civil Courts
in
By share transfer forms dated September 7, 1968,
Manjunatha Setty transferred 40 shares out of the 50 shares which he held in
the respondent company to the petitioners. Soon thereafter, Manjunatha Setty as
transferor sent the share transfer forms to the respondent company with a
request for giving effect to the transfers. But the company returned all the
transfer applications and wrote to Manjunatha Setty that the board of directors
had unanimously rejected all the transfer applications under the articles of
association. Photostat copies of the share transfer forms are, enclosed to the
petition as annexures A to E of annexure III while the covering letter dated
November 22, 1968 (true copy), is at annexure II. Soon thereafter, each of the
petitioners separately wrote an uniform letter dated December 24, 1968,
addressed to the managing director of the respondent company protesting against
the rejection of the transfer by the board of management as they were not in
any way disqualified to become shareholders of the company in accordance with
the articles of association. In their letters aforementioned, each of the
petitioners called upon the respondent company to register the transfer without
further delay failing which they would take necessary legal steps to enforce
their rights in the matter at the cost of the company. They also indicated that
on hearing from the board, they would tender the documents once again. True
copies of those letters are produced as annexures to C.A. No. 636 of 1983 which
is an application made by one of the petitioners to amend the pleadings in the
main petition.
The said application when it came up for orders, the
court in the light of the arguments advanced at that time and in order to
settle the dispute in the family, directed that the petitioners may make a
fresh application for transfer to the company which should be disposed of by
the board within two weeks from the date of application and the decision
thereon communicated to the court. Reference will be made to this later in the
course of this order; but to continue the narration of facts, nothing appears
to have happened after the letters of December 25, 1968, were addressed by the
petitioners. In the meanwhile, M.L. Manjunatha Setty died on May 12, 1974,
leaving behind him a will in which he had disposed of his self-acquired estate
including the residue of 10 shares which remained in his name after the
transfer in 1968 of the 40 shares in favour of the petitioners. The petitioners
on account of the pending litigation in the court of the Civil Judge,
Chickmagalur, hoping for an early decision did not take any action. As it
turned out, the litigation persisted and is yet pending in the City Civil
Court. It is in that circumstance they have moved this court under s. 155 of
the Act for rectification of the register of members.
The prayer is resisted by the respondent company
solely on the ground that the application for transfer of shares to the names
of the petitioners in the register of members of the respondent company having
been disposed of by the board unanimously in November, 1965, itself and that
decision having been accepted by the late Manjunatha Setty, it was not now open
to the present petitioners to seek the transfer once again. It is alleged that
the petitioners have approached this court despite there being a cloud on the
title of the petitioners to the 40 shares in the suit filed by Madhava Murthy,
son of the first wife of M.L. Manjunatha Setty. It is, therefore, contended
that the petitioners do not have the locus standi to maintain this petition. It
is also contended for the respondent that the petition is hopelessly belated
and, therefore, the respondent company need not rectify the register at the
instance of the petitioners now till the litigation inter se the petitioners
and their step brother has come to an end.
It was having regard to these circumstances that the
court earlier directed that the transferee-petitioners should make a fresh
application to the respondent company for necessary changes in the transfer
register and which should be considered by the board of the respondent company
and the decision thereon communicated to the petitioners. Pursuant to that, the
petitioners through their counsel sent postal acknowledgments of respondent
company, the original share certificates issued to late Manjunatha Setty and
the original transfer forms dated September 23, 1968, together with the copies
of letters dated December 24, 1968, by which the petitioners had sought the
transfer. The earlier direction was again clarified on January 15, 1984, by the
court. In accordance with the clarification, the petitioners wrote a letter
signed by all of them bearing the date 28th January, 1984, renewing their
request for transfer of the 40 shares. That letter was also sent through their
counsel. In response to that, a memo was filed by the respondent company on
April 11, 1984, by which it was brought to the notice of the court that there
was no compliance with the clear directions given by the court on January 15,
1984, inasmuch as there was no fresh application for transfer made and that the
board having considered, expressed the board's willingness to transfer the
shares in question by way of transmission as heirs of Manjunatha Setty without
reference to the pending litigation or the outcome of it if a fresh application
was made by the petitioners. The extracts of the resolution of the board were
also filed in the court with the memo. The petitioners were not willing to
accede to the suggestion of the board of the respondent company and, therefore,
the matter was argued out on the merits of the original petition. At the time
of hearing the arguments, M.L. Madhava Murthy, the applicant, who wants to
implead himself in the proceedings has also been heard through his counsel.
This is a case which is a classic example of how
family disputes, complicated as they are, have become more complicated
resulting in multiplicity of litigation, delay and hardship to those who are
affected. Sympathy, compassion and understanding seem to be the first
casualities of inter-family litigation.
Mr. G. Ramaswamy, learned counsel for the
petitioners, has contended that the Act provides for a transfer to be
registered by the company concerned both on the application of the transferor
as well as the transferee. In that circumstance, the rejection of the
transferor's application by the respondent company, he has contended, does not
dispose of the applications made by the transferee-petitioners on December 25,
1968, and, therefore, the company has defaulted in not making the transfers and
the default having persisted, the cause of action that accrued in favour of the
petitioners has continued and, as such, they have a right to move this court
under s. 155 of the Act. He has further contended that the rejection of the
transferor's request does not in any way affect the rights of the transferees
in the shares or the right to move this court for rectification. He has further
contended that the rejection by the board of the respondent company of the
application of Manjunatha Setty in November, 1968, could not be considered as a
rejection at all in the light of the fact that the rejection is not based on
any valid grounds permissible under law or the articles of association of the
company. He has also contended that it is not open to the respondent company to
resist the transfer as long as the instrument of transfer itself is not
disputed by the respondent company.
For the petitioners, Shri Ramaswamy, learned counsel
has founded his arguments on the provisions contained in the Act and the articles
of association of the company. Attention of the court is drawn to s. 150 of the
Act. Section 150 of the Act casts a duty on every company to maintain a
register of members in one or more books showing four particulars: name,
address and occupation of the members, the number of shares held by members
together with a distinguishing number for each share and its value paid or
agreed to be paid, the date on which the name of the member was entered in the
register and the date on which any person ceased to be a member. That the duty
cast upon the company is mandatory in character is pointed out with reference
to the penalty provided in sub-s. (2) of that section for default by the
company. The thrust of the argument is that Manjunatha Setty having intimated
the transfer of 40 shares in favour of his five sons, ceased to be a member
which fact ought to have been entered in the register of members of the
company, notwithstanding the refusal to record and to register the transfer as
was done by the board of directors of the company. The company never questioned
the legality of the transfer, any way not when the applications were made by
the transferor or the transferees. The learned counsel drew the attention of
the court to the reason for refusing to record the transfer. The reason given
by the board for refusal was that the conduct in general of late Manjunatha
Setty was prejudicial to the interests of the company. It was stated by the
counsel that if that was the genuine reason, the board should have welcomed the
opportunity to get rid of Manjunatha Setty. The reason for refusal being
extraneous to the provisions of the Act and the articles of association of the
company, the refusal was mala fide, motivated and, therefore, illegal, it is
contended.
Shri A.N. Jayaram has countered that contention by
stating that late Manjunatha Setty did not question the refusal of the board to
register the transfer and, therefore, it would not now be open to the sons to
contend that there has been default. I do not think that is the correct
position in law. It is indisputable that under ss. 108 and 110 of the Act, both
the transferor and the transferee may seek the registration of transfer subject
to the conditions and restraints imposed in those sections. Therefore, the
rights of the transferee of a share does not depend on the conduct of the
transferor. He may seek to register the transfer or he may not. Once he has
signed the instrument of transfer and it is duly stamped, title in the share or
shares on passes to the transferee. The moment late Manjunatha Setty intimated
the transfer and requested the alteration in the register of members in or
about September, 1968, he admitted he had lost title to the 40 shares and that
should have been entered in the register of members and that is the default
which the petitioners point out and not the bare fact of refusal in 1968. In
other words, the board failed to register the fourth particular in sub-s. (1)
of s. 150 of the Act. The legality of the transfer was never doubted by the
respondent company.
It is further argued for the petitioners that their
letters dated December 24, 1968, communicated to the board, remained unattended
by the company and there being no express refusal to register the transfer on
the applications of the transferees, the respondent company could not be
permitted to now contend that the petitioners had either accepted the refusal
communicated to their father or that the present petition is belated.
Shri A.N. Jayaram for the respondent company relied
upon the decision of the Madras High Court in the case of Cuddalore
Construction Co. Ltd., In re [1967] 37 Comp Cas 440, to support the argument
that the petitioners were guilty of laches and, therefore, not entitled at this
point of time to relief from this court. The passage in the headnote relied
upon is as follows:
"The expression 'rectification' of a company's register, which is a
purposeful expression with a special signification of its own, implies a prior
error, mistake or defect apparent on the face of the record of the register
which after rectification is made good and corrected by removing such a mistake
or error. The power to correct a register has to be exercised with caution as
in such a summary adjudication, a roving enquiry is not contemplated. A claim to
rectify the register cannot be asked for ex debito justitiae but must be based
on certain accepted principle, particular care being taken to find that the
applicant seeking such a discretionary and equitable relief is not guilty of
laches. Where a winding-up order intervenes whereby the rights of creditors are
made paramount, application for rectification must be refused."
One can have no quarrel with the general principles
enunciated by the learned judge in the matter of the company court's approach
to rectification under the Act. The question is whether those principles have
application to the facts of this case. The last sentence in the passage
extracted above is the key. In that case, the facts were different. A person
seeking rectification wanted deletion of his name from the register of members
after a winding up order had been made, evidently to escape his liability, if
any, as a contributory. In such a situation, laches is a factor which the
company court must take note of. That has been made clear in the judgment as
the petitioner therein was right through aware of the winding up proceedings
concerning the company in question and was all along conscious that he was
shown as a member of the company in the register of members. He chose to apply
for rectification only after the winding up order was made. It is that factor
which went against him. In the case of the petitioners, they have explained the
reason for delay in moving the company court. Petitioners and their father were
involved in more than one litigation. They hoped, the end of those litigations
would resolve the present dispute also. It did not work out that way. They
have, therefore, approached this court now. The explanation is not
unreasonable. The existence of the litigative circumstances is admitted by the
respondent company. The default persists and the petitioners, therefore, may
choose any time to approach this court as long as the cause of action is a
continuing cause of action.
Shri A.N. Jayaram has then contended that by refusal
of the transferor's application, the board acted in the matter and, therefore,
it cannot be called upon once again to act in the very same matter. In a way it
is true. Late Manjunatha Setty did not challenge that refusal in 1968 or
thereafter till his death. But, earlier in the course of this order, I have
pointed out how default was committed by the company in terms of s. 150 of the
Act. As correctly pointed out by Shri G. Ramaswamy, counsel for petitioners, s.
155 of the Act gives a wider power to the court.
Section 155(1)(b)of the Act is as follows :
"155. (1) If—...
(b) default is made, or unnecessary delay takes place, in entering on the
register the fact of any person having become, or ceased to be, a member;
the person aggrieved,... may apply to the court for rectification of the
register."
In other words, what is clear is, there is no bar on
court's jurisdiction as long as the default persists and person or persons
remain aggrieved for one of the reasons given in cl. (b) of s. 155(1) of the
Act. Section 110 of the Act specifically confers power on either the transferor
or the transferee to move an application for transfer with the company.
Rejection of one application, in my view, will not preclude the other, say, the
transferee as in the instant case to make another application or move this
court for rectification so long as the default continues. Refusal by the
company is not the end of the matter but the beginning of the proceedings under
s. 155 of the Act.
In this connection, one should not lose sight of the
fact that the company has neither disputed the title of the transferor or his
competence to transfer the shares in question. The reason for refusal, at the
cost of repetition, I must say, was capricious and not for any legal or tenable
reason.
It was next contended by Shri A.N. Jayaram that after
the death of the transferor, the title of the petitioners is in doubt and under
litigation and, therefore, the company court should not entertain the
application under s. 155 of the Act. I do not think that that contention was
well taken. That there are instruments of transfer in favour of the petitioners
is not in dispute. Third parties may question the title of the transferees, but
certainly not the company. In this regard it is useful to notice two cases
cited for the petitioners by their counsel.
In the case of South Indian Bank Ltd. v. Joseph
Michael [1978] 48 Comp Cas 368, a Division Bench of the Kerala High Court has
summed up the scope of s. 155 of the Act, after discussing several Indian and
English cases, as follows (p. 376):
"The principle to be deduced from these decisions is that while the
court would generally assume that the directors acted bona fide in the general
interests of the company, if either from the reasons disclosed or from the
relevant records it is seen that the directors acted in excess of the power
conferred by the articles or on a wrong principle, or, while in the purported
exercise of their power under the articles, they acted 'oppressively,
capriciously or corruptly, or in some way mala fide', the court would intervene
to nullify the illegal action of the directors: Harinagar Sugar Mills Ltd. v.
Shyam Sunder Jhunjhunwala [1961] 31 Comp Cas 387 (SC). If, on the other hand,
the reasons disclosed are legitimate, the court would not overrule the
directors' decision merely because the court itself would not have come to the
same conclusion. The question is, did the directors act on a ground permitted
under the articles, and if they did, was their power exercised bona fide in the
interests of the company ? In Bede Steam Shipping Co. Ltd., In re [1917] 1 Ch
123 (CA), the articles, as in the present case, conferred a limited
discretionary power of refusal on the directors, and their refusal to register
the transfer of shares, for reasons not personal to the transferee, was held to
be ultra vires. In Smith and Fawcett Ltd., In re [1942] Ch 304 ; [1942] 1 All
ER 542 (CA) the position was held to be different as the articles had conferred
an absolute and unlimited power on the directors and it was not established
that they had acted mala fide. In Bajaj Auto Ltd. v. N.K. Firodia [1971] 41
Comp Cas 1 (SC), notwithstanding the absolute and unlimited nature of the power
conferred on the directors, the refusal to register was held to be invalid as
it was found to be a mala fide and arbitrary exercise of power."
I am in respectful agreement with the view expressed.
There cannot be another way of looking at s. 155 of the Act. The respondent
company which took the capricious stand in rejecting late Manjunatha Setty's
application for transfer cannot now be permitted to even indirectly question
the legality of the transfer merely because there is litigation pending before
a civil court in regard to the estate of Manjunatha Setty. The civil court has
made no order ad interim restraining the transfer or registration. In that
circumstance, the respondent company's stand lacks bona fide.
In fact, a learned single judge of the Gujarat High Court
(now in the Supreme Court) in the case of Shri Gulabrai Kalidas Naik v. Shri
Laxmidas Lallubhai Patel of Baroda
[1978] 48 Comp Cas 438 has held that powers under s. 155 of the Act are
very wide and it is useful to extract the relevant passage which is as follows
: (p. 443).
"A clear controversy about title to the shares is bound to arise.
More often when, in a special statute, there is special forum on which limited
jurisdiction is conferred, a question is more often raised: whether such a
forum created by a special statute, with a special limited jurisdiction, could
decide the question incidentally arising while exercising the limited
jurisdiction. To thwart such a controversy, it is made crystal clear that not
only the court can examine the question of title that may arise in an
application under section 155, but it would also have the jurisdiction to
decide other questions which may arise as ancillary or incidental to the main
controversy and the court cannot be asked not to decide them on the ground of
lack or want of jurisdiction because the statute specifically confers such wide
jurisdiction. There was definite purpose behind enacting sub-clause (b) to
sub-section (3), namely, to thwart any suggestion that the court cannot cluch
at jurisdiction and decide the questions which do not directly fall under
section 155, or, for that matter, under any other provisions of the Companies
Act. In order to make section 155 an effective remedy for a relief, for placing
one's name on the register of members or for compelling the company to omit
some name, which name has been wrongly placed, not only the Companies Act has
conferred right on an aggrieved person, to move the court under section 155,
but created a forum, namely, the court hearing matters under the Companies Act,
and widened the jurisdiction by conferring power on the court not only to
decide the question of title, but also to decide all questions which are
ancillary and incidental to the main question."
It is very difficult to disagree with the exposition
of law as above. But in the instant case, there is no need to stretch the
jurisdiction of this court to its farthest extent under s. 155. Even the
respondent company in its memo filed in court on April 18, 1984, conceded the
right of the petitioners to be registered as members of the company by
transmission of the shares as heirs of Manjunatha Setty. From that two things
follow. Petitioners have title to the shares as heirs if not by the instruments
of transfer of 1968. Petitioners do not suffer from any disqualification under
the relevant articles of association of the company. At an earlier stage in the
proceedings, petitioners filed affidavits of their sisters as directed by the
court by which the sisters have stated that they have no objections for the
transfer of eight shares each to the petitioners in accordance with the
transfer forms. Therefore, I am satisfied that really there is no vexed
question of disputed title to the shares in question bar the general claim of
Madhava Murthy, the applicant in C.A. No. 7 of 1984, for a general partition of the estate of late Manjunatha Setty
as an HUF including the fifty shares originally held by late Manjunatha Setty
in the respondent company. In that view of the matter, reliance placed by Shri
A.N. Jayaram on the ruling of the Calcutta High Court in the case of Daddy S.
Mazda v. K.R. Irani [1977] 47 Comp Cas 39 is not of much assistance to the
respondent company.
What remains
is the consideration of the case of the applicant, Madhava Murthy, in C.A. No.
7 of 1984. Prayer in the application is to implead himself in this proceeding.
I do not think he is either a necessary party or a proper party. He has not
called upon the company to register him as a member of the respondent company,
and therefore, there is no lis between him and the respondent. His lis, if any,
is with the petitioners and that lis is in issue in O.S. No. 405 of 1980 on the
file of one of the City Civil Courts in Bangalore. If he succeeds in the suit
there, in so far as the 50 shares in question are concerned, he will be
entitled to his share determined by that court and no more. Ten shares remained
in the name of Manjunatha Setty when he died. He can always be accommodated out
of those shares. By the directions I propose to give in the light of the
conclusions reached by me, his interest will not suffer. Therefore, C. A. No. 7
of 1984 is rejected.
In the
result, I am of the view that:
(1) Petitioners
are entitled to maintain this petition.
(2) Respondent
company cannot dispute the legality of the transfer of 40 shares in 1968.
(3) Refusal to register the transfer in
1968 was unjustified and mala fide and, therefore, non est in law.
(4) O.S. No. 405 of 1980 pending in the
City Civil Court of Bangalore is not a bar for registering the transfer in question.
(5) Respondent company is precluded from
raising the question of qualification of petitioners to be members of the
company in the light of its willingness to transmit the shares in question to
the petitioners as heirs of late Manjunatha Setty as expressed in the memo
filed in court on April 11, 1984.
I, therefore,
direct the respondent company to register the transfer in accordance with the
transfer forms dated September 7, 1968, concerning the petitioners within 30
days from today if petitioners submit the transfer forms and the share
certificates to the company at its registered office and enter the names of the
petitioners as members of the respondent company from the date of the transfer,
but the change in the register of members will be subject to the final decree
in O.S. No. 405 of 1980 on the file of the City Civil Court, Bangalore.
I make no direction in regard to the past benefits
respecting the shares transferred to the petitioners which may be settled in
separate and appropriate proceedings. However, petitioners will be entitled to
all the benefits of the shares held by them in the respondent company in future
as of this day.
Having regard to the conduct of the respondent
company, I should have awarded exemplary costs in favour of the petitioners,
but by declining to do so I hope the same acts as a healing touch to reduce the
mutual dislike the petitioners and other members of the company have for each
other. Parties shall bear their own costs.
Order accordingly.
[1978] 48 COMP. CAS. 558 (
v.
Jai Singh
DALIP K.
KAPUR J.
COMPANY
PETITION NO. 39 OF 1976.
APRIL 17,
1978
B.N. Kirpal for the petitioner.
K.K. Mehra for the Respondents.
D.K. Kapur J.—This is an application under section 155 of the Companies
Act, 1956, for rectification of the register of members of M/s. Federal Motors
(P.) Ltd. The petitioner claims that he is the shareholder of 70 shares of the
company and his name has been wrongly removed. The company in question appears
to be a family company which was promoted by the late Shri Bharat Singh,
step-brother of the petitioner. The said Bharat Singh and the petitioner were
also members of a joint family known as Rai Saheb Shyam Singh (this is the name
of the father of the petitioner and Shri Bharat Singh). It is stated that the
company was established in April, 1935, when the petitioner was allotted 35
shares. In 1959, 35 more shares were allotted to the petitioner. There was some
family dispute which led the petitioner to leave the family home situated at
5764 Jogiwara, Nai Sarak,
"Para No. 5 of the application as stated is denied. It is wholly
false to allege that the affairs of the company are managed by Shri Jai Singh
alone. In fact, the management is looked after by the board of directors. It is
not denied that Shri Mahabir Singh is a shareholder of the company but it is emphatically
denied that Shri Charat Singh is now the director of the
company.................".
Another reference made in the petition is to an affidavit filed on
December 2, 1970, in C.P. No. 106 of 1970, wherein Shri Ratan Singh, a director
of the company, had stated as follows :
"That Shri Jai Singh is also a director of the respondent-company.
The 4th director, Shri Charat Singh, is aiding with Shri Mahabir Singh, who is
only a shareholder of the respondent-company".
On the basis of these statements it is alleged that the petitioner's name
could not have been removed in 1965, and this is a manipulation of the records
of the company.
There are other statements made in the petition regarding the validity of
the transfer by reference to the provisions of the Companies Act. Lastly, it is
stated that no shares of a private company can be sold unless they are offered
to other members.
On notice to the respondent a joint reply was filed on behalf of the
respondents Nos. 1, 5 and 6. The stand taken in the reply is an interesting
one. It is stated that in fact the petitioner was a benami shareholder on
behalf of his late brother, Lala Bharat Singh, and a blank transfer deed had
been signed in the name of Smt. Meena Devi, wife of the said Lala Bharat Singh.
It is then said that in fact Lala Bharat Singh had lodged the shares for
transfer with the company but unfortunately due to his sudden demise these
shares were misplaced in the files of the company and were only discovered in
1975. According to the respondent the actual transfer was effected in the name
of Smt. Meena Devi on October 10, 1975. It is said that all the other
contentions are irrelevant and the transfer is a valid one.
In support of the respondents' position, a photostat copy of a transfer
document dated October 20, 1965, has been filed as annexure "D". This
transfer deed states that the transfer fees was received on October 10, 1975,
and the noteworthy fact is that the stamps at the back are very old ones as
they bear the figure of King George Sixth. This means the stamps must have been
purchased before 1950. Along with this document a photostat copy of the
affidavit-undertaking of Bharat Singh has been filed, which shows that he had
lodged some shares for transfer to the name of his wife, Smt. Meena Devi. This
states that the shares were purchased benami in the name of Charat Singh and
Mahabir Singh and the transfer deeds were witnessed by himself and his
brother-in-law, Shri Anand Parkash. The learned counsel for the petitioner has
pointed out that the signatures of Shri Bharat Singh on this undertaking are
very much different from the signatures of Bharat Singh appearing on the
transfer document. It is also contended that the signatures of Mahabir Singh
are also different from his real signatures.
In a further rejoinder-affidavit, the petitioner has stated that there
were two separate allotments of shares. It has been emphasised that originally
35 shares were allotted, and then 35 more shares were allotted to the
petitioner in 1959, which was paid for by cheque No. 48142 dated June 6, 1959, drawn on the Central Bank of
India, Kashmere Gate, Delhi. A certificate from the Central Bank has been
annexed to the rejoinder-affidavit. It is, therefore, denied that the shares
were held benami. It is also urged that the share transfer form was not valid.
Some more documents have been
filed later on by the petitioner which consist mainly of correspondence
addressed to the company.
There is no doubt that the only question
in this case is whether the transfer of the shares made by the
respondent-company to the name of Smt. Meena Devi in 1975, on the basis of the
transfer document executed in October, 1965, is valid. The explanation of the
company is that the transfer documents were filed with the company in October,
1965, but were misplaced and hence the transfer could only be effected in 1975.
Leaving aside the factual
questions and assuming for the sake of discussion that the company's position
is absolutely correct, it still remains to be seen whether this is a valid
transfer assuming everything else is valid. The provisions of the Companies Act
relating to the transfer of shares is contained in section 108 of the Companies
Act, but this section has been altered from time to time and it was
particularly altered by the Companies (Amendment) Act, 1965. Before that Act
was passed, a benami-holder of shares could hold shares benami for an unlimited
period without any obligation to get them transferred, because the transfer
documents remained effective without any restriction regarding time. The
principal requirement of section 108 is that a company can register a transfer
of shares, if a proper instrument of transfer duly stamped by the transferor
and the transferee has been delivered to the company along with the
certificates of the shares. Hence, the only requirement as far as the
transferor and the transferee are concerned is the sending of the shares
together with the relevant transfer documents to the company. On the coming
into force of the Amendment Act of 1965, the instrument of transfer, i.e., the
transfer form has validity only for a short period and can only be delivered to
the company within the period prescribed by the various provisions which now
find their place as sub-sections (1A), (1B), (1C), etc. It is provided in
section 108(1B) as follows :
"Notwithstanding anything
contained in sub-section (1A), an instrument of transfer of shares, executed
before the commencement of section 13 of the Companies (Amendment) Act, 1965
(XXXI of 1965), or executed after such commencement in a form other than the
prescribed form, shall be accepted by a company,—
(a) in
the case of shares dealt in or quoted on a recognised stock exchange,
(b) in any other case, at any time not later
than the expiry of six months from such commencement".
Hence, the meaning of this section is that after the said Companies
(Amendment) Act, 1965, was passed a six months' period was given by the statute
to enable holders of shares to get blank transfer documents, if any, deposited
in the company and the shares transferred as required. I have checked up the
relevant dates and find that the 6 months' period had not yet expired on
October 20, 1965, when the alleged deposit of the shares along with the
transfer documents took place. This means that as far as the date mentioned by
the company is concerned, it cannot be said that the shares and the transfer
documents could not be acted upon.
The next question is that can it be accepted as a fact that the company
could have delayed the transfer for a period of 10 years merely because it had
misplaced the documents ? If this is a believable story then the transfer could
have been made at any time provided the deposit of the requisite documents took
place within the 6 months' period I have just referred to.
To summarise the legal position, it can be stated that before the Act of
1965 came into effect, there was no restriction on effecting transfers on the
basis of old transfer deeds. Such a transfer deed could be kept by the owner in
his own possession along with the shares, to be given effect to at any time he
liked. This meant that there could be benami holders of shares who had held the
beneficial interest in the shares but who had not got the transfer made in the
register of the company. The intention of the legislature in making the change
in section 108 by the amendment of 1965 was to do away with this evil of benami
shareholdings by placing a time-limit within which the transfer could be made.
The time-limit in the case of existing transfer deeds was six months, but in
the case of other transfer documents executed after the amendment came into
full effect the time-limit was fixed by sub-section(1A), except to the extent
that the other sub-sections exclude the operation of sub-section (1A). However,
the Act does not mention anywhere that the company must make the entry in the
register within any given time, so that, strictly speaking, the action of the
respondent-company in delaying the transfer is not hit by any provision of the
Companies Act.
There being no legal impediment on this ground to the validity of the
transfer, it remains to be seen whether there is any other objection which
would affect the same. One of the principal objections raised is that the
transfer document is not properly stamped. I may mention here that though the
stamps bearing the figure of King George the Sixth are of the correct
denomination, these stamps were not current in the year 1965. This objection
becomes even more manifest when one recalls that there are 70 shares involved,
35 of which were issued when the company commenced business in 1935, and the
remaining 35 of which were issued in 1959. It cannot seriously be doubted that
in the year 1959, the stamps of King George the Sixth were not being used in
India and hence the transfer documents could not have been executed on October
20, 1965, with the stamps of George the Sixth. As I had previously stated it
was a common practice for transfer deeds being kept in abeyance for long
periods, and if this document had been executed when the stamps of King George
the Sixth were currently in use which would be before 1950, then these transfer
documents would be valid only regarding 35 shares which were then in existence.
I am, therefore, of the view that this transfer cannot be considered to be
valid, even though I am not prepared to go to the extent of holding that the
document is forged.
In my view, one possibility is that 35 shares were originally issued
benami in the name of the petitioner because the company was a family firm
started by his brother. However, the shares issued in 1959 have apparently been
paid for by the petitioner himself as per his cheque issued on the Central Bank
of India, Kashmere Gate, Delhi, as mentioned in the certificate of the said
Central Bank which has been filed. It cannot be said that even additional
shares issued against cash payment can be considered to be benami shares.
Furthermore, the alleged affidavit of Bharat Singh dated October 20, 1965,
states that all these shares are benami. As at that time Bharat Singh was
running the company, I fail to understand why he could not get the shares
transferred on that very day. In fact, even the transfer charges were not paid
till 1975, which lends support to the petitioner's case.
In my view, the proper order in this case has to be on the basis that the
transfer was not valid because of a defect in the transfer form and the stamps
appearing thereon. I must come to the conclusion that this transfer deed is not
"duly stamped" within the meaning of section 108 and, therefore,
could not have been acted upon by the company. However, the real ownership of
these shares cannot be determined in these proceedings because the beneficial
ownership of the shares cannot be determined in a proceeding under section 155
of the Companies Act. It may be that these shares belonged to Bharat Singh or
it may be that 35 shares belonged to Bharat Singh and 35 were purchased by Mahabir
Singh with his own money and, therefore, could not be considered to be benami
or, finally, it may be, that all the shares belonged to Mahabir Singh, and the
transfer deed was executed by Mahabir Singh for other purposes.
In this connection, I may mention that it is the
practice of persons requiring funds to be raised for business purposes to lodge
shares of joint stock companies along with transfer documents in banks or with
other financial institutions or persons as security for raising funds. It is
quite possible that at some time a blank transfer deed may have been executed
by Mahabir Singh for this purpose, but the same has been used ot bring about
this transfer. Ther eis also possibility that Mahabir singh actually sold the
shares to Bharat Singh but the transfer was not effected due to ovesight. As
the late Bharat singh knew the entire story, it is only possible now to
speculate about the truth.
In my view, on the above analysis, the transfer
effected by te company is not in accordance with the Companies Act and that is
sufficient to decide this petition, but the beneficial ownership of the shares
may be established by the heirs of the late Bharat Singh or by Smt. Meena Devi
by means of a regular suit. I cannot decide in these proceedings as to who is
the real owner but for the purpose of this petition the register has to be
rectified and the peitioner's name has to be placed back on the register of
memebrs. Whether he is actually an owner or merely a benami holder of these
shares has to be established in some separate proceedings before a civil court.
All observations made in this judgment concerning the facts may be treated in
any later proceedings to be only a discussion of the possibilities without
being a record of nay conclusion recorded by myself on the facts. In the
circumstances also, I leave the parties to bear their own costs.
[959] 29 COMP. CAS.
282 (SC)
V.
Commissioner of
Income-tax
SINHA,
KAPUR AND HIDAYATULLAH, JJ.
CIVIL
APPEAL NO. 65 OF 1956
MARCH
26, 1959
HIDAYATULLAH,
J. - Messrs. Howrah Trading
Company, Ltd., Calcutta (hereinafter called the assessee), obtained on April
28, 1955, a certificate under section 66A(2) of the Indian Income-tax Act from
the Calcutta High Court to appeal to this court against the judgment dated
August 31, 1954, in Income-tax Reference No. 57 of 1953. The Divisional Bench
(CHAKRAVARTTI C.J. and LAHIRI J.) in the judgment under appeal merely followed
their earlier judgment delivered the same day in Income-tax Reference No. 22 of
1953, since reported as Hindustan Investment Corporation v. Commissioner of
Income-tax. It is the latter judgment which gives the reasons for the decision.
The facts of
the case have been stated with sufficient fulness, yet briefly, in the
statement of the case submitted by the Income-tax Appellate Tribunal (Calcutta
Bench) and may be conveniently set out in its own words :
"The
applicant had received sums of Rs. 3,831, Rs. 6,606, Rs. 7,954 and Rs. 8,304 in
the four years respectively (assessment years, 1944-45, 1945-46, 1946-47, and
1947-48) as income from dividends. The shares in respect of which this dividend
income was received were the property of the applicant but in the books of the
various companies these stood in the names of other persons. It appears that
these shares were purchased by the applicant from other persons under a blank
transfer but the transfers had not been registered with the various companies.
The applicant's claim in these income-tax proceedings was that these shares
although not registered in the name of the applicant were the property of the
applicant. It was further claimed that this dividend income should be grossed
up under section 16(2) and credit for the tax deducted should be allowed to the
applicant under section 18(5)."
The Income-tax
Officer did not accept this claim, and the appeals of the assessee were
rejected by the Appellate Assistant Commissioner of Income-tax,
"Whether
in the facts and circumstances of this case, the applicant (the assessee) was
entitled to have this dividend income grossed up under section 16(2) and claim
credit for tax deducted at source under section 18(5) of the Income-tax Act
?"
The High Court
answered the question in the negative, thus affirming the decisions of the
Department and the Appellate Tribunal.
The assessee
contends that the decision of the High Court is erroneous, and that it is
entitled to have the dividend income "grossed up" under section 16(2)
and also to claim credit for tax deducted at source under section 18(5) of the
Income-tax Act.
The relevant
sections are as follows :
"16. (2)
For the purposes of inclusion in the total income of an assessee any dividend
shall be deemed to be income of the previous year in which it is paid, credited
or distributed or deemed to have been paid, credited or distributed to him, and
shall be increased to such amount as would, if income-tax (but not super-tax)
at the rate applicable to the total income of the company (without taking into
account any rebate allowed or additional income-tax charged) for the financial
year in which the dividend is paid, credited or distributed or deemed to have
been paid, credited or distributed, were deducted therefrom, be equal to the
amount of the dividend : (proviso omitted)
18. (5) Any
deduction made and paid to the account of the Central Government in accordance
with the provisions of this section and any sum by which a dividend has been
increased under sub-section (2) of section 16 shall be treated as a payment of
income-tax or super-tax on behalf ...... of the shareholder ...... and credit
shall be given to him therefore on the production of the certificate furnished
under ...... section 20, ....... in the assessment, if any, made for the
following year under this Act : (proviso omitted)
49B. (1) Where
any dividend has been paid, credited or distributed or is deemed to have been
paid, credited or distributed to any of the persons specified in section 3 who
is a shareholder of a company which is assessed to income-tax in the taxable
territories or elsewhere, such person shall, if the dividend is included in his
total income, be deemed in respect of such dividend himself to have paid
income-tax (inclusive of super-tax) of an amount equal to the sum by which the
dividend has been increased under sub-section (2) of section 16."
It was contended
in the High Court that inasmuch as section 16(2) referred to an
"assessee", the assessee company was entitled to have the dividend
"grossed up" by the addition of income-tax paid by the various
companies at source and consequently to have the benefit of the credit allowed
under the two remaining sections. In the opinion of the High Court, an assessee
whose name was not in the register of members of the companies was not entitled
to the benefit of these provisions. The learned Judges of the High Court were
of the opinion that the word "shareholder" in section 18(5) had the
same signification as the word "member" used in the Indian Companies
Act; and that the assessee was not qualified to be considered as a shareholder,
even though by a blank transfer it had purchased the relevant shares. In our
opinion, the High Court was right in its conclusion.
A company,
when it pays income-tax, does not do so on behalf of the shareholders. It is
itself chargeable under the Act. In Cull v. Inland Revenue Commissioners, LORD
ATKIN stated the law (which in substance is also the law in our country) thus :
"My
Lords, it is now clearly established that in the case of a limited company, the
company itself is chargeable to tax on its profits, and that it pays tax in discharge
of its own liability and not as agent for its shareholders ............... At
one time it was thought that the company, paying tax, paid on behalf of the
shareholder : but this theory is now exploded by decisions in this House, and
the position of the shareholders as to tax is as I have stated it."
When the
company pays its own income-tax and declares a dividend from the balance of its
profits, it deducts from such dividend a proportionate part of the amount of
the tax paid by it. This principle is explained in another English case, and it
is substantially also the law in this country. In Inland Revenue Commissioners
v. Blott,
"Plainly,
a company paying income tax on its profits does not pay it as agent for its
shareholders. It pays as a taxpayer, and if no dividend is declared, the
shareholders have no direct concern in the payment. If a dividend is declared,
the company is entitled to deduct from such dividend a proportionate part of
the amount of the tax previously paid by the company; and in that case the
payment by the company operates in relied of the shareholder. But no agency,
properly so called, is involved."
The
shareholders, however, get the benefit of the payment of the tax by the
company. Though under section 16(2) of the Act their dividend is increased by a
proportionate amount of tax paid by the company, the payment of the tax by the
company is deemed under sections 18(5) and 49B(1) to be payment by the
shareholders. The rates of income tax applicable to the company are, in most
instances, higher than the rates applicable to the individual shareholders, and
by this process of "grossing up", as it is commonly called, the
recipient of the Dividend gets some benefit.
The position
of a shareholder who gets dividend when his name stands in the register of
members of the company causes no difficulty whatever. But transfers of shares
are common, and they take place either by a fully executed document such as was
contemplated by Regulation 18 of Table A of the Indian Companies Act, 1913, or
by what are known as 'blank transfers.' In such blank transfers, the name of
the transferor is entered, and the transfer deed signed by the transferor is
handed over with the share scrip to the transferee, who, if he so chooses,
completes the transfer by entering his name and then applying to the company to
register his name in place of the previous holder of the share. The company
recognises no person except one whose name is on the register of members, upon
whom alone calls for unpaid capital can be made and to whom only the dividend
declared by the company is legally payable. Of course, between the transferor
and the transferee, certain equities arise even on the execution and handing
over of "a blank transfer", and among these equities is the right of
the transferee to claim the dividend declared and paid to the transferor who is
treated as a trustee on behalf of the transferee. These equities, however, do
not touch the company, and no claim by the transferee whose name is not in the
register of members can be made against the company, if the transferor retains
the money in his own hands and fails to pay it to him.
A glance at
the scheme of the Indian Companies Act, 1913, shows that the words
"member", "shareholder" and "holder of a share"
have been used interchangeably in that Act. Indeed, the opinion of most of the
writers on the subject is also the same. Buckley on the Companies Acts, 12th
Edition, page 83, has pointed out that the right of a transferee is only to
call upon the company to register his name and no more. No rights arise till
such registration takes place.
Section 2(16)
of the Indian companies Act, 1913, defines "share as "share in the
share capital of the company". Section 5 deals with the mode of forming
incorporated companies, and in the case of companies limited by shares, the
liability of the members is limited to the amounts, if any, unpaid on the
shares respectively held by them. By section 18, Table A is made applicable to
companies, unless by the articles of any company the terms of Table A have been
excluded or modified. Regulation 18 of Table A reads as follows :
"The
instrument of transfer of any share in the company shall be executed both by
the transferor and transferee, and the transferor shall be deemed to remain
holder of the share until the name of the transferee is entered in the register
of members in respects thereof."
The words
"holder of a share" are really equal to the word "share
holder", and the expression "holder of a share" denotes, in so
far as the company is concerned, only a person who, as a shareholder, has his
name entered on the register of members. A similar view of the Companies
Clauses consolidation Act, 1845, was taken in Nanney V. Morgan. The learned
Lords justices held that under section 15 of that Act, the transferee had not
the benefit of a legal title till certain things were done, which were
indicated by LOPES L.J. in the following passage :
"Therefore
the transferor, until the delivery of the deed of transfer to the secretary, is
subject to all the liabilities and entitled to all the rights which belong to a
shareholder or stockholder, and in my opinion, until the requisite formalities
are complied with, he continues the legal proprietor of the stock or shares
subject to that proprietorship being divested, which it may be at any moment,
by a compliance with the requisite formalities."
The same
position obtains in
During the
period that the transfer exists between the transferor and the transferee
without emerging as a binding document upon the company, equities exist between
them, but not between the transferee and the company. The transferee can call
upon the transferor to attend the meeting, vote according to his directions,
sign documents in relation to the issuance of fresh capital, call for emergent
meetings and inter alia, also compel the transferor to pay such dividend as be
may have received. See E. D. Sassom & Co. Ltd. v. Patch approved in
Mathalone v. Bombay Life Assurance Co. Ltd. But these rights though they, no
doubt, clothe the transferee with an equitable owner ship, are not sufficient
to make the transferee a full owner, since the legal interest vis-a-vis the
company still outstands in the transferor; so much so, that the company credits
the dividends only to the transferor and so calls upon him to make payment of
any unpaid capital, which may be needed. The cases in Black v. Homersham or
Wimbush In re : Richards v. Wimbush hardly advance the matter further than
this.
The position,
therefore, under the Indian Companies Act, 1913, is quite clear that the
expression "shareholder" or "holder of a share" in so far
as that Act is concerned, denotes no other person except a "member".
The question that arises in the present case is whether by reason of sections
16(2) and 18(5) the assessee, who was a transferee on a "blank
transfer", is entitled to the benefits of the grossing up of the dividend
income.Learned counsel for the assessee strenrously contends that the assessee
being an owner in equity of the shares and thus also of the dividend is entitled
to this benefit. He refers to the use of the word 'assessee' in section 16(2).
The Department, on the other hand, ways that the dividend can be increased
under section 16(2) and credit allowed under section 18(5) if the assessee is a
"shareholder," because the benefit of section 18(5) can go only to
the share holder, i.e., a persons with his name on the register of members, and
not to a person holding an equity against such shareholder. The assessee
contends that the word "shareholder" includes even a person who holds
a share as a result of a blank transfer, and does not necessarily mean a member
of the company, whose name is on the register of members.
Authorities on
this point are not wanting, and indeed, in the judgment of the Calcutta High
Court they have all been referred to. They are all against the assessee. See
Shree Shakti Mills Ltd. v. Commissioner of Income-tax, Jaluram Bhikulal v.
Commissioner of Income-tax, Arvind N. Mafatlal v. Income-tax Officer, and
Bikaner Trading Co. v. Commissioner of Income-tax.
The question
that falls for consideration is whether the meaning given to the expression
"shareholder" used in section 18(5) of the Act by these cases is
correct. No valid reason exists while "shareholder" as used in
section 18(5) should mean a person other than the one denoted by the same
expression in the Indian Companies Act, 1913. In In re Wala Wynaad Indian gold
Mining Company, CHITTY J. observed :
"I use
now myself the term which is common in the courts, 'a shareholder, that means
the holder of the shares. It is the common term used, and only means the person
who holds the shares by having his name on the register."
Learned
counsel for the assessee cited a number of authorities in which the ownership
of the dividend was in question, and it was held that the transferee whose name
was not registered was entitled to the dividend after transfer had been made.
These cases are Commissioners of Inland Revenue v. Sir John Oakley, Spence v.
Commissioners of Inland Revenue, and others cited at page 367 in Multipar
syndicate, Ltd. v. Devitt.
No one can
doubt the correctness of the proposition in these cases but from an equitable
right to compel the transferor to give up the dividend to the transferee, to a
claim to the dividend by him as a "shareholder" against the company
is a wide jump. In so far as the company is concerned, it does not even issue
the certificate under section 20 of the Income-tax Act in the name of an
unregistered transferee but only in the name of the transferor whom it
recognises, because his name is borne on its books. Section 20 lays down :
"The
principal officer of every company shall, at the time of distribution of
dividends, furnish to every person receiving a dividend a certificate to the
effect that the company has paid or will pay income tax on the profits which
are being distributed, and specifying such other particulars as may be
prescribed."
The meaning of
section 20 as also of section 18(5) is clear if they are read with section 19A,
under which information regarding dividends has to be supplied by the company
when demanded by the Income tax Officer. It lays down :
"The
principal officer of every company ......... Shall, on or before the 15th day
of June in each year, furnish to the prescribed officer a return in the prescribed
form and verified in the prescribed manner of the names and of the addresses,
as entered in the register of shareholders maintained by the company, of the
shareholders to whom a dividend or aggregate dividends exceeding such amount as
may be prescribed in this behalf has or have been distributed during the
preceding year and of the amount so distributed to each such shareholder."
Section 19A
makes it clear, if any doubt existed, that by the term "shareholder"
is meant the person whose name and address are entered in the register of
"shareholders" maintained by the company. There is but one register
maintained by the company. There is no separate register of
"shareholders" such as the assessee claims to be but only a register
of "members". This takes us immediately to the register of members,
and demonstrates that even for the purpose of the Indian Income-tax Act, the
words "member" and "shareholder" can be read as synonymous.
The words of
section 18(5) must accordingly be read in the light in which the word
"shareholder" has been used in the subsequent sections, and read in
that manner, the present assessee, notwithstanding the equitable right to the
dividend, was not entitled to be regarded as a "shareholder" for the
purpose of section 18(5) of the Act. That benefit can only go to the person who
both in law and in equity, is to be regarded as the owner of the shares and
between whom and the company exists the bond of membership and ownership of a
share in the share capital of the company.
In view of this,
we are satisfied that the answer given by the Calcutta High Court on the
question posed by the Tribunal was correct.
The appeal
fails, and is dismissed with costs.
Appeal
dismissed.
[1935] 5 COMP. CAS. 357 (
HIGH COURT OF
v.
Lahore Electric Supply Co. Ltd.
BECKETT, J.
PetItion No. 278 of
1935
JULY 8, 1935
Partap
Singh, for the Petitioner.
Bassat Krishan, for the Respondent.
JUDGMENT
Beckett, J.—The petitioner purchased certain shares in the Lahore Electric Supply Company and applied for sanction to their transfer on the 22nd and 23rd June and 4th and 29th July, 1933. His applications came up before a meeting of the directors on the 5th August, 1933, and were accepted. In the meantime, the company had declared a bonus of Rs. 2/- on each share on the 29th July, and this was paid out to the members whose names appeared on the books of the company on that date. The petitioner claims that the bonus should have been paid to him as the transfers had actually taken place before the bonus was declared. He sues the company for recovery of the amount thus calculated as due to him, less the amount that he has been able to recover from one of the transferors, or in the alternative, for damages for the negligence of the company in failing to register the transfers as promptly as might have been done.
The Judge of the
There was one meeting of the directors which took place after the first three applications had been received. This was on the 15th July. Apparently the papers came up before the Chairman on that date, but he called for further particulars with the result that the applications were not laid before the other directors until the next meeting. Counsel for petitioners has cited a number of authorities to show that the failure to lay an apparently unobjectionable application for transfer before the next meeting may be considered undue delay for the purpose of admitting an application for rectification of the register of a company under Section 38 of the Indian Companies Act. But he has not been able to put forward any authority for the proposition that a slight delay in according sanction to a transfer of shares would justify a payment of dividends to a person not yet entered as a member on the books of the company, or that such a delay would make the company liable to an action for damages. It is to be observed that the transferors have not been made parties to the suit.
I do not think that there is any
justification for interfering with the decision of the
[1995] 084 COMP. CAS. 534 (BOM)
HIGH COURT OF
v.
Shanta Genevieve Pommeret Parulekar
MRS. SUJATA
MANOHAR AND SHAH, JJ.
APPEAL NOS.
655 AND 1032 OF 1988 IN
AND 110 OF
1988 IN C.P. NO. 476 OF 1986
APPEAL NO.
710 OF 1988 IN
APPEAL NOS. 711, 742 AND 1214 OF 1988 IN C. P. NO.
476.OF 1986
APRIL 30 AND MAY 2, 1991
S.D. Parekh and D. H. Nanavati for the Appellant.
S.J. Shah, Pravin Mehta, A.H. Desai, Arif Bookwala, J M. Chagla and F. E.
Devitre, and B. Panigrahi for the
Respondents.
Mrs. Sujata Manohak, J.—This group of six appeals is filed against
an order and judgment of a learned single judge dated January 13, 1988,
in Company Petition No. 476 of 1986, as also against an order of the learned
single judge dated March 30, 1988, in two Company Applications Nos. 93 of 1988
and 110 of 1988 in Company Petition No. 476 of 1986.
Company Petition No. 476 of 1986
was filed by Shanta Genevieve Pommeret Parulekar and Claude-Lila Parulekar
(hereinafter called "the original petitioners") against Sakal Papers
Private Limited and various other respondents as set out in that petition
praying for the rectification of the register of members of the first
respondent company in the following manner :
(i) The names of the original respondents
Nos. 5, 6, 8, 11, 12, 13 and 14 (hereinafter referred to as "the
purchasers") be removed from the register of members of the first
respondent company in respect of the 3,417 shares belonging to the estate of
Dr. N.B. Parulekar and 93 shares belonging to the third respondent ;
(ii) the names.of respondents Nos. 11, 12,
13, 15 and 16 be removed from the register of members of the first respondent
company in respect of 17,666 shares and for other ancillary reliefs.
The learned single judge, who heard
the petition by his judgment and order dated January 13, 1988, has allowed the
petition. He has however, directed the second petitioner to bring into the
court a sum of Rs. 80,73,000 within a period of six weeks. He has clarified
that his order shall become operative on this amount being deposited in the
court within the stipulated period. If the amount is not deposited, the
petition is dismissed. On such amount being deposited, he has directed the
first respondent company to comply with the directions under prayers (a) and
(b) and he has directed respondents Nos. 5, 6, 8, 11, 12, 13, 14, 15 and 16 to
comply with the orders and directions under prayers (c) and (d). He has also
directed respondent No, 1 company to pay back to respondents Nos. 11, 12, 13,
15 and 16 a sum of Rs. 17,66,600 in respect of the 17,666 shares returned to
the company as per prayer (b) and directed that the 17,666 shares shall remain
in the custody of the first respondent company till such time as the board of
directors, as reconstituted after rectification, decides the price and the
parties to whom these shares should be allotted. He has also given certain
other directions. The petitioners did not deposit in the court the said sum of
Rs. 80,73,000 within the stipulated period. They applied for extension of time
by taking out Company Applications Nos. 93 of 1988 and 110 of 1988. These
applications have been rejected by the learned single judge by his judgment and
order dated March 30, 1988. The present appeals are filed by various parties in
respect of these two judgments and orders of the learned single judge.
Appeal No. 742 of 1988 is an
appeal filed by the original petitioners against the judgment of the learned
single judge dated January 13, 1988, conditionally allowing the main Company
Petition No. 476 of 1986. Appeal No. 655 of 1988 is filed by the executors and
trustees of the will of Dr. Parulekar against certain findings given by the
learned single judge against them in his judgment and order dated January 13,
1988. Appeal No. 711 of 1988 is filed by the purchasers of the 3,417 shares
sold by the executors and trustees under the will of Dr. Parulekar as also of
93 personal shares of some of the executors sold by them, against the findings
given by the learned single judge in his judgment and order of January 13,
1988. Appeal No. 7,10 of 1988 is another appeal filed by these purchasers
against certain findings given by the learned single judge in his order dated
March 30, 1988, dismissing the company applications for extension of time.
Appeal No. 1214 of 1988 is an appeal filed by the first respondent company
against the findings given by the learned single judge against it in his
judgment dated January 13, 1988, while Appeal No. 1032 of 1988 is another
appeal filed by the first respondent company against the findings given by the
learned single judge against the company in his judgment rejecting the
application for extension of time.
FACTS
In order to appreciate the
contentions raised by the parties in these appeals it is necessary to examine
the relevant facts. The first petitioner in Company Petition No. 476 of 1986 is
the widow of Dr. Parulekar who died on or about January 8, 1973. Dr. Parulekar
was the founder of the first respondent company. The first petitioner is a
shareholder and a permanent director of the first respondent company. The
second petitioner is the daughter of Dr. N.B. Parulekar and the first
petitioner. She is also a Shareholder of the first respondent company. The
first respondent company was incorporated in 1948. It carries on the business
of publishing a newspaper called Sakal from Pune, Bombay and Kolhapur. Dr.
(Mrs.) Banoo J. Coyaji, Jasvantlal Matubhai and Arun Jasvantlal are respondents
Nos. 2, 3 and 4. These respondents and the first petitioner are the executors
of the last will and testament of Dr. N.B. Parulekar. The original fifth
respondent is the managing director of the first respondent company. The other
respondents are the current shareholders and/or directors of the first
respondent company. The tenth respondent is the chairman of the first
respondent company.
The authorised share capital of
the first respondent company is Rs. 25 lakhs consisting of 25,000 equity shares
of the face value of. Rs. 100 each. The issued share capital of the first respondent
company, however, was only 7,334 shares of the face value of Rs. 100 each prior
to November, 1985. Disputes in Company Petition No. 476 of 1986 relate to the
3,417 shares of the deceased, Dr. Parulekar, which were held in trust by the
executors of the will of Dr. Parulekar at the material time and the 93 shares
then held by original respondents Nos. 3 and 4 jointly in their own right.
As on September 21, 1985, the
shareholding of the first respondent company was as follows :
|
|
Shares |
|
First petitioner |
560 |
|
Second petitioner |
1,172 |
|
Second respondent |
750 |
|
Third respondent |
93 |
|
Executors of the will of the
deceased |
3,417 |
|
The trustees of Lila Trust |
1,317 |
|
Image Advertising and Marketing
Pvt. Ltd. |
25 |
making a total of 7,534 shares.
The two petitioners had thus 23 per cent. of the shares of the first respondent
company as of this date.
Under article 57A of the
articles, of association of the first respondent company, it is provided as
follows :
"57A. In the event any
member of the company desires to transfer his shares he shall be bound to offer
the same either to Dr. N.B. Parulekar or to Madam Shanta Parulekar or such
other person or persons as Dr. N.B. Parulekar or Madam Shanta Parulekar may direct
or may nominate and in which event the transferee or transferees shall pay such
price as may be certified by the auditors of the company."
Article 58 further provides that
subject to article 57A no shares shall be transferred so long as any member or
any person selected by the directors as one whom it is desirable, in the
interest of the company, to admit to membership, is willing to purchase the
same at the fair value as mentioned in article 61. Under article 61, in case
any difference arises between the transferor and the purchaser as to the fair
value of a share, the auditors of the company shall certify in writing the sum
which, in their opinion, is the fair value and the same shall be binding on the
transferor and the purchaser.
Under the terms of the will of
Dr. Parulekar, 3,417shares in the first respondent company which formed a part
of Dr. Parulekar's residuary estate, were directed to be held on trust by the
executors/trustees :
"(1) for the spread of education through newspapers, magazines and
periodicals ;
(2) for effecting improvement of the quality and
standard of journalism and training of personnel in journalism ;
(3) for purchase of shares of concerns, firms,
companies or from person or persons interested in or concerned with newspapers,
magazines, periodicals and otherwise in journalism ;
(4) for
publication of books and literature for the masses at low and reasonable prices
; and
(5) for such other objects and acts that may be
necessary to bring about improvement of information amongst the masses
......"
The will directed that the above
trust shall be known as the "Sakal Papers Trust".
The executors of the will of Dr.
Parulekar gave a notice dated November 18, 1984, of a meeting of the executors
to be held on November 27, 1984, for the purpose of passing resolutions to
enable the executors holding 3,417 shares of the first respondent company to
sell these shares at or for the price of Rs. 2,250 per share (which was the
offer then received by the executors) or at such price as may be realised under
article 61 of the articles of association of the company. The second resolution
which was proposed was to the effect that the executors had given a notice to
the first petitioner under article 57A for the sale of these shares. In the
event of the first petitioner (being a party named under article 57A)
exercising her rights under article 57A, the executors do sell the shares to
her at the abovementioned price. The resolution further stated that if the
first petitioner exercised her rights under article 57A, but did not agree to
the aforesaid price, then the sale should take place at a price to be fixed in
accordance with article 61. Lastly, it was proposed that if the first
petitioner did not exercise her rights and did not buy the shares at a price
fixed under article 61, then the executors shall sell the shares to any other
person or persons at or for the price of Rs. 2,250 per share.
A notice of the meeting
containing the above agenda was served on all the executors including the first
petitioner. Thereupon, the second petitioner wrote a letter dated November 27,
1984, to the third respondent stating that the first petitioner would not be
able to attend the meeting convened on November 27, on account of her illness.
She asked for a postponement of the meeting by two weeks. This request was
considered by the executors who were present at the meeting held on November
27, 1984. They felt that the meeting need not be postponed because the
resolutions proposed to be moved regarding the sale of 3,417 shares of the
first respondent did not jeopardise the interests of the first petitioner. They
proceeded with the meeting. The proposed resolutions were there after passed at
the meeting.
By notice dated November 29,
1984, addressed to the first petitioner, the executors of the late Dr.
Parulekar gave notice to the first petitioner under article 57A of the articles
of association. The notice mentioned that the executors desired to transfer the
3,417 shares of the first respondent company at the offered price of Rs. 2,250
or at a fair value that may be determined by the auditors under article 61. The
notice further stated that if the petitioner chose not to exercise her rights
under article 57A or was not willing to pay the fair price as may be fixed by
the auditors, the executors would be free to sell the same to any other person
in accordance with the articles.
The first petitioner, by her
letter dated December 14, 1984, accepted the offer made on behalf of the
executors. She agreed to purchase the 5,417 shares at a price as may be
certified by the company's auditors. She nominated her daughter, the second
petitioner, as a nominee under article 57A for the purchase of these shares.
Similarly, a notice dated
November 10, 1984, was given to the first petitioner as well as the board of
directors of the first respondent company by respondents Nos. 3 and 4 in
respect of the 93 shares held by them in the first respondent company, offering
to sell these shares to the first petitioner.
Thereupon, the first respondent
company gave a notice to all its shareholders to the effect that the said 3,417
shares as also the 93 shares of respondents Nos. 3 and 4 were proposed to be
sold by these persons. Under article 57A, an offer had been made to the first
petitioner for the purchase of these 3,417 plus 93 shares and the first
petitioner had been given time till December 15, 1984, for indicating her
intention. The notice further stated that the board of directors had resolved
that in the event of the first petitioner not exercising her rights under
article 57A, it had been decided to sell the said shares to the existing
shareholders of the company. In accordance with the articles of association of
the first respondent company, each shareholder was, therefore, asked to send
his or her reply to the company by December 28, 1984, as to whether he/she was
willing to purchase the said shares in to in accordance with the articles of
association.
As the first petitioner and/or
her nominee agreed to purchase the said shares at a price certified by the
auditors of the company, the matter was referred to the company's auditors,
G.M. Oka and Co., for determining the fair value of the shares.
The auditors, by their letter
dated January 28, 1985, asked the first petitioner whether she wished to submit
any information for the purpose of determining the fair value of these shares;
She was requested to make her written submission within seven days. At the
request of the first petitioner, this time was extended up to February 20,
1985. On February 20, 1985, however, she wrote to the auditors saying that the
auditor's request to make a written submission was premature. The auditors
should have prepared a draft report of the valuation of these shares along with
the draft certificate and sent it to her for her submissions. This letter is
dated February 20, 1985. It is not clear when this letter was received by the
auditors. In any event, the auditors issued a certificate dated February 21,
1985, under article 57A of the articles of association certifying that the
price to be paid for the transfer of 93 shares was Rs. 2,10,273 and for 3,417
shares was Rs. 77,25,857. The price was calculated at the rate of Rs. 2,160 per
share. The petitioners protested against this valuation contending, inter alia,
that an adequate opportunity was not given to them for making submissions and
there was denial of natural justice. They also challenged the fair value as
fixed by the auditors.
They filed a suit on March 2,
1985, in the court of the Civil Judge, Junior Division, Pune, being Suit No.
624 of 1985 for a permanent injunction restraining the executors, that is to
say, respondents Nos. 2, 3 and 4, from selling the said shares to any one other
than the petitioners. No interim order, however, was granted in this ; suit.
Thereafter, on September 9, 1985, the executors sold and transferred 3,417
shares to respondents Nos. 8, 11, 12, 13 and 14 for the price of Rs. 78,59,100.
The price was arrived at on the basis of each share being valued at Rs. 2,300.
The third and the fourth respondents also sold their 93 shares at the same
price to respondents Nos. 5 and 6. Thus, the shares actually fetched a higher
price than that fixed by the auditors. :
On September 20, 1985, the
transfer forms in respect of the 3,417 and 93 shares were lodged with the first
respondent company. At the meeting of the board of directors of the first
respondent company held on November 21, 1985, the transfer of these shares was
approved. The board of directors resolved to register these shares in the names
of the transferees. At this meeting, respondent No. 3 ceased to be the chairman
and director of the company and respondent No. 2 was appointed as chairman of
the board in his place. Respondents Nos. 5 and 10 were appointed as additional
directors of the first respondent company. Notice of this board meeting was
sent to the petitioners. The petitioners attended the board meeting. But they
walked out after protesting against the insufficiency of notice of the board
meeting. The item relating to the transfer of these shares was not shown on the
agenda of the board meeting. This business appears to have been transacted
under the heading "any other business".
Prior thereto, at the annual
general meeting of the company held on November 16, 1985, a resolution was
passed to increase the issued share capital of the company from Rs. 7,33,400 to
Rs. 25 lakhs. The resolution also authorised the board of directors to allot
and issue 17,160 new shares at par to any person, whether a member of the
company or not. Once again the agenda of the annual general meeting did not
show that any new shares were proposed to be issued or allotted. Hence, at the
annual general meeting it was resolved that in view of the lack of notice for
the resolution, the resolution should be ratified at an extraordinary general
meeting to be convened for this purpose. This has been done. These resolutions
for issuing fresh shares were carried by a majority of votes. 4,260 votes were
cast for the resolutions and 3,104 against the resolutions. At the board meeting
held immediately after this annual general meeting, the board resolved to issue
additional 17,666 shares at par to respondents Nos. 11, 12, 13, 15 and 16.
As a result, the purchasers and/or
allottees who are admittedly controlled by respondent No. 5 have now a
substantial holding in the first respondent company. They together hold 21,926
shares out of 25,000 shares of the first respondent company.
Thereafter, at a meeting of the
board of directors held on February 22, 1986, the fifth respondent was
appointed as the joint managing director of the first respondent company. At
this meeting it was also proposed to appoint the second petitioner as a joint
managing director along with respondent No. 5. The second petitioner declined
to accept the offer. The board, however, decided to keep this offer for
consideration at the next annual general meeting of the company. Although the
petitioner had initially declined to act as joint managing director, she
ultimately accepted the arrangement and she was appointed as joint managing
director. Although she assumed duties as joint managing director, she has not
so far signed the requisite agreement relating to her appointment.
Company Petition No. 476 of 1986 :
The petitioners filed the present
company petition on August 28, 1986, challenging the transfer of 3,417 shares
and the issuance of 17,666 new shares. The petition is filed under section 155
of the Companies Act. Under section 155, "if the name of any person is,
without sufficient cause, entered in the register of members of a company, or
after having been entered in the register is, without sufficient cause, omitted
there from, .... the person aggrieved, or any member of the company, or the
company, may apply to the court for rectification of the register." Under
sub-section (3), on an application under this section, the court may decide any
question relating to the title of any person who is a party to the application
to have his name entered in or omitted from the register. The court also has
the power to generally decide any question which it is necessary or expedient
to decide in connection with the application for rectification.
Transfer of 3,417 shares :
The first challenge of the
petitioners relates to the transfer forms which have been signed by the
executors in respect of 3,417 shares transferred by them. In the share transfer
form, the four executors, namely, the first petitioner and respondents Nos. 2,
3 and 4 are shown as transferors. The transfer forms, however, are only signed
by three out of four executors, namely, respondents Nos. 2, 3 and 4. The
petitioners contend that as the fourth transferor has not signed the transfer
forms, these transfers are bad in law and ought not to have been registered.
The executors rely upon the fact that under the terms of the will; the
executors have the like powers which are contained in the declaration of trust
dated June 28, 1972, and the deed of settlement dated July 31, 1972. Under
them, the trustees are entitled to act by majority. The petitioners further
submit that the executors of the trust have, at their meeting of November 27,
1984, passed a resolution to the effect that any one of the executors may be
authorised to implement the resolution and also to take steps to execute the
transfer forms and complete the transaction of sale. According to the
executors, therefore, three of the executors can sign the transfer forms for
the purpose of validly transferring the said shares to the transferees.
Now, it is true that the transfer
forms do not have an endorsement to the effect that the three executors have
signed on behalf of all the executors. Nor does the transfer form state that
the form is signed by the three executors pursuant to the authority given to
them under a resolution passed at their meeting held on November 27, 1984. But
the fact remains that in view of the terms of the said will, read with the
deeds of trust referred to therein, the trustees, for the purpose of selling
these shares and for conducting any other business, were entitled to act by a
majority. The trustees had, therefore, the power to sell these shares on the
basis of a decision taken by the majority of trustees. The trustees have also
passed a resolution authorising any one of them to execute the transfer forms
for the purpose of implementing their resolution to sell the said shares. It
is,' therefore, not necessary for all the trustees to sign the transfer forms.
Under section 108 of the
Companies Act, a company shall not register a transfer of shares unless a
proper instrument of transfer duly stamped and executed by or on behalf of the
transferor and by or on behalf of the transferee has been delivered to the
company along with the certificate relating to the shares. In the present case,
the transfer form is signed by three transferors. Under the resolution of the
trustees/executors any one of the executors was entitled to sign the transfer
forms. Hence, the three executors who have signed the transfer forms have done
so as transferors in valid exercise of the power under the said resolution. At
the highest, the only defect is that they have not stated that they have signed
the transfer forms on behalf of all the executors or in exercise of their
authority under the said resolution. This, in our view, is, at the highest,
only an irregularity which can be easily corrected by the transferors. In these
circumstances, it would be futile to invalidate the registration of transfer of
these shares when the transferors can immediately submit fresh transfer forms
signed by them on behalf of all the transferors. As set out in the case of
Killick Nixon Ltd. v. Dhanraj Mills P. Ltd. [1983] 54 Comp Cas 432, 465 (Bom)
(a judgment to which one of us was a party), the court should not accept any
invitation to indulge in a futile exercise under section 155. The provisions of
this section are not meant for correcting procedural errors.
In the case of Bentley-Stevens v.
Jones [1974] 2 All ER 653, there were irregularities in convening an extraordinary
general meeting of the company at which the plaintiff was removed as a
director. The court held that it would not grant an interlocutory injunction in
respect of the irregularities which could be cured by going through the proper
processes. If, for example, the proceedings that followed the board meeting
were invalid because proper notice had not been given, the invalidity could be
cured by the giving of a valid notice. The Chancery Court cited with approval
the pronouncement of Lindley L.J. in Browne v. La Trinidad [1887] 37 Ch 1, 17 :
"I think it is most
important that the court should hold fast to the rule upon which it has always
acted, not to interfere for the purpose of forcing companies to conduct their
business according to the strictest rules, where the irregularity complained of
can be set right at any moment."
Applying the same principles
here, the irregularity, if any, in signing transfer forms can be easily set
right by the trustees signing the transfer forms under the authority given to
them under the resolution passed at the meeting of executors and trustees
referred to earlier.
Trustees' power to act by a
majority :
It was submitted, on behalf of
the petitioners by Mr. S.J. Shah, that the majority cannot ride roughshod over
a minority. Even when the trustees have the authority to act by majority, their
decision has to be taken only after discussion with the minority. In support he
cited the case of Fahira Krishnaji v. Ganpat Sakharam, AIR 1954 Nagpur 92. A
learned single judge of this court, in that case, observed that the majority
decision, in order to be binding on the entire body of the trustees, should
have been arrived at after due deliberation by all the trustees. Where it was
an act of the majority alone it will not be binding on the minority. The ratio
of this judgment does not apply to the present case. Because the notice of the
meeting of the executors/trustees was sent to the first petitioner also. The
notice clearly set out the purpose for which the meeting had been called. The first
petitioner was, therefore, aware of the reason for convening the meeting. She
had returned to the house from hospital at the time when the meeting was
called. Her stand on the subject under discussion was also familiar to all the
trustees. In fact, even now she has not challenged the decision taken by the
majority of executors at this meeting to offer the 3,417 shares for sale. Nor
has she challenged the consequential decision taken by the majority to offer
the shares to her in view of the provisions of article 57A of the articles of
association of the company. There is, therefore, no question of the first
petitioner contending that the majority decision of the trustees is not binding
on her. In fact, she has acted on the decision by accepting the shares offered
to her at a valuation to be fixed by the auditors.
Offer to other shareholders :
It has also been contended that
the offer made to all the other shareholders of the company in the, event of
the petitioners not exercising their right under article 57A, is defective.
This contention also cannot be accepted. The company did inform all its
shareholders that the trustees were proposing to sell the shares in question
and that, in the event of the petitioners not exercising their right under
article 57A, the shares would be available for purchase by the other
shareholders. None of the other shareholders showed any interest in purchasing
these shares. It was submitted before us that the second petitioner, being a
shareholder, could have purchased these shares in her own right even if she had
declined to purchase these shares as a nominee of the first petitioner under
article 57A. There is, however, no material before us which would indicate that
she had, at any time, informed the company that she proposed to exercise her
rights as a shareholder to purchase these shares. Throughout, even in various
litigations which are pending, her claim has been to enforce her rights under
article 57A as a nominee of the first petitioner. There is, therefore, no basis
for the submission that the second petitioner had exercised her rights as an
ordinary shareholder to purchase these shares.
Valuation by the auditors :
It is contended by Mr. S.J. Shah,
learned counsel for the petitioners, that the petitioners were not bound by the
valuation of these shares made by the auditors because the valuation was not
fair. Under article 61 of the articles of association the auditors are required
to certify in writing what, in their opinion, is the fair value of the shares
in case there is any difference between the transferor and the purchaser as to
the fair value of a share. The article further provides that in fixing this
fair value the auditors shall be considered as acting as an expert. As observed
in Pennington's Company Law, fifth edition, at page 817 :
"If the pre-emption clause
requires the shares to be offered to the other members at a fair value
certified by the directors of the company's auditor, the court cannot enquire
into the correctness of the valuation, unless there is evidence that it was not
honestly made, or unless the person who made it set out the reasons for his
valuation, and those reasons show that he did not apply the proper principles
......... and in that situation the transferor's only remedy is to sue the
person who made the valuation for the difference between the valuation and the
real value of the shares as damages in an action for negligence."
In the case of Baber v. Kenwood
Manufacturing Co. Ltd. and Whinney Murray and Co. [1978] 1 Lloyd's Law Reports
175 (CA), at page 179, it is held :
"If two persons agree that
the price of property should be fixed by a valuer on whom they agree, and he
gives that valuation honestly and in good faith, they are bound by it. If there
were fraud or collusion, of course, it would be very different. Fraud or
collusion unravels everything."
The petitioners were, therefore,
bound by the valuation made by the auditors unless they can establish fraud or
collusion. Otherwise, the auditor's certificate is final and one cannot go into
the question whether the valuation is fair or proper or not.
In the first place, there is no
material before us which would indicate that the valuation made by the auditors
was not fair. On the contrary, while the auditors valued the shares at Rs.
2,160 each, at the actual sale to the fifth respondent and the companies
controlled by him, the shares fetched a higher price of Rs. 2,300 per share. We
have also to bear in mind that the 3,417 shares held by the trustees as also
the 93 shares held personally by some of the trustees, were sold as a
controlling block of shares in the first respondent company. They would,
therefore, fetch a higher price. The trustees were also duty-bound to obtain
the best possible price for the shares because the sale proceeds were impressed
with the public trust created by the settlor. They were, therefore, entitled to
sell these shares as a controlling block of shares in the first respondent
company. As a consequence they seem to have fetched a good price of Rs. 2,300.
The valuation made by the auditors, therefore, in this context cannot be
considered as unfair.
The petitioners have not relied
upon the balance-sheets of the company or any other financial data of the
company to establish that the valuation made by the auditors was unfair. The
petitioners, however, contend that at a subsequent date, after having obtained
control of the first respondent company, the board of directors issued an
additional 17,666 shares at par. This, according to the petitioners, would
indicate that the valuation made by the auditors of the company was unfair. We
do not see how a fresh issue of shares at a subsequent date at par can, in any
manner, affect the valuation, earlier made by the auditors of the company, of shares
which were then available for sale. The board of directors are within their
rights in issuing fresh shares at par. They could have even issued bonus
shares. This does not mean that the earlier share valuation which was made by
the auditors in respect of the shares which were sold by one group of
shareholders to another was unfair. In fact we have not been shown even the
balance-sheets of the company for the relevant dates in order to establish the
petitioner's claim that the valuation made by the company's auditors was
unfair. The petitioners rely upon the, fact that they have made a complaint to
the institution of auditors in respect of the conduct of the auditors of this
company. That by itself cannot establish that the valuation was unfair.
Collusion :
The auditors, according to the
petitioners, have acted in collusion with the other executors and the intending
purchasers in order to deprive the petitioners of their right to purchase these
shares. No particulars of such collusion and/or fraud are set out in the
petition. In the absence of any particulars, this plea cannot be accepted. The
petitioners seem to suggest that by valuing the shares at higher figures, the
petitioners were deprived of their right to purchase these shares. Presumably,
therefore, the petitioners did not exercise their right under article 57A
because they did not have enough funds to purchase these shares at Rs. 2,160
per share. We do not have any necessary material to indicate what were the
funds available with the petitioners, what, according to the petitioners, was
the fair value of the shares and whether the funds with the petitioners were
adequate for the purchase of these shares at the "fair value" as
claimed by the petitioners. The entire argument is, therefore, purely hypothetical.
In fact, in this situation, there appears to be a clear conflict of interests
and duties as far as the petitioners are concerned. The first petitioner, as an
executor/trustee under the will of her husband was duty-bound to realise the
maximum possible price for the shares held by her along with the other
executors so that maximum possible amount can be made available for purposes of
the trust created by her deceased husband. On the other hand, as a person who
was entitled to purchase these shares in exercise of her right of pre-emption
under article 57A of the articles of association, she was interested in
obtaining these shares at as low a price as possible. The second petitioner was
only her nominee for the purpose of purchase of these shares. Both were,
therefore, equally interested in purchasing these shares at as low a price as
possible. The entire challenge to the valuation made by the auditors of the
company indicates the interest of the petitioners in obtaining these shares at
as low a price as possible. Looking at this clear conflict of interests and
duties, it is doubtful, whether the petitioners, so long as the first
petitioner remained an executor/trustee, could have at all purchased these
shares in exercise of their rights under article 57A. In any case we have no
material to arrive at any finding of fraud or collusion on the part of the
auditors, or even any deliberate overvaluation.
The petitioners next contend that
the other executors, namely, respondents Nos. 3 and 4, were also interested in
selling their personal holding of 93 shares at a high price; Hence, they were
interested in getting the auditors to make a high valuation. As earlier stated,
there is no material which would indicate that the executors asked the auditors
to overvalue the shares. In fact, the shares when sold fetched a higher price
than that fixed by the auditors. Moreover, in the case of respondents Nos. 3
and 4, their personal interest does not conflict with their interest as
trustees and executors. Both were equally interested in getting as good a price
as possible for the shares. They are, therefore, not in the same position as
the petitioners.
Natural justice :
The petitioners have also
challenged the valuation made by the auditors on the ground that there was a denial
of natural justice in determining this valuation. According to the petitioners,
the auditors should have first prepared a draft valuation giving their reasons
and submitted a copy of it to the petitioners for their comment. After the
petitioners were heard on this draft valuation the auditors should have
finalised their valuation. In not doing so they have violated the principles of
natural justice.
The entire argument is
misconceived. The auditors were acting as experts, relying on their own skill and
judgment in giving their valuation of shares. The question of applying the
principles of natural justice in such a case does not arise. In any case they
were not bound to follow the procedure as suggested by the petitioners.
Moreover, before giving their valuation certificate, the auditors did ask the
petitioners whether they would like to make any submissions or produce any
material regarding the valuation of shares. They extended the time for this
purpose at the request of the petitioners. The petitioners, however, did not
avail of this opportunity and on the last day of the extended time, claimed
that natural justice was denied to them because the draft valuation, etc., were
not sent to them for comment. Hence, this contention of the petitioners has no
merit.
Readiness and willingness of the
petitioners to purchase :
It was next contended by the
petitioners that the respondents have acted illegally in selling these shares
to a third party when the petitioners were ready and willing to exercise their
right of pre-emption under article 57A. Undoubtedly, the petitioners accepted
the offer made to them under article 57A to purchase these shares. The offer
was to sell these shares at a price of Rs. 2,250 per share which was the offer
then received by the executors from a third party, or at a price to be
determined by the auditors under article 57A. The petitioners agreed to
purchase these shares at a price to be determined by the auditors. The price so
fixed by the auditors was binding on the petitioners. Nevertheless, when the
auditors determined the price, the petitioners challenged the price and did not
agree to purchase these shares at the price fixed by the auditors. In these
circumstances, the executors were free to offer the shares for sale elsewhere in
accordance with the articles of the company. There is no breach of any contract
on the part of the executors.
After these shares were sold by
the executors to the fifth respondent and the companies controlled by him to
the knowledge of the petitioners, the petitioners wrote a letter accepting the
valuation made by the auditors and offered to purchase the shares at the
valuation made by the auditors. This belated acceptance at a time when the
petitioners were fully aware that the shares were already sold, does not appear
to be genuine.
Validity of the board meeting of
November 21, 1985 :
It was next contended by the
petitioners that the agenda of the meeting of the board of directors at which
the transfer of these shares was accepted by the board, did not contain this
item relating to the transfer of these shares. Hence, according to the
petitioners, the board meeting was invalid. The petitioners, after objecting to
the manner of convening the board meeting, had left the meeting. The
subject-matter of transfer of shares was taken up, after the petitioners had
left, under the heading "to consider any other matter with the permission
of the chairman". In this connection, our attention was drawn to section
286 of the Companies Act which deals with the meetings of the board of
directors. This section does not say that every item which is discussed at the
board meeting must be specified on the agenda of the board meeting. In fact,
the section does not refer to any agenda. The Punjab and Haryana High Court in
the case of Suresh Chandra Marwaha v. hauls Pvt. Ltd. [1978] 48 Comp Cas 110
dealing with a similar situation where, at the meeting of the board of
directors, some shares were transferred about which there was no mention in the
agenda of the meeting, said (at page 119) : "No provision of law or the
articles of association of the company has been brought to our notice obliging
the board of directors to only transact that business for which agenda is
issued. It is well-known that every agenda of a meeting has a residuary clause
'to consider any other matter with the permission of the chairman'. The matter
with regard to the transfer of shares was considered in the meeting of the
board of directors ........ with the permission of the chairman. No illegality
was committed thereby." Similar observations are made by the Delhi High
Court in the case of Smt. Abnash Kaur v. Lord Krishna Sugar Mills Ltd. [1974]
44 Comp Cas 390. The Delhi High Court also said that the law does not require
an agenda for a meeting of the board of directors and any business whatsoever
can be transacted at the board meeting. In any case, this is, at the highest,
only an irregularity and it would not vitiate the transfer or shares.
The petitioners have alleged that
at the very same meeting of the board of directors, respondent No. 5 was
brought on the board of directors as an additional director. There was,
therefore, a conspiracy between the other directors of the first respondent
company and the purchasers of the transferred shares to oust the petitioners.
In this context, it is necessary to bear in mind that respondent No. 5 and the
companies controlled by him had, by paying the price of Rs. 2,300 per share,
acquired the controlling block of shares in the first respondent company. All
the directors of the first respondent company were aware of this fact. In these
circumstances, if respondent No. 5 desired to be on the board of directors of
the first respondent company, there was nothing underhand about it. This cannot
be considered as a conspiracy against the petitioners. The petitioners had the
first option to purchase this group of shares. The challenge, therefore, to the
transfer of 3,417 plus 93 shares of the first respondent company fails. The
question of rectification of the register of members in this connection does
not arise.
Fresh issue of 17,666 shares :
The next ground of challenge is
to the fresh issue of 17,666 shares to respondent No. 5 and his group of
companies at par. This was done at the annual general meeting of the company
held on November 16, 1985. At the relevant date the authorised capital of the
first respondent company was Rs. 25 lakhs divided into 25,000 shares of Rs. 100
each. The issued capital was Rs. 7,33,400 (7,334 shares). At this annual
general meeting, it was decided to issue the balance authorised shares, that is
to say, 17,666 shares of Rs. 100 each so as to increase the issued share
capital to Rs. 25 lakhs. The agenda of the annual general meeting did not show
this item of fresh issue of 17,666 shares at par. The respondents claim that
there was urgent financial necessity to obtain additional share capital for the
purposes of this company. They rely upon the need to purchase certain machinery
and so on. We are not very impressed with this so-called financial necessity.
The board meeting which
immediately followed the annual general meeting decided to allot these shares
at par to respondent No. 5 and certain other companies under his control. This
clearly indicates that respondent No. 5 and his group of shareholders, who were
in control of the respondent company, had decided to make a fresh issue of
share capital to themselves at par so as to strengthen their control over the
company. For this purpose they brought in certain additional funds, being the
price of these shares which they purchased at par.
Can this action be challenged ?
Let us first examine the legal effect of the agenda of the annual general
meeting not showing this item on the agenda. Section 172 of the Companies Act,
which deals with the meetings of the company, requires that the notice of the
meeting shall specify the place, the day, and the hour of the meeting and shall
contain a statement of the business to be transacted at the meeting. Section
172 also requires an explanatory statement to be annexed to such notice as set
out in that section. The respondents certainly committed an irregularity in not
mentioning this item on the agenda of the annual general meeting. But this
irregularity does not, in our view, vitiate the decision which was taken. As set
out earlier, the court will not interfere in the case of irregularities which
can be cured. In the present case, even without these additional shares which
were issued, respondent No. 5 and his group of shareholders had a majority
control over the company. This is clear from the votes which were cast at the
annual general meeting in favour of and against this fresh issue of shares.
4,260 votes were cast in favour of this resolution while 3,049 votes were cast
against the resolution. Hence, they were and are in a position to get the fresh
issue sanctioned at the meeting of the company after notice. Moreover, at the
same annual general meeting, it was decided that an extraordinary general
meeting of the company would be called after proper notice to ratify this fresh
issue of 17,666 shares at par. Such an extraordinary general meeting was held
after notice on January 31, 1986, when the issue of these shares at par was
ratified. According to the petitioners, this ratification is invalid as the
shareholders of the newly issued 17,666 shares also voted at this extraordinary
general meeting in favour of the resolution. But quite clearly, even if we
ignore the 17,666 additional votes which were cast in favour of the resolution,
the remaining votes in favour, which are 4,260, far exceed 3,049 votes cast
against the resolution. The ratification is valid. We do not see any reason to
invalidate this issue.
As observed by Mellish L.J. in
the ease of MacDougall v. Gardiner [1875] 1 Ch 13, at page 25, "If the
thing complained of is a thing which in substance the majority of the company
are entitled to do or if something has been done irregularly which the majority
of the company are entitled to do regularly, or if. something has been done
illegally which the majority of the company are entitled to do legally, there
can be no use in having litigation about it, the ultimate end of which is only
that a meeting has to be called, and then ultimately the majority gets its
wishes". (see also in this connection Parmeshwari Prasad Gupta v. Union of
India, AIR. 1973 SC 2389 ; [1974] 44 Comp Cas 1).
Pro-rata distribution of the
fresh issue :
Under section 81(1) of the
Companies Act where there is a further issue of capital such further shares
shall be offered to the persons who, at the date of the offer, are holders of
the equity shares of the company in proportion, as far as possible, to the
capital paid up on the shares at that date. Section 81(3), however, provides
that section 81 does not apply to a private limited company. A private limited
company, therefore, is entitled to offer such further issue of shares in such
manner as it may determine, subject of course to its articles of association.
The articles of association of the first respondent company do not require such
further issue of shares to be allotted in any particular manner to the existing
shareholders. The allocation of further issue of shares, therefore, to
respondent No. 5 and his group of companies, is not illegal or contrary to law.
Moreover, the respondents have, at the hearing of the petition, made a
"with prejudice" offer to distribute these 17,666 shares at par pro
rata to the petitioners so that the petitioners may continue to have their 41
per cent. holding of shares in the first respondent company. This "with
prejudice" offer has been made again at the hearing of these appeals
before us also. But this offer has not been accepted by the petitioners. We do
not see how this issue of 17,666 shares at par can be invalidated, although
undoubtedly, it has caused prejudice to the petitioners by strengthening the
control of respondent No. 5 and his group over the first respondent company. If
any other remedy at law is available to the petitioners in this connection,
they are free to avail of it. But we fail to see how the register of members
can be rectified under section 155 of the Companies Act in respect of these
shares when the respondents were within their rights in issuing these shares at
par.
Subsequent events :
We would also like to refer to
some subsequent events which also make it difficult to set the clock back, so
to speak. In the first place, by selling the 3,417 shares the executors
received a sum of about Rs. 80 lakhs. After discharging the liabilities under
the will of the deceased, Dr. Parulekar, the net sale proceeds amounting to
about Rs. 60 lakhs have been used to create a public charitable trust for the
purposes set out by the settlor in his will. The fund is now impressed with a
public charitable trust. Secondly, the fund which was brought into the company by
respondent No. 5 and his controlling group of companies by purchasing the fresh
issue of 17,666 shares, has also been utilised by the company for its
expansion, for investments and for the purchase of machinery. This fund also is
not now available for being released to the original buyers.
In these circumstances, the
learned single judge, while allowing the petition, had directed the petitioners
to bring in a sum of Rs. 80,73,000 within the time stipulated by him under his
order. The petitioners, however, failed to deposit this amount or any part
thereof in the court within the stipulated period. Their application for
extension of time was also rejected by the learned single judge for reasons
which are set out by him in his order of March 30, 1988. In these circumstances
and looking to the fact that the petitioners have not been able to raise the
funds within the period given to them by the learned single judge for acquiring
a controlling interest in the first respondent company, we do not see how any
relief can be granted to the petitioners. The direction of the learned single
judge relating to the retention of 17,666 shares with the company until they
are reallotted by the directors also, in our view, is a relief which is not
within the ambit of section 155 of the Companies Act. Be that as it may,
looking to these circumstances, it is difficult to grant any relief to the
petitioners under section 155. They have been unable to avail of their rights
under article 57A to acquire a controlling interest in the first respondent
company. For various reasons, with which we are not concerned, either they do
not have the requisite funds, or for reasons best known to them, they have not
availed of their rights as required by law. We may also mention in this
connection the fact that even initially, the suit which they filed in the Poona
court was not a suit for specific performance of their rights under article
57A, but only a suit to restrain the executors from selling the shares to
anyone other than the petitioners. Only in August, 1986, they filed the present
company petition which again is for a limited relief under section, 155 of the
Companies Act and not a petition under section 397 or 398 of the Companies Act.
It was only after the judgment was delivered by the learned single judge in
this company petition that they have now filed two suits in March, 1988, for
specific performance. Section 155 is a discretionary remedy which is not
normally resorted to when there are allegations of fraud. We need not, however,
go into this aspect of the matter because, in any event, for reasons which are
set out by us in our order, the petitioners are not entitled to any relief as
prayed for by them in the petition.
The judgment of March 30, 1988 :
The appeals before us from the judgment
of the learned judge dated March 31, 1988, declining to grant any extension of
time, are all filed by either the trustees, the purchasers from the trustees or
by the company in respect of certain observations made in that judgment and
order. The petitioners have not filed any appeal before us challenging the
order refusing to extend the time for the deposit of Rs. 80,73,000. The
impugned observations are in respect of the readiness and willingness of the
petitioners to purchase the shares in question. The learned judge has observed
that on account of the failure of the petitioners to deposit Rs. 80,73,000
within the stipulated period the petition stands dismissed. But the
observations made in his judgment would continue to bind the parties. In view of
the fact that the appeals from the main judgment are now allowed, the
appellants, from this part of the order, can have no grievance now.
In his judgment of March 30,
1988, the learned single judge has also observed that in the suit for specific
performance it would be open to the petitioners to show their capacity and to
convince the court that they are in a position to really purchase these shares
and to enforce specific performance of the contract. These observations should
not be interpreted to mean that the readiness and 'willingness of the
petitioners will have to be judged only at the point of time when the suits for
specific performance are decided. The learned judge has merely referred to the
fact that the question of readiness and willingness of the petitioners,
throughout the material period, to purchase these shares will have to be
decided by the court which tries those suits on the basis of the evidence which
is available before the court. These observations cannot be read to mean that,
if the law requires the petitioners to prove their readiness and willingness
throughout the material period, the requirements of law have, in any manner,
been modified by the learned single judge or by us.
In the premises, Appeal No. 711
of 1988 and Appeal No. 1214 of 1988 are allowed. Appeal No. 742 of 1988 which
is the petitioners' appeal against the conditional order is dismissed. Appeals
Nos. 655 of 1988, 710 of 1988 and 1032 of 1988 are dismissed with the
clarifications we have already made in respect of the order of the learned
single judge dated March 30, 1988.
Appeals are disposed of
accordingly. Looking to the circumstances of the present case there will be no
order as to costs.
Mr. S.M. Shah, learned counsel
for the petitioners, applies for the continuation of order dated December 21,
1989, in Notice of Motion No. 3109 of 1989, taken out in Appeal No. 742 of
1988. This notice of motion was, inter alia, to restrain the respondents from
amending the articles of association of the respondent company as set out
therein. In that motion an order was passed whereby, pending disposal of the
appeal, the appellants' right of pre-emption under article 57A was not to be
disturbed and respondent No. 1 company was directed not to issue or invite any
fresh capital till the disposal of the appeal. Certain other directions were
also given as set out therein. This order shall remain in force for a period of
eight weeks from today and no further.
The petitioners apply for leave
to appeal to the Supreme Court. No substantial question of law of public
importance arises in this appeal, and hence the leave is refused.
Certified copy expedited.
[1942] 12 COMP. CAS. 206 (
HIGH COURT OF
Bengal Silk Mills
Co. Ltd., In re.
LORT-WILLIAMS, J.
JULY 18, 1941
S.K. Basu, for the Applicant.
Sushil Sen, for the company.
This is a petition by
Mahomed Solaiman Ariff alias S. Monawar Nawab Ariff, who prays for
rectification of the register of members of the respondent company. He states
that Mt. Fatma Begum (since deceased) of No. 3,
The signature of Fatma Begum was witnessed by one S.C. Ariff, and there is nothing to show that the signature is not genuine, or that the sum of Rs. 2,100 was not paid by Suhrawardy to the original transferee. It is admitted that the instrument of transfer was filled up after the death of Fatma Begum, namely, at the date of the transfer from Suhrawardy to the petitioner, on 10th December 1940. It is true that the instrument is incomplete because the latter date has not been inserted and must be inserted before the shares can be registered. The relevant Articles of Association of the company are as follows:
"Transfer and Transmission of Shares.
37. The instrument of transfer of any share shall be signed by both the transferor and the transferee and the transferor shall be deemed to remain the holder of such share, until the name of the transferee is entered in the register in respect thereof."
Number 38 provides the form in which the instrument of transfer must be drawn up, and the transfer in the persent case is in the form provided.
"39. The managing agents may decline to register any transfer of shares, upon which the company has a lien and in the case of shares not fully paid up, may refuse to register a transfer to a transferee of whom they do not approve."
There is no suggestion in the present case that anybody disapproves of the petitioner.
"40. Every instrument of transfer shall be left at the office for registration accompanied by the certificate of the shares to be transferred and such other evidence as the company may require to prove the title of the transferor his right to transfer the shares."
No question has been raised about the transferor's title or right to transfer. The only question therefore remaining to be decided is what is the effect of a transfer in blank made after the death of the original transferor, that is to say, the original and registered holder of the shares? In Sircar & Sen's Indian Companies Act, 1913, the learned authors at page 109 have stated as follows:
"In the case of a transfer executed in blank if the transferor dies before the ultimate transferee's name has been subsequently filled in, that would not in any way effect the right of such transferee to get his name registered. The reason is that so far as the transferor is concerned he loses right in the shares as soon as he executed transfer in blank. The transfer is good as against him even though the transferee has not filled up the form."
In support of this statement they cite the case in In re Dodds; Ex parte Brown v. Coates. But, in my opinion, this case is no authority for the proposition. The case turns on the question of insolvency and not of the death of the original transferor. Nevertheless, in my opinion, the statement is correct. There is very litle, if any, direct authority upon this question but transfers in blank have been described by various authorities. Thus in Palmer's Company Law 13th Edition, at page 132, it is stated that "upon a sale or mortgage of shares, the transferror very commonly signs and hands over what is called a blank transfer (i.e., a transfer signed by the transferor, but with a blank for the name of the transferee), the intention being that the purchaser or mortgagee shall be at liberty later on to fill up the blank and perfect his security by getting himself registered. If however the regulations require the transfer to be by deed, the transferee cannot effectively fill up the blank and deliver the deed unless authorized so to do by power of attorney under seal. Whereas, if the transfer may be under hand merely, the authority to fill up the blank may be oral and may be implied from the nature of the transaction."
In In re Tahiti Cotton Company, Ex parte Sargent it was held, that the transfers although not good as deeds, were valid instruments in writing within the meaning of the Articles of Association, and conferred a good title to the shares at law as well as in equity; and the transferee was entitled to have his name on the register. It was contended that the transfers, though not valid as deeds, were evidence of a contract to transfer the shares, by virtue of which the transferees became equitably entitled to them. Sir George Jessel, M.R., at page 279 described the transaction in the following words:
"The case is an unfortunate one, undoubtedly, for Mr. Joseph Fry; but the facts really are very plain indeed. Mr. Fry borrows what I will call for shortness' sake £450 of a Mr. Cannon, a share broker. He deposits with him as security the transfers of certain shares not quite filled up, that is, there was no date to them, and there was no name of the transferee; they were what are commonly called blank transfers. The deposits were made on two different occasions as a security. He hands to him also certificates of shares. I have no doubt that without express words Mr. Cannon was authorised, and was intended to be authorized by Mr. Fry, if necessary, to fill up the blank, and get the shares registered."
And on page 280, he said:
"Now, in the first place, there can be no question that these transfers were not valid as deeds; but then no deed is required by the Articles of Association of the company. As I have already said, I hold there was authority to fill up the blanks over the signature of Mr. Fry, and therefore they were validly signed, and I think ought to have been registered."
In Colonial Bank v. Cady Lord Watson at page 277 said as follows:
"As I understand their evidence, the principles of American law do not differ in any way, or at least in any material respect, from those by which an English Court would be guided in similar circumstances when the indorsed transfer has been duly executed by the registered owner of the shares the name of the transferee being left blank, delivery of the certificate in that condition by him, or by his authority, transmits his title to the shares both legal and equitable. The person to whom it is delivered can effectually transfer his interest by handing his certificate to another and the document may thus pass from hand to hand until it comes into the possession of a holder who thinks fit to insert his own name as transferee and to present the document to the company for the purpose of having his name entered in the register of shareholders and obtaining a new certificate in his own favour.
The appellants' witnesses say that delivery of the certificate with the transfer executed in blank 'passes the property' of the shares; but that statement must be accepted subject to the explanations by which it is qualified. The right of the holder appears from these explanations to be in the nature of a jus ad rem and not of a jus in re. Delivery does not invest him with the ownership of the shares in the sense that no further act is required in order to perfect his right. Notwithstanding his having parted with the certificate and transfer the original transferor, who is entered as owner in the certificate and register continues to be the only share-holder recognised by the company as entitled to vote and draw dividends in respect of the shares, until the transferee or holder for the time being obtains registration in his own name. It would, therefore, be more accurate to say that such delivery passes, not the property of the shares but a title, legal and equitable which will enable the holder to vest himself with the shares without risk of his right being defeated by any other person deriving title from the registered owner."
In Colonial Bank v. Hepworth, Chitty, J., at page 44 said as follows:
"The normal mode of transfer as appears from the documents themselves and the evidence is as follows: The transfer and power of attorney are signed by the registered share-holder whose name appears on the face of the certificate, and his signature is attested by a witness. The name of the transferee is filled in and the documents are taken to the office of the company; the certificates are surrendered and cancelled, and a new certificate is issued to the transferee whose name has been entered on the register. According to a practice which has extensively prevailed and has been recognised and acted upon by the company, the transferee signs the transfer and power of attorney without filling in the names of the transferee and attorney; and these blank transfers readily pass on the market from hand to hand by delivery only until the documents reach the hands of some holder who desires to be registered. His name is then filled in by himself or on his behalf. The documents are then left with the company, the certificates are cancelled, the transferee is registered, and new certificates in his name are issued in the manner already described.
The plain legal effect of this recognized practice is, that the transferor who executes in blank confers on the holder of the documents for the time being an authority to fill in the name of the transferee; and each successive holder for the time being, when the documents pass through several hands, passes on this authority. The holders must be course be bona fide holders for value without notice."
And at page 53:
"Having regard to the practice proved and the condition in which these documents are when they pass from hand to hand, the right principle to adopt with reference to them is to hold that where (as is the case before me) the transfers are duly signed by the registered holders of the shares, each prior holder confers upon the bona fide holder for value of the certificates for the time being an authority to fill in the name of the transferee and is estopped from denying such authority."
In addition to these statements there are the provisions of Section 202, Indian Contract Act, to the effect that where the agent has himself an interest in the property which forms the subject-matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest. And Illustration (a) provides as follows:
"A gives authority to B to sell A's land, and to pay himself, out of the proceeds, the debts due to him from A. A cannot revoke this authority, nor can it be terminated by his insanity or death."
the authority for the proposition being Gaussen v. Martin. If the petitioner therefore is to be regarded as the agent of the original transferor, clearly he has an interest in the property for which he has paid Rs. 2,400 to Suhrawardy and for which Suhrawardy paid Rs. 2,100 to the original transferor. This section of the Contract Act merely states in a codified form the well-known principles of English law regarding authority coupled with interest. Mr. Sushil Sen has drawn my attention to a passage in Gore-Browne's Hand-book on Joint Stock Companies, Edition 38, at p. 246, as follows:
"Even when a deed is not required, it appears that if the original transferor died, the authority to fill in the blanks would be at an end, although no doubt an equity would subsist to compel the executors to give effect to the contract."
This is a tentative suggestion on behalf of the learned authors based upon the following authorities: In re Tahiti Cotton Company: Ex parte Sargent (to which I have referred); Powell v. London and Provincial Bank, Powell v. London and Provincial Bank and Kelly v. Munster and Leinster Bank. I have not been able to obtain the last authority, but I have carefully examined the other two and cannot find that they furnish any support for the proposition advanced in the text. On the contrary, the learned authors refer in a note on the same page to the case in Carter v. White, as an authority in opposition to the proposition statred. This case seems directly in point. The headnote is as follows:
"A bill of exchange accepted for valuable consideration, with the drawer's name left blank, may be completed by the drawer's name being added after the death of the acceptor."
Cotton, L.J., at page 669 says as follows:
"It was said that the documents were not bills of exchange, and not promissory notes, and assuming that they could be filled up and made perfect before the death of the acceptor yet that after his death no one had power to fill them up. That was the only point decided by Kay, J., who held that they could be now filled up, and in my opinion it was correctly decided. The power which White had to fill up the acceptances was not in consequence of White being appointed by Randle his agent to fill them up on his behalf, but in consequence of a contract that the person to whom they were given, or any one authorised by him, should be at liberty to fill them up. That contract was not put an end to by the death of the acceptor."
And Fry, L.J., at page 672 said as follows:
"The question before Kay, J., was whether such a document as we have in this case can be filled up after the death of the acceptor; and it was argued that the delivery of the acceptance conferred an authority to fill it up, which came to an end with the death of the person who gave it, and therefore that it was too late now to make the acceptance a complete bill. In my judgment that reasoning proceeds upon a false proposition. It is not by an authority, but by a contract between the acceptor and the intended drawer, that the drawer had a right to fill up the instrument and make it a complete bill. That is the nature of the transaction between them, you may call such a right an authority, but it is a right founded on a contract, and being a contract it does not come to an end by the death of the acceptor. The instrument may be made perfect after the death of the acceptor, as well as before. Therefore, in my opinion the judgment was right."
It seems clear therefore that whether it be a matter of agency or authority or contract, the transferee in cases of transfers in blank has the right to fill in the necessary particulars including his own name as transferee and the date of the transfer, after the death of the original transferor. It were otherwise the vast amount of business done by means of blank transfers would have to cease, because it would be quite impossible in many cases to ascertain without much trouble and inconvenience whether the original transferor was alive or not. If therefore the pettioner fills in the date of the transfer from Suhrawardy to himself, namely, 10th December 1940, the instrument will be complete and he will be entitled to have his name registered as the holder of these shares. Subject therefore to that condition, he is en. titled to an order for rectification of the register. The application is allowed with costs. Certified for counsel.
v.
Prem & Co.
Harries, J.
November 10, 1936
B. Malik for the appellant.
V.D. Bhargava for the respondents.
Harries, J.—This is a plaintiff's appeal against a decree of the lower appellate court confirming a decree of the court of first instance dismissing the claim as against defendant No. 3 the contesting respondent in this appeal.
The plaintiff bank brought a suit against Messrs. Prem & Co., Prem Nath Bhargava and Mst. Sheelwanti, the wife of Prem Nath Bhargava, claiming a sum of Rs. 2,745-6-3. The plaintiff bank also claimed that certain securities which had been lodged with them by Prem Nath Bhargava were liable to be sold in satisfaction of their claim. The learned Munsif decreed the claim against defendants Nos. 1 and 2 with costs but dismissed the claim as against Mst. Sheelwanti, defendant No. 3, with costs. On appeal the learned Civil Judge upheld the findings of the Munsif and dismissed the appeal. Against that decision in so far as it concerns Mst. Sheelwanti the plaintiff bank have appealed in second appeal to this court.
The facts of the case can be briefly stated as follows:—
Prem Nath Bhargava, defendant No. 2, was a
customer of the plaintiff bank and had a current account thereat. On April 25,
1928, this current account was transferred to the name of Messrs. Prem &
Co., defendant No. 1. Prem Nath Bhargava represented to the bank that he and
his wife Mst. Sheelwanti were the proprietors of this firm and requested the
bank to allow him to overdraw to the extent of Rs. 5,000. By way of security
Prem Nath Bhargava deposited with the plaintiff bank a number of shares
including 50 shares of Central Bank of
It was contended in the courts below that Mst. Sheelwanti was an actual partner or one of the proprietors of the firm Prem & Co., but both the courts have held that she had no interest in the firm. There was ample evidence to support that finding and it is not challenged here before me.
It was also contended that the shares in
the Central Bank of
It was also contended that the shares were actually transferred by Mst. Sheelwanti to her husband or in any event that they were deposited by Prem Nath Bhargava with the consent of his wife and therefore that these shares could be sold to discharge the debt due from Prem Nath Bhargava. This issue was hotly contested in the lower courts and it has been argued strenuously before me that in the circumstances of this case Mst. Sheelwanti had handed over these shares of her husband in order that they should be deposited by way of security to secure his overdraft. The share certificates had attached to them a transfer signed in blank by Mst. Sheelwanti and this would suggest that Mst. Sheelwanti handed these shares over to her husband in order that her husband might make use of them to secure his overdraft. On the other hand it must be remembered that Mst. Sheelwanti is a lady of no business experience and is in fact a pardanashin woman. In those circumstances the transaction must be examined carefully because it would be an easy matter for her husband to obtain these shares fraudulently from wife and make use of them for his own purposes. Mst. Sheelwanti gave evidence and deposed on oath that these shares had been handed over to her husband merely for safe custody and that he had no authority of any kind to pledge them or deposit them or deal with them in any way.
The courts below have considered her evidence and have accepted it. I therefore have to consider whether or not these shares could be validly deposited as security with the bank by the husband when they had been handed over to the latter merely for safe custody.
The appellant bank have relied upon Sec. 237 of the Indian Contract Act. The section reads as follows:—
"When an agent has, without auhority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts or obligations if he has by his words or conduct induced such third persons to believe that such acts and obligations were within the scope of the agent's authority."
Illustration B to this section reads as follows:—
"A entrusts B with negotiable instruments endorsed in blank. B sells them to C in violation of private orders from A.
The sale is good."
It is contended that the present cas2 fall entirely within Illustration B to Section 237 of the Contract Act, but in my view this section has no application unless the person handing over the negotiable instruments is a principal and the person who receives them is an agent. The section in terms speaks of the person dealing with third persons as the agent of the principal sought to be made liable.
There was no relationship of principal and agent existing between the husband and Mst. Sheelwanti. A custodian of goods for safe custody is a bailee of the goods and is not an agent of the true owner for the purposes of dealing with the goods. In the present case upon the facts found Prem Nath Bhargava was in no sense an agent of his wife and therefore Section 237 of the Indian Contract Act cannot assist the plaintiff bank. In the Illustration to this section the person receiving the negotiable instruments endorsed in blank is of couse an agent of the person who hands them to him. Unless the relationship of principal and agent is proved to exist between the parties. Section 237 can have no application. As there was no such relationship in this case the husband had no right whatsoever to deal with these shares and the bank could obtain no title whatsoever to them. For these reasons the courts below were right in dismissing the claim as against Mst. Sheelwanti.
The appellant bank have also argued that a sum of Rs. 223 has been wrongly allowed to defendant No. 3 in the total costs given to her. It appears that during the course of the proceedings the appellant bank desired to examine certain brokers on commission and a commission was issued to examine these brokers at Calcutta. The main purpose of this examination was to establish that certain other shares had been sold on behalf of the bank at ruling market prices. It is to be observed that the shares claimed by defendant No. 3 had never been sold and therefore this commission was not primarily concerned with the case against defendant No. 3. The plaintiff bank, however, did draft certain interrogatories which obviously tended to establish their case against defendant No. 3 and that being so the latter was in my opinion entitled to be represented on this commission and to cross-examine the witnesses. She was therefore entitled to some costs in respect of this commission. She instructed a senior counsel from Agra who proceeded on a number of occasions to Calcutta and she claimed a sum of Rs. 291-3-0 in respect of the costs incurred. Eventually a sum of Rs. 223 was allowed to defendant No. 3 in respect of these costs.
In my judgment the amount allowed to the defendant is excessive in this case. There was no need for her to instruct counsel from Agra and thus incur heavy travelling expenses back and fore from Agra to Calcutta. If she had instructed local counsel the costs would have been considerably lower. In my view having regard to all the circumstances of the case a sum of Rs. 100 is sufficient for the costs incurred by Mst. Sheelwanti in connection with this commission.
In the result, therefore, the appeal of the appellant bank succeeds to this extent only that a sum of Rs. 100 is granted as costs of the commission to defendant No. 3 instead of Rs. 223 given to her by the decree. In all other respects, the decree of the lower appellate court in affirmed. The Appellant bank must pay the respondent 3/4 of her costs in this court. Leave to appeal is refused.
[1989] 66 COMP. CAS. 5 (
HIGH COURT OF
v.
Worldwide Agencies (P.) Ltd.
MAHINDER NARAIN J.
COMPANY PETITION NO. 52 OF
1985
SEPTEMBER 21, 1988
Vinoo Bhagat and J.P. Singh, for the Petitioner.
P.B. Menon, B.R. Menon, Ms. Anuradha Dutt and Mrs. Vijay Lakshmi Menon, for the Respondent.
The order will dispose of a preliminary objection
taken by respondent No. 2, Mrs. Amrit K. Singh, regarding the maintainability
of the petition under sections 397, 398 and 433 of the Companies Act, which has
been filed by the petitioner, Margaret T. Desor, and two others.
The petition relates to the affairs of M/s. Worldwide
Agencies Pvt. Ltd., which is carrying on business as travel agents at G-40,
Connaught Circus,
|
|
Shares |
|
1. S. Amrit Singh Saluja |
5 |
|
2. S. Balwant Singh |
405 |
|
3. Mrs. Surinder Kaur Saluja |
450 |
|
4. Mr. Tarlochan Singh Saluja |
— |
|
5. Mr. Yash Pal Malhotra |
250 |
|
6. Mr. Surinder Kumar Desor |
550 |
|
7. Mrs. Amrit K. Singh |
350 |
|
|
2010 |
The said annual returns also record that 350 shares
of Tarlochan Singh were transferred to S.K. Desor on August 12, 1975, and 350
shares of Mrs. S.K. Saluja were transferred on August 7, 1975 to Mrs. Amrit K.
Singh.
Surinder Kumar Desor was a British national, as was
Amrit Singh. Balwant Singh and Yash Pal Malhotra were Indians.
As per the certified copy of the annual return of
M/s. Worldwide Agencies made up to February 15, 1984, the shareholders were
S.K. Desor, Mrs. Amrit K. Singh, Yash Pal Malhotra, Mrs. Amrit Gupta, Mrs.
Savitri Devi Kohli, Mr. A.S. Saluja and Mr. Balwant Singh. They held the
following shares :—
|
|
Shares |
|
1. S.K. Desor |
600 |
|
2. Mrs. Amrit Kaur Singh |
545 |
|
3. Mr. Yash Pal Malhotra |
250 |
|
4. Mrs. Amrit Gupta |
200 |
|
5. Mrs. Savitri Devi Kohli |
5 |
|
6. Mr. A.S. Saluja |
5 |
|
7. Mr. Balwant Singh |
405 |
|
|
2010 |
It is obvious that S.K. Desor was the largest
shareholder of M/s. Worldwide Agencies.
The allegations in the petition are that Mrs.
Margaret Desor was married to S.K. Desor in England where they stayed for a
number of years, and the second petitioner was born to S.K. and Margaret Desor
in England, and the third petitioner had been born to S.K. and Margaret Desor
in India.
It is stated in the petition that after the marriage,
S.K. Desor and Margaret Desor returned to India with the second petitioner. By
way of abundant caution, the marriage between S.K. Desor and Margaret Desor was
registered under the Special Marriage Act in the year 1972.
It is stated in the petition that the third
petitioner was born in India; that the first petitioner is a British subject,
and the second petitioner is a British citizen.
S.K. Desor died on March 5, 1985.
It is also asserted in the petition that the second petitioner
has relinquished her rights, if any, to the shares which were held by her
father S.K. Desor, and as far as the third petitioner-minor, is concerned, it
is stated that such shares as can be held by petitioner No. 2, shall be held by
petitioner No. 1 as guardian of petitioner No. 3.
It is asserted in the petition that while in England,
S.K. Desor was carrying on the business of travel agency in which Margaret
Desor assisted her husband, and it is only when she returned to India, that she
became a housewife, and did not participate in the travel agency business of
M/s. Worldwide Agencies.
It is also asserted in the petition that 545 shares
which are shown as being held by Mrs. Amrit K. Singh, are held by her benami
for S.K. Desor, and that appropriate steps with respect thereto will be taken
at the appropriate time.
In the petition, it is also asserted that on the
death of S.K. Desor, the office of M/s. Worldwide Agencies was closed on 5th,
6th and 7th March, 1985.
It is also asserted that a meeting of the board of
directors took place on March 12, 1985, at which meeting Margaret Desor,
petitioner No. 1 was co-opted on the board of directors by resolution of that
date, but has not been allowed to function as such.
It is also asserted that petitioner No. 1 was present
at the said meeting of the board of directors, and petitioner No. 1 applied to
the directors present, for the transfer of the shares held by her late husband,
S.K. Desor, to her name as his wife and legal heir. She has also furnished an affidavit
of Mrs. Kim Paul, petitioner No. 2, relinquishing her claim to the shares held
by her late father. It is stated that in view of the application and the
affidavit furnished by her and daughter of S.K. Desor, the board of directors
have resolved that they have no objection to transmit the shares held by S.K.
Desor and Mrs. Margaret Desor on executing an indemnity bond. It was resolved
that actual transfer of shares, however, will take effect after permission of
the Reserve Bank of India has been obtained by petitioner No. 1, and succession
certificate has been obtained with regard to the properties of S.K. Desor.
The board recorded that Mrs. Margaret Desor had
applied for allotment of 5 shares vide her letter dated March 12, 1985, and she
has undertaken to make payment within one week. The directors recorded that
they have no objection to it, and it was resolved to allot her 5 shares out of
the unsubscribed capital of the company, and that the shares will be issued
soon. The board further resolved that in view of the allotment of these shares,
and her interest in the shares of her late husband, S.K. Desor, Margaret Desor
is appointed a director of the company subject to the permission of the Reserve
Bank of India.
In the petition, in support of the pleas of
oppression, it is alleged that the conditions that were imposed by the board of
directors regarding the succession certificate and indemnity were onerous and
oppressive.
It is asserted in the petition that taking advantage
of the fact that the keys of the premises of M/s. Worldwide Agencies Pvt. Ltd.
were with her, Mrs. Amrit K. Singh, has removed valuables belonging to Mrs.
Margaret Desor, which had been kept by S.K. Desor in the safe of the company.
It is also asserted that Mrs. Amrit K. Singh has also
operated the bank account of the company without informing the bankers of the
company of the death of S.K. Desor, and withdrawn about Rs. 40,000 from the
bank on the pretext that this amount was needed to pay the salary of the staff
of M/s. Worldwide Agencies Pvt. Ltd., whereas only a sum of Rs. 8,000 was
payable.
It is also alleged that Mrs. Amrit K. Singh refused
to give account for Rs. 40,000 which had been withdrawn by her after the death
of S.K. Desor.
It is also stated in the petition that on March 12,
1985, Mrs. Amrit K. Singh filed a suit bearing No. 430 of 1985, seeking a
declaration that she was director in charge of the company, and was entitled to
function as such without any let or hindrance by the defendants in the said
suit. The defendants in the said suit were stated to be Mrs. Margaret Desor,
petitioner (defendant No. 1), and Sameer Desor, petitioner (defendant No. 2).
In the suit, father of S.K. Desor and his two brothers were made defendants
Nos. 3, 4 and 5, respectively, and the company was made defendant No. 6.
In the suit, Mrs. Amrit K. Singh also sought a
direction that defendants Nos. 1 to 5 in the suit were not shareholders of the
company, nor are they concerned with it in any capacity whatsoever, that
defendants Nos. 1 to 5 be directed not to interfere in the affairs of the
company; and that it be declared that Mrs. Amrit K. Singh was the director in
charge, and that she be permitted to function without any let or hindrance. A
copy of the said plaint was annexed to the instant petition.
The petitioner in this petition asserts that the said
suit bearing No. 430 of 1985, was filed only with a view to harass the
petitioners as well as to wrongly and illegally capture the. control of the
affairs of the company.
It is also asserted in the petition that the
documents of the company were removed by Mrs. Amrit K. Singh.
It is also asserted in the petition that notice was
addressed to Mrs. Amrit K. Singh regarding a meeting of the board of directors
to be held on March 12, 1985 at 10.00 a.m., but she did not attend the same.
In these circumstances, it is said that the affairs
of M/s. Worldwide Agencies Pvt. Ltd. are being managed in a manner prejudicial
to the interest of the company and oppressive to the petitioners.
Various other pleas are raised in the petition, and
the reliefs sought in the petition are : (i) removal of Mrs. Amrit K. Singh
from the office of the director ; (ii) appointing the first petitioner, Mrs.
Margaret Desor as chairman-cum-managing director of the company ; (iii) directing
the board of directors to register the transmission of shares of S.K. Desor in
the name of the first petitioner; (iv) and directing Mrs. Amrit K. Singh to
transfer 545 shares. In the alternative, a prayer was made to wind up the
company.
The main objection to the maintainability of this
petition before me, is; (i) that the petitioners are not registered as members
of the company; their names are not recorded in the register of members ; (ii)
they are, therefore, not members within the meaning of the Companies Act, and
particularly section 399 of the Act, and as such they cannot present a petition
under sections 397/398 of the Act; and (iii) that a composite petition as
filed, wherein an alternative prayer is made for winding up the company, is not
maintainable.
Mr. P.B. Menon, who appears for Mrs. Amrit K. Singh,
respondent No. 2, and for M/s. Worldwide Agencies, respondent No. 3, says that
it is only members, who are recorded as members in the register of members, who
are entitled to file a petition under sections 397 and 398 of the Companies
Act.
It must be borne in mind that the petitioners in this
case claim to be heirs of S.K. Desor, deceased, and claim that they have become
owners of the shares held by him as such, by transmission, by operation of law.
Collins English Dictionary, 1979 edition, gives the
following meaning to the word "transmission"—(i) the act or process
of transmitting ; (ii) the act or process of sending a message, a picture, or
other information from one location to one or more other locations by means of
radio waves, electric signals, light signals, etc. Transmission is stated to be
derived from the word "transmittere" which is said to mean
"sending across". It appears that transmission takes place from one
point to another instantaneously without let or hindrance, as in the case of
transmission of radio waves and electric signals, etc. "Transmission"
should, therefore, mean an immediate or instantaneous sending across. In this
sense, when one is dealing with transmission of shares, it must mean that upon
the death of the last holder of shares, in law, there is an instantaneous
transfer of ownership to the heirs of the last holder and the property therein
must vest in the heirs from the moment of death onwards. This would happen by virtue
of operation of law of succession. To complete the formalities of law, it may
be necessary in certain cases to apply for succession certificate or letters of
administration, but the property must be deemed to have been vested not on the
date of grant of succession certificate or the letters of administration, but
the succession certificate or the letters of administration only recognises the
pre-existing change of ownership from the deceased holder to the heirs, which
occurs at the moment of death. This position, that ownership of property rights
vis-a-vis the shares held by the deceased is transferred to the heirs of a
deceased holder is recognised by necessary intendment by the proviso to section
108 of the Companies Act. It says that "nothing in this section shall
prejudice any power of the company to register as shareholder or
debenture-holder any person to whom the right to any shares in, or debentures
of, the company has been transmitted by operation of law". This exception
is carved out against the requirement of section 108 of the Companies Act,
which requires that shares of a company are not to be transferred to another
person without an instrument of transfer postulated by that section. Clearly,
there is a difference between transfer of a share, which is a voluntary act of
a shareholder to another person, and the transmission of a share to an heir by
operation of law. In the instant case, it must also be borne in mind that the
board of directors have at no stage refused to register the transmission of
shares in the name of the petitioners.
A number of cases have been cited by Mr. Menon in
support of the contentions that have been raised by him in connection with the
non-maintainability of this petition under sections 397, 398 and 433 of the
Companies Act.
The first case cited by Mr. Menon is Smt. Bina Barua
v. Dalowjan Tea Co. (P.) Ltd. [1981] 51 Comp Cas 660. This is a case decided by
the Gauhati High Court, wherein the Hon'ble Single Judge has been pleased to
hold that the board of directors of the company were right in refusing to
register the shares in the name of the widow and the sons of the deceased. The
Hon'ble Judge came to the conclusion that the exercise of power of refusal by
the board was, in the facts and circumstances of the case, bona fide. A perusal
of the judgment would show that the board of directors of the company who had
refused to register the shares; were members of the same family as the deceased
member, whose widow and children sought to have the deceased member's shares registered
in their names. It was asserted and contended that the widow of the deceased
was a person of doubtful character, that she had left the deceased during his
life time, and that she was living with someone else, and in these
circumstances, it would not be in the interest of the company to have her
substituted as a member in place of the deceased member. This case, therefore,
was one in which the board of directors of the company who were members of the
same family as the deceased, had refused to register the widow and her sons as
shareholders. In the instant case before me, there is no refusal by the board
of directors to register the shares in the name of the widow and the children
of the deceased S.K. Desor. What the board required was that the petitioners
should obtain a succession certificate, and also obtain permission of the
Reserve Bank of India to hold the shares as the petitioners were not Indian
nationals. This resolution of the board of directors, in my view, cannot amount
to a refusal to register the petitioner and her children as members. The cited
case, therefore, has no application to the present case. It is also to be noted
that in the reply it is nowhere contended or stated by the respondent company,
that the board of directors has refused to register the petitioners as members,
and that exercise of such power by the board of directors of M/s. Worldwide
Agencies is bona fide and in the interest of the company. I have my
reservations about the judgment of the Gauhati High Court, for what it decides,
but I will not consider the matter further inasmuch as the facts of that case
are different from the facts of the present case, and the judgment of the
Gauhati High Court has no application to the facts of the present case.
Mr. Menon
then cited Ved Prakash v. Iron Traders Pvt. Ltd., AIR 1960 Punj 427, in
respect of the proposition that petitions under section 397 can be maintained
only by those persons who are registered as members in the register of members.
Facts of that case were different from the facts of the instant case. In that
case, the application for rectification of the register had been dismissed by
the District Judge. The petitioners filed a petition under sections 397 and 398
of the Companies Act before the High Court. The District Judge had dismissed
the petition for rectification on the ground that it could not be properly
decided in summary proceedings for rectification. The Hon'ble Single Judge of
the Punjab High Court states that the petitioners had not filed a suit for
declaration that their names had been illegally removed from the register of
members of the company as advised by the District Judge while dismissing a
petition under section 155 of the Companies Act for rectification of the
register of members. In these circumstances, the petitioners not being recorded
as members of the company in the register of members, they were not entitled to
present a petition under sections 397 and 398 of the Companies Act. The learned
Single Judge was of the view that the petitioners had to establish their rights
as members, in a suit. No suit to establish their rights as members was filed
by the petitioners, "who are now seeking the same relief under the guise
of an application under sections 397 and 398 of the Act". In these circumstances,
the petition filed under section 397/398 was held not to be maintainable. The
observations of the learned Single Judge regarding the non-maintainability of
the petition under sections 397 and 398 have to be considered in the light of
the facts and circumstances of that case. In that case, the petitioners, had
not done what a judgment of a court had required them to do.
Thus, Ved Prakash's case AIR 1960 Punj 427 is not an
authority for the proposition of law that heirs to whom shares have been
transmitted by intestate succession cannot maintain a petition under section
397/398. Further, the judgment in Ved Prakash's case AIR 1960 Punj 427 is not
applicable to the facts and circumstances of this case, as the instant case is
not one in which the names of the petitioners were at one time incorporated on
the register of members, and later on removed from register of members. This
case does not help respondent No. 2.
Mr. Menon then referred to Balkrishan Gupta v. Swadeshi
Polytex [1985] 58 Comp Cas 563 of the Supreme Court. That case related, to the
rights which were sought to be exercised by a receiver appointed under Order 40
of the Code of Civil Procedure. In that context, the Supreme Court held that
such a receiver was not a member as he was not on the register of members, and,
could not exercise any rights as such member. The Supreme Court was not dealing
with a case under section 397/398 of the Companies Act, which was still stated
to be pending in the Allahabad High Court. That court, in that case, was
concerned with a case in which a meeting had been requisitioned. The appeal
before the Supreme Court was by special leave against an order of the Allahabad
High Court, which had dismissed the special appeal before it, questioning the
right of the requisitionists to issue notice under section 169 of the Act, to
call an extraordinary general meeting. The said case having no parallel in the
instant case, cannot be an authority for the proposition that the petition under
section 397 is not maintainable. In fact, such a question was not there for
consideration before the Supreme Court. A receiver does not, to my mind, have
the same status in law as an heir. Succession of an heir to property left upon
intestacy is automatic. Property vests in the heir according to law, whereas a
receiver's obligations and duties are only in accordance with the order that
results in his appointment. This Supreme Court judgment, is therefore, of no
assistance to respondent No. 2.
Mr. Menon also refers to Jawahar Singh Bikram Singh
Pvt. Ltd. v. Smt. Sharda Talwar [1974] 44 Comp Cas 552 (Delhi). In that case,
one Sri Kishan Talwar had instituted proceedings under sections 397 and 398 of
the Companies Act. In that petition, Smt. Sharda Talwar the wife of the
petitioner, Sri Kishan Talwar, was shown as a consenting party to the
presentation of the petition. She was also indicated as a proforma respondent
during the pendency of the proceedings. Sri Kishan Talwar, the original
petitioner, died. After the death of the petitioner, she moved the court to be
transposed as a petitioner. No application was made by the heirs or legal
representatives of the deceased petitioner to be joined as parties, although
Sharda Talwar was an heir and legal representative. Opposition to transposition
of Sharda Talwar was rejected by the Single Judge of the High Court. In appeal,
it was contended that the petition under section 397 had abated on the death of
the petitioner, and that these proceedings could not be revived by transposing
Sharda Talwar. It was held by the Division Bench that Sharda Talwar who was
constructively a petitioner to the original petition, was entitled to continue
the petition and that the petition under section 397 could be continued by
transposing the wife of the deceased petitioner, who was already on record as a
proforma respondent, as petitioner.
The facts of the said case are, therefore, different
from the instant case, and the observations regarding the legal representatives
wanting to continue the proceedings, would, therefore, be obiter. The Division
Bench observations relied upon by Mr. Menon are :
"this will not of course debar the legal
representatives from themselves wanting to continue the proceedings as heirs of
the deceased petitioner provided they also fulfil the requirements of being
members of the company."
It is to be noted that the Division Bench has nowhere
said that the legal representatives could not continue the proceedings, if they
were so minded or could not maintain the petition. The question whether the
legal representatives could continue the proceedings or not, was not really
before this court in the said case. That case, therefore, does not help
respondent No. 2.
In any case, the said case will not apply to the
instant case as the question which was decided in that case related to
transposition of one of the parties to a petition under sections 397 and 398,
and not the one in issue in the instant case, namely, whether the heirs of the
deceased S.K. Desor, who have virtually the controlling interest in M/s.
Worldwide Agencies, who had not been refused transmission by the board of
directors of the company, could maintain a petition under section 397 of the
Companies Act, 1956.
Mr. Menon
next relied upon Cuthbert Cooper and Sons Ltd.'s case [1937] 2 All ER
466. This is a judgment dated March 15, 1937, and even pre-dates the provision
of section 210 of the English Companies Act, (which was the precursor of
sections 397 and 398 of the Indian Companies Act). The said English case
related to refusal of the directors to transfer shares. It was asserted by the
petitioners that the directors had constantly refused to give or assign any
reason for refusal to transfer shares. The court held that the persons who had
suffered the refusal of the directors, and not permitted to be recorded as
members of the company, could not maintain a petition for the winding up of the
company. As the case related to winding up of the company, it has no
application to a petition under section 397 of the Companies Act, which relates
to relief in cases of oppression. The cited case, therefore, does not help
respondent No. 2. In any case, it is worthy of note that a Division Bench of
this court, on a construction of section 439 of the Indian Companies Act, has
taken a contrary view in Bhaskar Stoneware Pipes (P.) Ltd. v. Rajinder Nath
Bhaskar [1988] 63 Comp Cas 184.
The next case cited by Mr. Menon is Stale of Kerala
v. West Coast Planters' Agencies Ltd., [1958] 28 Comp Cas 13 (Ker). This was a criminal
case. The observations made therein have no application to the facts and
circumstances of the instant case. S. Viswanathan v. East India Distilleries and Sugar Factories Ltd., [1957] 27 Comp Cas
175 (Mad), cited by Mr. Menon, only explains the legal meaning of a
"share". That is not the matter before me. The matter before me is
whether the petitioners can, in the factsand circumstances of the instant case,
maintain the petition under sections 397 and 398 of the Act.
Mr. Menon then cited M.G. Amirthalingam v. Gudiyatham
Textiles Pvt. Ltd. [1972] 42 Comp Cas 350 (Mad). This is a case in which the
directors of the company had refused to register the heir of the deceased
member as a member of the company. Being a case of refusal of the board of
directors, what is stated in that case is of no application to the case before
me. As stated above, in the instant case, the board of directors of the
company, M/s. Worldwide Agencies, have not refused to transmit the shares in
the name of the petitioners. As such, the said case is inapplicable to the
facts of the case before me and is of no help to respondent No. 2.
Mr. Menon next referred to Shanti Prasad Jain v.
Kalinga Tubes Ltd. [1965] 35 Comp Cas 351 (SC). Mr. Menon wishes to rely upon
the observations of the Supreme Court which explained the nature of
jurisdiction of court on a petitfon under sections 397 and 398 of the Companies
Act. The observations of the Supreme Court are "it (section 397) gives a
right to members of a company who comply with the conditions of section 399 to
apply to the court for relief under section 402 of the Act. or such other
reliefs as may be suitable in the circumstances of the case, if the affairs of
a company are being conducted in a manner oppressive to any member or members
including any one or more of those applying". The Supreme Court never said
in this case that only members can apply under section 397. In any case, I am
not inclined to add the word "only" to what has been said by the
Supreme Court. The Supreme Court was not, in that case, dealing with the
question whether heirs of a deceased member who had died intestate can apply to
the court under section 397 of the Companies Act or not, and as such the
observations of the Supreme Court do not help the respondent. In the present
case, what is required to be determined is whether the heirs of the deceased
member who have not been refused transmission of the shares by the board of
directors, can apply under section 397 of the Act.
Mr. P.B. Menon then contended that a composite petition
under sections 397, 398 and section 433 of the Companies Act is not
maintainable, and in support of his proposition, referred to Kilpest Private
Ltd. v. Shekhar Mehra [1987] 62 Comp Cas 717, a judgment of a Division Bench of
the Madhya Pradesh High Court. Mr. Menon, relying upon observations of the said
court, contended that a composite petition is not maintainable under sections
397, 398 and 433 of the Companies Act. However, a contrary view has been
expressed by a Division Bench of this court, which is reported as Bhaskar Stoneware Pipes (P.) Ltd. v. Rajinder Nath Bhaskar
[1988] 63 Comp Cas 184. In that case, the Division Bench was considering
an appeal against an order passed by a single judge, whereby the learned single
judge had admitted a petition under sections 397, 398 and 433 of the Companies
Act for hearing. The Division Bench of the High Court rejected the appeal. The
plea raised in the said appeal was that the petitioner could not maintain a
petition for winding up of the company as they were not members of the company.
The Division Bench of this court, after considering the meaning of the word
"contributory", held that this petition for winding up could be
maintained by heirs of the deceased member/contributory. I am bound by the said
judgment. In any case, I am in respectful agreement with the view expressed by
the Division Bench inasmuch as the provisions of section 397 itself require
that the company court is to provide relief in certain cases against oppression
when circumstances exist that would make it just and equitable to wind up the
company.
It is well settled by authority that as a preliminary
to grant of a petition under section 397 of the Act, the court should come to
the conclusion that otherwise the case is one where it is just and equitable
that the company be wound up. A company can be wound up on the grounds
mentioned in section 433. One of the grounds mentioned in section 433 is that
it is just and equitable to wind up the company. This being the position, I see
no substance in the contention of Mr. Menon that the petition which is filed
under sections 397, 398 and 433 of the Companies Act, is not maintainable. In
fact, the Division Bench of this court held in Bhaskar Stoneware Pipes (P.)
Ltd. v. Rajinder Nath Bhaskar [1988] 63 Comp Cas 184 that (p. 209):
"Section 397 requires two conditions to be
fulfilled before an order is passed under that section (i) there must be acts
of oppression and mismanagement ; and (ii) the affairs of the company must be
such that it is just and equitable to wind up the company".
As such the contention of Mr. Menon has no force, and
I reject the same.
It is also to be noted that in reply-affidavit which
was filed by respondent No. 2, it was nowhere contended by her, that being a
composite petition under sections 397 and 398, the instant petition is not
maintainable on that account. I, therefore, do not need to say any more than
what has been stated above.
Mr. Vinoo Bhagat appearing for the petitioners, in
reply to the contentions that have been raised by Mr. Menon, contends that the
instant petition is maintainable by the petitioners. He referred to the text
book, inter alia, Buckley on the Companies Act, (Fourteenth Edition, Volume 1,
page 491,) where it is stated "for the purpose of a petition under this
section (210 of the English Companies Act), 'member' includes the personal
representative of the deceased member". Buckley refers to In re Jertnyn
Street Turkish Baths Ltd. [1970] 3 All ER 57; [1970] 1 WLR 1194, 1205, in
support of these observations. Buckley adds a note that "without affecting
this point, the said judgment of the single judge was reversed in [1971] 1 WLR
1042 by the Court of Appeal".
Gore-Browne on Companies, 42nd edition at page 798,
referred to by Mr. Bhagat, states that, "it has recently been settled that
the personal representatives of a deceased member, even though they are not
registered as members, are entitled to present a petition under section. 210.
In In re Jermyn St. Turkish Baths Ltd., (supra) Penny-cuick J. held that, "on
its true construction, section 210 required that the word 'member' should
include the personal representatives of a deceased member, on whom title to his
shares devolved by operation of law".
Mr. Bhagat has referred to In re Jermyn Street
Turkish Baths Ltd. [1570] 3 All ER 57, decided by Pennycuick J. Pennycuick J.
relying upon the judgment in Bayswater Trading Co. Ltd. [1970] 1 All ER 608
held that, (at page 65), "it seems to me that personal representatives of
the deceased member must be regarded as members of a company for the purpose of
section 210. I was referred on this point to the decision of Buckley J., in In
re Bayswater Trading Co. Ltd. [1971] 1 All ER 608 (Ch D), in which the learned
judge held that for the purpose of section 353 of the Act, the word ' member'
must include representatives of a deceased member. It seems to me that section
210 requires that a similar meaning should be put on 'a member' in that
section". Justice Pennycuick, therefore, rejected the contention of the
respondents before him, that the petitioners, not being members of the company,
have no locus standi to present the petition under section 210.
Mr. Bhagat also relies upon Halsbury's Laws of
England, (Fourth-Edition, Volume 7, page 1010) in support of his contention that
legal heirs or personal representatives are members. In the said volume of
Halsbury's Laws of Englaud, it is stated in a footnote that " 'member' in
this context includes the personal representatives of a deceased member : In re Jermyn Street Turkish Baths Ltd. [1970] 3 All ER
57......; reversed without affecting this point [1970] 3 All ER 184."
A perusal of the judgment of the court of appeal
against the order of Justice Pennycuick shows that the Court of Appeal did not
express itself against what was stated by Justice Pennycuick.
Besides referring to In re Jermyn Street Turkish
Baths Ltd. [1970] 3 All ER 57, Mr. Vinoo Bhagat also referred to the provisions
of section 273 of the Indian Succession Act. Mr. Bhagat says that by virtue of
the fact that S.K. Desor had died intestate and a succession certificate has
been obtained by the petitioner, Mrs. Margaret Desor, from a competent court,
with respect to the shares held by S. K. Desor, she has to be treated as a
member, as the board of directors of the company, have not refused to register
her as a member. He says that by virtue of the provisions of section 273 of the
Indian Succession Act, the succession certificate so obtained is conclusive,
and as such cannot be questioned by any person in any other proceedings. I
agree.
Besides this, Mr. Bhagat relies upon the fact that in
the instant case, no plea has been taken by respondent No. 2 that the board of
directors of M/s. Worldwide Agencies has refused to register the shares in the
name of the petitioners. What the board of directors required was to obtain a
succession certificate which the petitioners have, and also to obtain
permission of the Reserve Bank of India to hold the shares that were held by
S.K. Desor.
It is not in dispute that after the filing of the
petition, the petitioners have obtained the permission of the Reserve Bank of
India to hold the shares which had been held by S.K. Desor. This, according to
Mr. Bhagat, is conclusive in the observations of the Supreme Court in Life
Insurance Corporation of India v. Escorts Ltd. [1986] 59 Comp Cas 548 (SC),
wherein it was held that once the permission to hold shares is given by the
Reserve Bank of India before or after filing of petition, it is not open to any
person to question that permission. As permission of the Reserve Bank of India
has been obtained in this case, the observations of the Supreme Court in Lije Insurance Corporation of India v.
Escorts Ltd., [1986] 59 Comp Cas 548 (SC), are clearly applicable, and
it is not open to respondent No. 2 to question the grant of that permission to
the petitioners visa-vis the shares of M/s. Worldwide Agencies, held by S.K.
Desor, deceased.
Mr. Bhagat also says that although the objection
regarding the non-maintainability of a composite petition have not been taken
by respondent No. 2 in the reply-affidavit, such a contention is also not
available to respondent No. 2, as a Division Bench of this court has already
expressed a contrary view in Bhaskar Stoneware Pipes (P.) Ltd. v. Rajinder Nath
Bhaskar [1988] 63 Comp Cas 184 at page 205. As stated above, this judgment
binds me, and as such I have to hold that this contention of Mr. Menon has no
force.
Mr. Bhagat also points out that in Gulabrai Kalidas
Naik v. Laxmidas Lallubhai Patel [1977] 47 Comp Cas 151 (Guj), it has been said
that in a given case, "the petitioners invoking the court's jurisdiction
under sections 397 and 398 are in a position to show that even though their
names are not to be found in the register of members of the company, yet if
they have such an indisputable and unchallengeable title to the membership of
the company, that court may entertain a petition at their instance".
In the instant case, the petitioners are the wife and
children of S.K. Desor. They have obtained letters of administration under section 273 of the Indian Succession Act
which is conclusive. They have also obtained permission of the Reserve Bank of
India to hold the shares which were held by S.K. Desor. Thus, in view of the
judgment of the Supreme Court in Lije Insurance Corporation of India v. Escorts
Ltd., [1986] 59 Comp Cas 548 (SC), they have perfected their title to the
shares which were held by S.K. Desor, and keeping in view what has been stated
in Buckley, 14th edition; Halsbury's Laws of England 4th edition; Gore-Browne
On Companies 1972 edition, I am of the view that it would be consistent with
opinion and authority to treat such persons as the petitioners as members for
the purposes of maintainability of a petition under sections 397 and 398 of the
Act.
There is
another aspect that may be mentioned. Section 210 of the English Companies Act,
which preceded section 397 of the Act, has now been replaced by section 75 of
the English Companies Act, 1980. Section 75(9) of the English Companies Act,
1980, provides that the section shall apply to a person who is not a member,
but to whom shares have been transferred or transmitted by operation of law,
and the references to a member shall be construed accordingly.
In the facts
and circumstances of the instant case, by virtue of the letter of
administration, keeping in view the shareholdings of S.K. Desor as evidenced by
Form 32 which has been filed by respondent No. 2, as made up to February 15,
1984, S.K. Desor had 600 shares (out of the total share capital, issued and
paid-up, of 2010) which are now held between the petitioners. They have an
undisputed right to hold 600 shares of the company out of total of a 2010
shares. This is considerably more than the 1/10th of the shareholdings which is
required to be held by the persons presenting a petition under section 397 of
the Act by section 399 of the Act. These 600 shares make these petitioners the
largest shareholder.
Not to permit
an enquiry into the assertions which have been made in this petition for
oppression, which have been briefly adverted to in the earlier part of this
order, could itself be a very gross form of oppression, and in my view,
respondent No. 2 cannot be permitted to do that.
For the
reasons aforesaid, I reject the preliminary objection of respondent No. 2 that
this petition is not maintainable.
The petition
has already been admitted to hearing. I direct the parties to lead oral
evidence in court in support of their respective contentions. The petitioners
shall lead their evidence first.
Case to come up for recording evidence of the
petitioners, on November 14, 1988.
[1991] 70 COMP. CAS. 792
(GAU)
HIGH COURT OF GAUHATI
v.
Bahadur Tea Co. (P.) Ltd.
MANISANA J.
COMPANY PETITION NO. 2 OF
1984
JANUARY 24, 1991
D.N. Choudhury and R. Gogoi for the Appellants.
N.M. Lahiri and Dr. M.K. Sarma for the Respondent.
This is an
application under section 155 of the Companies Act, 1956, to rectify the
register of members of the respondent-company on refusal by the company to
enter the names of the petitioners as members or shareholders.
Facts : Mrs.
Premada Barooah, during her lifetime, was a shareholder or member of the respondent-company,
the Bahudur Tea Company Pvt Ltd. She died on March 31, 1978, leaving a will
appointing her son-in-law, Mr. Hemendra Prasad Barooah, and her daughter, Mrs.
Rosa Kamte, as the executors. In the will, her shares in the respondent-company
were also included. The will had been probated. Thereafter, the executors made
an application to the respondent-company for registering the fact of their
becoming members of the company as executors or legal representatives of the
deceased member, Premada, but the respondent-company refused to register their
membership on the ground that a son-in-law or executor cannot be a member of
the company under the memorandum of association and articles of association of
the company, for short, "the articles".
Mr. D.N.
Choudhury, learned counsel for the petitioners, has contended that the legal
representative (the executor) of the deceased member applying for entering his
name in the register of members cannot be refused. Mr. N.M. Lahiri, learned
counsel for the respondent-company, contended that the petition is not
maintainable under section 111(1) of the Companies Act read with the articles
of the company.
Before
dealing with the rival contentions of the parties, I feel it necessary to examine
the relevant provisions of the Companies Act relating to transfer of shares. In
section 108, the mode of transfer of shares is provided. Section 108 provides,
inter alia, that transfer of shares is to be made by a proper instrument of
transfer duly stamped and executed by or on behalf of the transferor and by or
on behalf of the transferee. Therefore, transfer under section 108 is between
living persons.
Section 109
states that a transfer of the share or other interest in a company of a
deceased member thereof made by his legal representative shall, although the
legal representative is not himself a member, be as valid as if he had been a
member at the time of the execution of the instrument of transfer. The clause
"although the legal representative is not himself a member" shows
that although the legal representative having become a member, or having become
entitled to be a member, of the company by operation of law, he shall not be
regarded as a member unless his name is entered in the register of members.
Under section
110, an application for registration of transfer of the shares or other
interest of a member in a company may be made either by the transferor or by
the transferee. Section 111(1) provides that nothing in sections 108, 109 and
110 shall prejudice any power of the company under its articles to refuse to
register the transfer of, or the transmission by operation of law of the right
to, any shares or other interest of a member in, or debentures of, the company.
The
expressions "transfer" and "transmission" have been
employed in section 111. The word "transfer" is an act of the parties
or of the law, by which title to property is conveyed from one person to
another. Inter vivos transfer is a transfer from one living person to another.
It is a transfer of property during the lifetime of the owner and it is to be
distinguished from testamentary transfer of succession where the property
passes on death. Under section 211 of the Indian Succession Act, the executor
of a deceased person is the legal representative for all purposes, and all the
property of the deceased person vests in him as such. On a reading of sections
108, 109, 110 and 111 together, the word "transmission" has been used
in section 111 in contradistinction to the word "transfer".
"Transmission" is referable to devolution of title by operation of
law. It may be by succession or by testamentary transfer. As regards
"transfer", it has been used to mean inter vivos transfer.
As already
stated, the executor of a deceased person is his legal representative for all
purposes, and all the property of the deceased vest in him as such. Therefore,
the right to the shares or other interest of the deceased member in the company
devolves on the executor of the deceased by operation of law as distinguished
from inter vivos transfer. But the executors do not become members of the
company unless their names are registered. In such a situation, on the death of
Premada, her right to the shares or other interest as a member in the company
devolved on the petitioners as executors and they are the legal representatives
of the deceased, Premada Barooah, i.e., the right to the shares or other
interest in the company, of the deceased member, Premada, had been passed or
transmitted to the petitioners as executors.
The question
then is : could the company refuse to register the transmission by operation of
law of the right to the shares. Under section 111(1), if the articles so
provide, the company can refuse to register the transmission by operation of
law of the right to the shares, as already stated.
Let me now
examine the relevant articles.
Article 7(a)
provides :
"No transfer of any share
except to a member or the persons referred to in article 7(b), (c) shall be
made to any person without the previous sanction of the directors who may
without assigning any reason decline to give any such sanction."
Article 7(b)
states :
"A shareholder may, at any
time, transfer a share to his or her father, mother, wife or husband, son or
daughter or to any one of the existing shareholders of the company, provided
however that the transferee is not an insolvent or otherwise incapable of
discharging his obligations."
On a reading
of article 7 (a) and (b) together, it appears that for the transfer of shares
by a member of the company to his or. her father, mother, wife or husband, son
or daughter, or to any one of the existing shareholders of the company, no
previous sanction of the directors is required. However, for transfer to other
persons including a son-in-law, previous sanction will be required and the
company, without assigning any reason, can decline to give any such sanction.
In view of the above discussion, the word "transfer" occurring in
articles 7(a) and 7(b) denotes inter vivos transfer (between living persons).
Therefore, the previous sanction for transfer of shares would arise when there
was or is inter vivos transfer and not in the case of testamentary transfer.
Therefore, articles 7(a) and 7(b) are not applicable to the present case as the
present is a case of testamentary transfer and not of inter vivos transfer. In
my view, article 7(c) is not relevant in this case.
Article 7(h)
runs :
"On the death of a member,
and on a notice being received by the company of the said occurrence, his legal
representatives shall be the only persons recognised by the company as having
any title to the interest of the shares of the deceased."
Under article
7(h), on the death of a member of the company, his legal representative shall
be the only person recognised by the company as having become a member or as
having become entitled to be a member, of the company by operation of law.
However, the legal representative shall not have the status of a member unless
his name is entered in the register of members, as already stated. On a perusal
of the articles, I do not find any article under which the company can refuse
transmission of the right to the shares by operation of law. In that view of
the matter, the petitioners who are executors (legal representatives) of the
deceased member, Premada Barooah, are entitled to registration of their names
as members of the company in respect of the shares held by the deceased member,
Premada Barooah, as executors. Therefore, the refusal was against the law.
The next
question which arises for consideration is whether the application is
maintainable. Shri N.M. Lahiri, learned counsel for the respondents, has
contended that section 155 is in respect of the power of the High Court to
rectify the register of members, but it does not include such a refusal to
register. Section 155(1)(b) provides that, if default is made or unnecessary
delay takes place in entering in the register the fact of any person having
become, or ceased to be a member, the person aggrieved may apply to the court
for rectification of the register.
The meaning
of the word "default" means "omission or failure to per form a
legal or contractual duty", and the meaning of the word "refuse"
is "declination of a request or demand", or "omission to comply
with some requirement of law." Therefore, section 155(1)(b) covers all
cases of improper or illegal refusal. Therefore, the contention of Mr. Lahiri
cannot be accepted.
For the
reasons stated above, there was no justification for refusing to enter the
names of the petitioners as executors in the register of members in place of
the deceased, Premada Barooah.
In the
result, the petition is allowed. Accordingly, it is ordered and directed that
the respondent-company shall rectify the register of members of the company in
the light of the observations made above. No costs.
[1966] 36 COMP.CAS. 490 (
COMPANIES TRIBUNAL,
V.
B.
N. Gokhale, (CHAIRMAN)
AND
SHRI P. K. Rau, (MEMBER)
PETITION
NO. 1 OF 1956
APRIL
16, 1966
ORDER
GOKHALE,
(Chairman) - The question in
this petition falls within a narrow compass. The petitioner is the Life
Insurance Corporation of India having its Central Office at Bombay and it
claims to have become the owner of 15,890 shares of respondent No.1, Bokaro and
Ramgur Ltd., a company with its registered office at Calcutta, which will
hereinafter be referred to as respondent No.1 company. Out of these shares,
1,220 shares bearing distinctive numbers, which are set out in Schedule
"B" to the petition, originally belonged to and stand in the name of
respondent No.2, National Insurance Company Ltd. of
Respondent
No.1 company has resisted this petition and raised several contentions and the
Corporation has filed a rejoinder. It is not necessary to set out in detail the
contentions of respondent No.1 company because Shri Mukherjee, learned counsel
appearing on its behalf, has stated that he does not wish either to challenge
the validity of the Life Insurance Corporation Act or the title of the petitioner
in respect of these 15,790 shares which are the subject-matter of the present
petition and which will hereinafter be referred to as the shares in this
petition. It may be mentioned here that respondents Nos.2 and 3, who originally
owned the shares, have not put in any appearance in or filed any reply to this
petition, though duly served. So we have to decide this petition on the basis
that the title of the Corporation to the shares in this petition is not in
dispute.
The only
issue, therefore, that has to be considered in the present case is whether
respondent No.1 company has made any default or caused any unnecessary delay in
entering in its register the fact that the Corporation has become its member
and also the fact that respondent Nos.2 and 3 have ceased to be its members in
respect of these shares. Shri Andley, learned counsel on behalf of the
petitioner, contends that in view of the fact that the title with regard to the
shares having vested in the Corporation being not disputed, there is a default
as well as a delay on the part of respondent No.1 company to enter the
petitioner's name on the register of members and, therefore, the Tribunal
should make the necessary order of rectification by virtue of its powers under
section 155 of the Act.
Shri
Mukherjee, learned counsel appearing on behalf of respondent No.1 company, has
made two submissions against this. He contends, in the first instance, that
since his client has refused to comply with the request of the Corporation, the
proper and only remedy open to the Corporation was to file an appeal under
sub-section (3) of section 111 of the Act and that having not been done, it is
contended that this petition under section 155 should not be entertained.
It may be
mentioned that the powers which vested in the Central Government under section
111 of the Act have now come to be vested in the Tribunal by virtue of the
provisions of the Companies (Amendment) Act No.31 of 1965. But Shri Mukherjee
contends that in view of the refusal of respondent No.1 company to comply with
the request made by the petitioner and, in view of the prior correspondence
between the parties, the proper remedy for the Corporation was to file an
appeal under section 111. We are not prepared to accept this argument. It may
be pointed out that the petitioner had, in fact, preferred an appeal under
section 111 of the Act to the Central Government, but in view of the
institution of Suit No.894 of 1959 by respondent No.1 company in the Calcutta
High Court, the Corporation appears to have abandoned the proceedings taken by
it under section 111 of the Act. Now it is well-settled that the jurisdiction
under section 155 of the Act is independent of the jurisdiction under section
111 which was previously vested in the Central Government : see Sadashiv v.
Gandhi Sewa Samaj [1958] 28 Comp. Cas.137. In this case there had been an order
of the Central Government under section 111 under which the company, Gandhi
Sewa Samaj Ltd., was asked to effect registration in its books of the shares
transferred to each of the two petitioners in that case. But that order was not
acted upon by the company, with the result that the aggrieved shareholders had
to file petitions under section 155 of the Act before the Bombay High Court. It
was in these circumstances that Mr. Justice Kotval held that, even though there
was a previous order of the Central Government, the jurisdiction of the High
Court under section 155 was not affected. The present is perhaps a stronger
case since the Corporation had filed an appeal under section 111 of the Act to
the Central Government, which it did not prosecute as respondent No.1 company
instituted a suit against the Corporation in the Calcutta High Court in which
it had prayed, inter alia, for an injunction restraining the Corporation from
taking any steps under section 111 of the Act and/or any other legal
proceedings. We do not think that after this suit was dismissed for want of
prosecution, it was necessary for the Corporation to file an appeal under
section 111 against the refusal by respondent No.1 company to enter the name of
the Corporation on its register of members or that it was the only remedy open
to the Corporation. It is true that the jurisdiction under section 111 as well
as that under section 155 now vest in the Tribunal, but that, in our view,
would not make any difference so far as the instant case is concerned. The
first contention of Shri Mukherjee must, therefore, be rejected.
That leads us
to the consideration of the second contention raised by Shri Mukherjee. He has
submitted that section 155 of the Act would come into operation in the present
case if the requirements of section 108 of the Act had been complied with by
the Corporation. He argues that the request of the petitioner for rectification
by entering its name on the register of members was rightly refused by
respondent No.1 company because the provisions of section 108 were not followed
since there was no proper instrument of transfer duly stamped and executed
delivered to the company by the Corporation as provided in sub-section (1) of
section 108, and not even an application for transfer, duly stamped, as
required by the first proviso to sub-section (1) of the said section. Now we
may mention that a similar contention appears to have been raised in the suit
filed by respondent No.1 company which was dismissed for want of prosecution on
March 15, 1963. It is true that the dismissal of that suit would not raise any
bar against respondent No.1 company in supporting its refusal on the ground of
the alleged non-compliance with the relevant provisions of section 108 of the
Act in this petition. But we are not satisfied that in the present case it was
necessary for the Corporation either to send along with its letter or
application for entering its name on the register of members, with respect to
the shares in this petition, a transfer deed executed, attested and stamped, or
affixing the necessary stamp on the letter or application itself. As already
indicated, there is no dispute that the title in respect of the shares in this
petition had vested in the Corporation by virtue of section 7 of the Life
Insurance Corporation Act 31 of 1956. It is not disputed also that the
Corporation had applied for entering its name on the register of members of
respondent No.1 company in respect of those shares. The only question,
therefore, to be considered is whether either sub-section (1) of section 108 of
the Act or the first proviso to the same applies to the present case.
The present is
not a case of transfer of shares by act of parties. The title has come to be
vested in the Corporation by operation of law. Under sub-section (1) of section
108 of the Act, a company cannot register a transfer except on production of an
instrument of transfer, but that presupposes a transfer by act of parties. The
first proviso to the sub-section would come into operation in case the
instrument of transfer signed by or on behalf of the transferor and by or on
behalf of the transferee has been lost, in which case on an application in
writing to the company, bearing the stamp required for an instrument of
transfer on such terms as to indemnity as the board may think fit, if it is
proved to its satisfaction that the instrument of transfer has been lost.
Sub-section (1) of section 108 requires the instrument of transfer to be duly
stamped. The first proviso to sub-section (1) requires an application in
writing to the company by the transferee and that application must bear the
requisite stamp since the instrument of transfer is lost. The instant case is
not covered either by sub-section (1) of section 108 or by the first proviso
thereof. Shri Andley contends, and in our view rightly, that the petitioner's
case would fall under the second proviso to sub-section (1) of section 108
which reads as follows:
"Provided
further that nothing in this section shall prejudice any power of the company
to register as shareholder or debentureholder any person to whom the right to
any shares in, or debentures of, the company has been transmitted by operation
of law."
Shri Andley
argues that where title to the shares has passed by operation of law, as in the
present case, no further formalities have to be completed so that neither a
duly stamped instrument of transfer nor an application in writing itself
bearing the requisite stamp is necessary. In application in writing itself
bearing the requisite stamp is necessary. In support of his argument, Shri
Andley has relied on a decision of the Orissa High Court, Indian Chemical
Products v. State of Orissa [1962] 32 Comp. Cas.908. That was a case of
transmission of title to shares by change of sovereignty as a result of the
merger of the State of Mayurbhanj with the State of Orissa, and the Orissa High
Court held that it was a peculiar case of transmission by operation of law
since by virtue of clause (i) of article 5 of the States Merger (Governors
Provinces) Order, 1949, certain shares in the Indian Chemical Products
purchased by the Maharaja of Mayurbhanj as a Ruler came to be vested in the
State of Orissa. It was, therefore, held that the transmission was automatic
and required no other formalities to be completed and the company concerned in
that case was held bound to recognise it since there was no statutory provision
anywhere for any further steps to be taken to complete the transfer of title to
the Government of Orissa. It is true that, in that case, an instrument of
transfer was also lodged, but Shri Andley contends that that does not detract
from the general principle laid down there regarding a case where an automatic
vesting of title to shares is brought about by operation of law. In our view,
there is considerable force in this argument.
Now Shri
Mukherjee does not dispute that in the present case also there is a
transmission of title by operation of law. But he has argued that even so there
is nothing in the provisions of the Life Insurance Corporation Act of 1956,
which can override the provisions of section 108 of the Act. We may mention in
dealing with this contention that in the whole of the reply filed by respondent
No.1 company there is no reference to any of its articles of association to
justify its action in refusing to enter the name of the Corporation on its
register. Shri Mukherjee has not relied on any such article either, and, in
fact, he frankly stated that he had with him no copy of the articles of
association of respondent No.1 company on which he could place reliance. But he
contends that the requirement of the first proviso to sub-section (1) of
section 108 of the Act as to an application bearing the requisite stamp would
also apply to the case of transmission by operation of law referred to in the
second proviso to sub-section (1). His argument is that, this being a
transmission by operation of law, it may be that there cannot be an instrument of
transfer duly stamped and executed but even so the application or letter sent
by the Corporation to the respondent No.1 company requesting entry of its name
on the register of members should have borne the stamp required for an
instrument of transfer as contemplated under the first proviso to sub-section
(1) of section 108 of the Act. We are not impressed by this argument. As we
have already pointed out, sub-section (1) of section 108 of the Act deals with
a case of transfer by act of parties requiring an instrument of transfer. The
first proviso deals with the case where there is an instrument of transfer but
the same is lost. We do not think that the case of transmission by operation of
law contemplated in the second proviso would stand on the same footing as the
one when there was an instrument of transfer and the same was lost. Under the
first proviso, the instrument of transfer deed having been lost, the Act
provides for the satisfaction of certain conditions some of which appear to be
for the protection of the company. It requires, in the first place, an
application in writing made to the company by the transferee and that
application has itself to bear the stamp which would have been required to be
affixed on the instrument of transfer. In the second place, it has to be proved
to the satisfaction of the board of directors that the original instrument of
transfer signed by or on behalf of the transferor and transferee has been not
last. And, thirdly, the board of directors may then register the transfer on
such terms as to indemnity as it might think proper. In the present case the
title to the shares having vested in the Corporation by operation of law by
virtue of the provisions of the Life Insurance Corporation Act, we would not be
justified in importing the condition as to stamp laid down in the first proviso
to sub-section (1) of section 108 into the second proviso. The wording of the
second proviso clearly shows that nothing in section 108, which would include
sub-section (1) as well as the first proviso to it, shall prejudice any power
of the company to register as shareholder any person in whom the right to any
shares in the company has been transmitted by operation of law. We do not think
that it would be open to respondent No.1 company to refuse to exercise its
power under the second proviso by insisting on the Corporation complying with
the provisions of either sub-section (1) of section 108 or the first proviso to
the same.
In the result,
we allow this petition and direct that respondent No.1 company, Bokaro &
Ramgur Ltd. of Calcutta, do rectify its register of members by entering the
name of the petitioner in respect of 1,220 shares bearing distinctive numbers
mentioned in schedule "B" to the petition, and deleting the name of respondent
No.2 in respect thereof, and further entering the name of the petitioner in
respect of 14,570 shares bearing distinctive numbers also mentioned in the
schedule "B" to the petition, and deleting the name of respondent
No.3 in respect of these shares from its register of members. We further direct
that the notice of this rectification be filed by respondent No.1 company with
the Registrar of Companies, Calcutta, within 30 from days today as required
under section 156 of the Act.
As regards
costs, it appears from the correspondence that after the shares of different
companies had vested in the Corporation by virtue of section 7 of the Life
Insurance Corporation Act, 1956, none of the other companies adopted the
attitude in the matter of transfer of shares in the name of the Corporation as
has been done by respondent No.1 company. On the contrary, it appears that they
agreed to the transfer of shares in the name of the Corporation on the latter
signing a letter of request to become a member of the company concerned, and
this position was brought to the notice of respondent No.1 company. In our
view, after the dismissal of its suit in the Calcutta High Court for want of
prosecution, respondent No.1 company should not have created any difficulty in
the way of entering the name of the Corporation on its register of members and
that it unnecessarily delayed the matter. In these circumstances, we direct
respondent No.1 company to pay to the petitioner costs quantified at Rs. 250.
It will bear and pay its own costs.
[1993] 77 COMP. CAS. 231
(KAR)
HIGH COURT OF KARNATAKA
v.
Vithal Prasad Co. (Pvt.) Ltd.
KEDAMBADY JAGANNATHA SHETTY,
J.
COMPANY PETITION NO. 117 OF 1990.
SEPTEMBER 23, 1992
B.S. Kamate
for the Petitioner.
Gururajan for
the Respondent.
Kedambady
Jagannatha Shetty, J.—This
is a company petition filed by the petitioner under section 155 of the
Companies Act for rectification of the register of members of the
respondent-company, directing the respondent-company to effect the transfer/substitute
the name of petitioner No. 1 in place of her deceased husband Channabasappa and
to declare that petitioner No. 1 is entitled to the benefits and profits
of the company.
The facts of
the case speak eloquently. The respondent is a company incorporated under the
provisions of the Companies Act, 1956. It is a private limited company with the
object of purchasing, selling or otherwise dealing in all kinds of oil,
lubricants, petrol and petroleum products. The first petitioner's husband and the
father of petitioners Nos. 2 to 7 Mr. Channabasappa was one of the
director-members and a shareholder of the respondent-company. He died on August
16, 1988, leaving behind him the petitioners, the legal heirs. Petitioner No. 1
after the death of her husband, made an application on October 30, 1988, to the
respondent-company for the transmission of his shares and other interest in her
name. The true copy of the application is produced and marked as annexure-C.
The petitioners were asked to comply with certain requirements by the company,
such as production of the succession certificate. It was accordingly complied
with and they have produced the succession certificate issued by the competent
authority along with the application. The true copy of the same is produced and
marked as annexure D. Petitioners Nos. 2 to 7 have given their no objection
letter for transmission of shares in the name of petitioner No. 1. The copy of
the said letter is produced and marked as annexure-E.
The
petitioners had sent several reminders to the respondent-company for
transmission of Shares of the deceased Channabasappa but no action was taken in
this regard. Ultimately, the petitioners have issued a legal notice, dated June
28,1990, to the company for complying and considering the application. The said
notice was produced and marked as annexure-F.
Petitioner
No. 1 had received a letter dated February 21, 1990, from the
respondent-company stating that the application will be placed before the
next board of directors meeting. The copy of the said communication is produced
and marked as annexure-G. Since then the application of the petitioner has not
been considered by the respondent-company nor any steps taken to transmit the
shares in the name of petitioner No. 1.
It is stated that the respondent-company has acted
illegally and in contravention of the articles of association of the company
and also the provisions of the Companies Act. It is stated that as per the
articles of association, the company is bound to transmit the shares of the
husband in her name. The matter was delayed for no reason and the petitioners
have been illegally deprived of their rights to act as a member-shareholder and
their right to recover the amount of dividend and other profits of the company.
Thus, the petitioners have filed this petition seeking a direction to the
respondent-company to transmit the shares of the deceased Channabasappa in the
name of petitioner No. 1. .
The respondent-company represented by its chairman
appeared through counsel, Mr. Gururajan, and filed objection statement
contending, inter alia, that the petition is not maintainable in law and on
facts. It is stated that the articles of association do not provide for
transmission of shares in the name of the first petitioner. It is further stated
that the articles of association also provide for refusal to register the
transmission of shares under article 16 of the articles of association.
Further, it is stated that in the opinion of directors, no transfer can take
place, assuming that it could be done in the light of the facts stated above.
It is further stated that the second petitioner has taken away the books
without any authority of law and there is a police case and as such, he was in
the habit of acting against the interest of the company and in fact, he has
rushed to the press by making false defamatory statements against the
respondent-company. Apart from that it is also stated that the first petitioner
is not well versed in these matters and the second petitioner is taking
advantage of the situation. The petition lacks bona fides and, therefore, there
is absolutely no ground made for interference at the hands of this court. It is
denied that the respondent-company illegally and in contravention of the
articles of association have refused to act as sought to be made out by the
petitioner. It is further stated that the company is not bound to transfer the
shares in favour of the first petitioner in the absence of any article
available in the articles of association. It is further stated that the
respondent is not depriving illegally the rights of the petitioners, as stated
in their petition. The allegation of deprivation of dividends and other profits
is also denied. Finally it was stated that there was no proper application for
transfer of shares in the name of
petitioner No. 1 as required under section 108 of the Companies Act. The
application for transfer of shares was not in the proper form, no stamp
affixed, and, as such the question of effecting a transfer of shares in the
name of petitioner No. 1 or any one claiming to be the legal representative of
the deceased member, Channabasappa, does not arise for section 108 of the
Companies Act enjoins the company to reject any application for transfer of
shares unless the procedural requirements are fully complied with.
Learned
counsel for the petitioner contended that on the death of a member, his legal
representatives are in effect entitled to be the shareholders, for the right
has devolved on them through the death of the member whose name is still on the
register. Referring to the second proviso to section 108 of the Companies Act,
he submitted that it enables the company to register as shareholder a person to
whom the right to share devolves which right has passed by transmission and that
provision relating to transfer of shares do not apply to cases of transmission
by operation of law, i.e., devolution of right by succession on the legal
representatives of the deceased member. As such, there need be neither an
instrument of transfer nor any payment of stamp duty. Learned counsel for the
petitioner has further submitted that it is only transmission of shares from
the deceased member to his legal representatives and, as such there is no sale
of shares.
In support of
this submission, he has relied on the decisions: Gulabrai Kalidas Naik v.
Laxmidas Lallubhai Patel [1978] 48 Comp Cas 438 ; Nazamunnessa Begum v. Vidya
Sagar Cotton Mills Ltd. [1963] 33 Comp Cas 36 (Cal) ; Indian Chemical Products
Ltd. v. State of Orissa [1966] 36 Comp Cas 592 (SC).
Mr.
Gururajan, learned counsel for the respondent-company has argued that the
petition under section 155 of the Companies Act is not maintainable in as much
as the power of the court is very much limited. Section 155(1) is meant only in
case of mistake or misstatement, not otherwise. The legal representatives of
the deceased member cannot be permitted to invoke the provision of section 155
as sought to be done in this case. Further, he argued that the articles of
association provides for refusal to register the transfer of shares under
article 16 of the articles of association, that petitioner No. 2 is not a
responsible person to the satisfaction of the company, and petitioner No. 1
being a lady not well versed in company matters and the second petitioner is
taking advantage of the situation and is trying to get the share transferred in
the name of the petitioner. Lastly, he argued that the petitioner-transferee
has not complied with the formalities in connection with the transfer of shares
as provided under section 108 of the Companies Act. They are mandatory. The
articles of the company provide that every instrument of transfer must
accompany a certificate for the shares to be transferred. In this case, there
is no application for registration of transfer of share made by complying with
these requirements. As such, no instrument of transfer along with the share
application and registration fee are delivered or left at the office of the
company. That being so, no question of consideration by the directors of the
transfer of shares arises in the matter.
Let me
consider the controversy involved in the petition regarding the
transfer/transmission of shares in the name of petitioner No. 1, the legal representative
of the deceased Channabasappa, one of the director-members and shareholder of
the respondent-company.
The
undisputed facts are that the respondent-company is a private limited company
incorporated under the Companies Act. Petitioner No. l's husband and father of
petitioners Nos. 2 to 7, Channabasappa, died on August 16, 1988. Petitioners
Nos. 1 to 7 are the legal representatives of the deceased Channabasappa. They
have produced the succession certificate and petitioners Nos. 2 to 7 have given
their consent for transfer of shares in the name of petitioner No. 1 as per
annexure B. The petitioners have produced the succession certificate to the
effect that petitioners Nos. 1 to 7 are the legal heirs of deceased
Channabasappa. Petitioner No. 1 gave an application on July 5,1989 to the
respondent-company to transfer the shares of the deceased Channabasappa in her
name along with the consent of petitioners Nos. 2 to 7 stating that they have
no objection for transfer/ transmission of shares in the name of their mother,
petitioner No, 1. As the respondent-company did not take any step for
rectification of the register the petitioner issued a legal notice to the
respondent-company on June 28, 1950. However, the respondent-company referring
to one of the letters of the petitioners dated January 18, 1990 replied on
February 21,1990, stating that the application will be placed before the next
board of directors meeting. Thereafter, in spite of issuing notice by the
petitioners, dated June 28, 1990, neither was any action taken nor the notice
replied to by the respondent-company.
In view of
the conflicting contentions and the facts, the questions involved in this
application are :—
(1) Whether in a case of transmission of
shares, by virtue of operation of law by death or otherwise by the order of the
court, it is necessary to submit transfer forms in compliance with the
requirements contemplated under sub-section (1) of section 108 of the Companies
Act?
(2) When a person becomes the owner of
shares by virtue of succession due to the death of a member (whose name is in
the register of members) and he is entitled to be recorded as a member of the
company, and if the company refuses to record him as a member can he maintain
an application under section 155 of the Companies Act ?
To answer the
above questions, it is necessary to refer to the provisions of section 108 of
the Companies Act and the articles of association of the respondent-company.
The relevant section 108 reads as follows :—
"108.
Transfer not to be registered except on production of instrument of
transfer.—(1) A company shall not register a transfer of shares in, or
debentures of the company, unless a proper instrument of transfer duly stamped
and executed by or on behalf of the transferor and by or on behalf of the
transferee and specifying the name, address and occupation, if any, of the
transferee, has been delivered to the company along with certificate relating
to the shares or debentures, or if no such certificate is in existence, along
with the letter of allotment of the shares or debentures :
Provided that
where, on an application in writing made to the company by the transferee and
bearing the stamp required for an instrument of transfer, it is proved to the
satisfaction of the board of directors that the instrument of transfer signed
by or on behalf of the transferor and by or on behalf of the transferee has
been lost, the company may register the transfer on such terms as to indemnity
as the Board may think fit.
Provided
further that nothing in this section shall prejudice any power of the company
to register as shareholder any person to whom the right to any shares in, or
debentures of, the company has been transmitted by operation of law."
Article 16 of
the articles of association reads as follows :
"16. The
directors may refuse to register any transfer of a share-
(a) Where the share is not fully paid up, or
where monies due to the company are covered by the company's lien on the share
;
(b) Without assigning any reason therefor where
it is not proved to their satisfaction that the proposed transferee is a
responsible person ;
(c) Where
the directors are of opinion that the proposed transferee is not a responsible
person ;
(d) Where the directors are of opinion that the
proposed transferee is not a desirable person to admit to membership;
(e) Where the result of such registration would
be to make the number of members exceed the limits set out above."
The
contention of counsel for the respondent is that section 155 of the Act would
come into operation in the present case, if the requirement of section 108 of
the Act had been complied with by the petitioner and further argued that the
request of the petitioner was rightly refused by the respondent because the
proviso to section 108 was not followed since there was no proper instrument of
transfer duly stamped and executed and delivered to the respondent-company. The
respondent's counsel in support of his submission has relied on the decision of
the Kerala High Court in P. V. Chandran v. Malabar and Pioneer Hosiery Pvt.
Ltd. [1985] 57 Comp Cas 570. It is observed in the said decision (p. 578) that
"it is a condition precedent for getting the shares transferred that the
instrument should be executed by the transferor and the transferee, and it
should be left at the office of the company to be registered along with the fee
of Rs 2. The directors are obliged to consider only a valid application filed
in accordance with law under the articles of association. The petitioner has
obviously not filed such valid application at all which is a condition
precedent to enable the directors to consider the application and register the
transfer of shares. On the short ground, the jurisdiction of this court under
section 155(2) of the Companies Act itself is not properly or validly invoked
by the petitioner nor attracted."
I am not
satisfied that in the instant case, it was necessary for the petitioners either
to send along with their letter or application for entering their names on the
register of members with respect to the shares in this petition, which were
owned by the deceased husband of petitioner No. 1 and father of petitioners
Nos. 2 to 7, a transfer deed executed, attested and stamped or affixing the
necessary stamp on the letter/application itself. As already indicated the
shares of Channabasappa the deceased member devolved on his legal
representatives (legal heirs) evidenced by the succession certificate filed by
the petitioners. In cases like this, there could be no transferor to execute
any instrument of transfer and get it attested and stamped. By operation of
law, the shares of the deceased member get transmitted in favour of his legal
heirs.
Thus, the
only question, therefore, to be considered is—whether subsection (1) of section
108 of the Act' or the second proviso applies to the instant case.
As already
noticed, this is not a case of transfer of shares by act of parties. It is a
well laid principle of law that a "transmission by operation of law" is
not a transfer. Transmission by operation of law takes place where a person
acquires an interest in property by operation of law such as by right of
inheritance or succession, while a transfer is effected by act of parties.
Sub-section (1) of section 108 requires the instrument of transfer to be duly
stamped, for it is an essential condition for registering a transfer of shares.
The instant case is not covered by Sub-section (1) of section 108 of the Act,
but it would fall under the second proviso to sub-section (1) of section 108
which reads as follows :
"Provided
further that nothing in this section shall prejudice any power of the company
to register as shareholder or debenture-holder any person to whom the right to
any shares in, or debentures of, the company has been transmitted by operation
of law."
The
petitioners' counsel has rightly contended that where title to the share has
passed by operation of law, as in the present case, no further formalities have
to be completed so that neither a duly stamped instrument of transfer nor an
application in writing itself bearing the requisite stamp is necessary. But,
however, learned counsel for the respondent-company, Mr. Gururaj, argued though
this was a transmission by operation of law, and it may be that there cannot be
an instrument of transfer duly stamped and executed, but even so the
application or letter sent by the petitioner to the respondent-company
requesting entry of their names on the register of members should have borne
the stamp required for instrument of transfer as contemplated under sub-section
(1) of section 108 of the Act. There is no merit in this contention. As already
pointed out subsection (1) of section 108 of the Act deals with the transfer by
act of parties, requiring an instrument of transfer. 'In a transmission of
shares' by operation of law by succession or inheritance, there could be no
instrument of transfer. In the present case, the title to the shares having
vested with the petitioners by virtue of the death of the member and inheritance
by his legal heirs evidenced by the death certificate and succession
certificate, it would not be justified in importing the condition as to stamp
laid down in the first proviso to sub-section (1) of section 108 into the
second proviso. The wording of the second proviso clearly establishes that
nothing in section 108 which would include sub-section (1) as well as the first
proviso to it, shall prejudice any power of the company to register as
shareholder any person in whom the right to any shares in the company has been
transmitted by operation of law. I do not think that the respondent-company
could refuse to exercise its power under the second proviso by insisting on the
petitioners complying with the provision of either sub-section (1) of section
108 or the first proviso to the same.
The next
submission of the respondent-company was that the petitioners' application
under section 155 is not maintainable for section 155(1) is meant only in case
of mistake or misstatement. It was further argued that the articles of
association provides for refusal to register the transfer of shares under
article 16 of the articles of association. The petitioners' counsel has
controverted this contention of the respondent's counsel .and submitted that
the application of the petitioners under section 155 is maintainable, as the
power of the company court is very wide under section 155, and the power of
rectification is not confined only to correct the mistake or misstatement as
contended by the respondent's counsel. Section 155 reads as follows :—
"155.
Power of court to rectify register of members.—(1) If—
(a) the
name of any person—
(i) is
without sufficient cause, entered in the register of members of a company, or
(ii) after having been entered in the
register is, without sufficient cause, omitted therefrom ; or
(b) default is made, or unnecessary delay takes
place, in entering on the register the fact of any person having become,
or-ceased to be, a member ;
the person
aggrieved, or any member of the company, or the company, may apply to the court
for rectification of the register.
(2) The court may either reject
the application or order rectification of the register ; and in the latter
case, may direct the company to pay the damages, if any, sustained by any party
aggrieved.
In either case, the court in its discretion may make such order as to
costs as it thinks fit.
(3) On an
application under this section, the court-
(a) may decide any question relating to the
title of any person who is a party to the application to have his name entered
in or omitted from the register, whether the question arises between members or
alleged members, or between members or alleged members on the one hand and the
company on the other hand ; and
(b) generally, may decide any question which it
is necessary or expedient to decide in connection with the application for
rectification.
(4) From any order passed by the court on the application, or on any
issue raised therein and tried separately, an appeal shall lie on the grounds
mentioned in section 100 of the Code of Civil Procedure, 1908 (V of 1908)-
(a) if
the order be passed by a District Court, to the High Court;
(b) if
the orders be passed by a single judge of a High Court consisting of three or
more judges, to a Bench of that High Court.
(5) The provisions of
sub-sections (1) to (4) shall apply in relation to the rectification of the
register of debenture-holders as they, apply in relation to the rectification
of the register of members."
Petitioners'
counsel in support of his submission has relied on the decision of the Gujarat
High Court in Gulabrai Kalidas Naik v. Laxmidas Lallubhai Patel [1978] 48 Comp
Cas 438, wherein it was observed as follows (at p. 442) :
"A bare
perusal of section 155 on its own language does not indicate that the
jurisdiction conferred by the section is one hedged in with a condition that it
can only be exercised when relief can be granted in a summary manner. There is
nothing in the language of section 155 which excludes decision of questions of
title to shares that may arise in an application for rectification of register.
On the contrary, the language of sub-section (3) makes it abundantly clear that
in such an application, the court has power to decide any question relating to
the title of any person who is a party to the application to have his name
entered in or omitted from the register and the court would have further
jurisdiction to decide the question of title even when it arises between
members or alleged members, or between members or alleged members on the one
hand and the company on the other. Sub-clause (b) of sub-section (3) further
widens the jurisdiction of the court under section 155 when it permits or
enables the court generally to decide any question which it is necessary or
expedient to decide in connection with the application for rectification."
I am in full
agreement with the opinion expressed by the High Court of Gujarat. The power of
the company court under section 155 is very wide. It makes it clear that not
only any member of the company, but also a "person aggrieved" may
apply to the court for rectification of the register of members. In clause (b)
of section 155(1) the words "the fact of any person having become a
member" have been construed to mean "having become entitled to be a
member" or having got the right of membership, as observed by the Calcutta
High Court in Nazamunnesa Begum v. Vidya Sagar Cotton Mills Ltd. [1963] 33 Comp
Cas 356 (Cal). In my view having regard to the principles enunciated in the
above decision the company application of the petitioners filed under section
155 is maintainable.
Lastly, it
was argued by the respondent's counsel that article 16 of the articles of association
provides for refusal to register the transfer of shares, and the directors of
respondent-company are, in fact, of the view that petitioner No. 2 is not a
responsible person and petitioner No. 1 is a lady not well versed in company
matters. It is contended by the petitioners' counsel that these allegations
have now been belatedly made to justify their arbitrary action refusing to
effect the transmission of shares in the name of petitioners. On October 30,
1988, an application was sent by petitioner No. 1 after the death of her
husband. The respondent-company sent a reply as per annexure C, asking the
petitioner to produce succession certificate. The succession certificate was
produced and along with it the consent letter of petitioners Nos. 2 to 7 giving
no objection for transfer/transmission of the shares in the names of the
petitioners. The respondent-company thereafter in spite of several reminders,
including notice calling upon it to effect the rectification of register of
members showing the name of the petitioner as shareholder in place of her
deceased husband, Channa-basappa, did not take any action. However, the
respondent-company by its reply letter dated February 21, 1990, stated that the
matter will be placed before the next board of directors. There was no
communication thereafter by the respondent-company either accepting or refusing
transmission of shares in the names of petitioners. It is seen that the
intimation for transmission of shares was given by the petitioners to the
respondent-company, on October 30, 1988, the respondent-company has asked to
produce succession certificate which was produced by the petitioners.
Thereafter, the respondent-company by its letter dated February 21, 1990,
intimated that it would place the matter before the board. But, till today no
action was taken by the respondent either to accept or refuse the grant of
transmission of shares in the name of the petitioners. Under section 111, the
company has power to refuse registration of shares, in pursuance of power under
articles of association, but such refusal shall be made within two months of
the date of delivery of intimation of. transfer/transmission of shares, and
send the intimation of refusal to the person giving intimation of such
transfer/transmission. In the present case, the respondent has not refused to
register the shares, nor sent any intimation of refusal to register the shares
within two months from the date of delivery of intimation for transmission of
shares. Mere silence by the directors of company may not be. acquiescence, but
sub-section (2) of section 111 of the Act requires the company to notify the
person delivering intimation of transmission of shares, within two months of
the refusal to register. Therefore, if two months elapsed, it would be clear
that the directors can no longer refuse to register/effect the transmission of
shares. Since the respondent-company has not refused to effect transmission of
shares, in pursuance of its power under its articles within two months from the
date of delivery of intimation of transmission of shares by the petitioners,
the directors of respondent-company cannot now refuse the transmission of
shares in favour of petitioners.
It is pointed
out by the petitioners' counsel that article 16 of the articles of association
is inapplicable to the present case, as there was no transfer of shares falling
under section 108(1) or first proviso of the Act. It is a case of transmission
of shares falling within the second proviso of section 108 of the Act, by
devolution. In any event, since the power to refuse the transfer/transmission
of shares, within two months from the date of intimation given by the
petitioners, has not been exercised by the director of the company, it can no
longer refuse to register.
In the result,
I allow this petition and direct respondent-company, Vittal Prasad Company Pvt.
Ltd., Athani, do rectify its register of members by entering the name of
petitioner No. 1 in respect of the shares held by her deceased husband
Channabasappa by deleting his name in respect thereof.
I further
direct that the notice of this rectification be filed by respondent-company
with the Registrar of Companies, within thirty days from today as required
under section 156 of the Act. I further direct that respondent-company to pay
the petitioner the cost quantified at Rs. 1,500.
[1943] 13
Comp Cas 202 (MAD.)
v.
Indian Overseas Bank Ltd.
Chandrasekara
Iyer, J.
Civil Suit
No. 83 of 1942
March 2, 1943
T.L Venatarama Aiyar and G.R. Jagadisan, for the plaintiff.
V.V. Srinivasa Aiyangar and K.S. Rajagopala Aiyangar, for the defendant.
The plaintiff Thenappa Chettiar is the son of Lakshmanan Chettiar, who
was for some time one of the directors of the Indian Overseas Bank, Ltd., the defendant. Lakshmanan Chettiar held 402 shares
in the defendant Bank. He died on 1st December, 1940. leaving a registered will
dated 28th November, 1940. This will is Exhibit P-1 and has been proved by its
writer, P.W.I. Under the will, it is provided that the plaintiff Thenappa
should get the Bank shares transferred in his own name and manage all the
family properties as guardian for the other male children till they attain
majority; he was to collect the outstandings and pay the debts due and was also
to sell, purchase or transfer all moveable and immovable properties at
Karaikudi as he considered proper.
On 30th December, 1940, the
plaintiff applied to the Bank for transfer of the 402 shares in his name,
relying on the will, a registration copy of which he enclosed. This letter is
Exhibit P-2. The defendant Bank recorded the copy of the will in their books
and returned it to the plaintiff. As the transfer of the shares was not
effected, the plaintiff, who had by that time gone to
By their letter of the 12th of
May, 1941 (Exhibit P-10) the Bank intimated to the plaintiff, who was then at
Klang, Federated Malay States, that the shares would be transferred in the
joint names of himself and the minor sons of Lakshmanan Chettiar, but that, if
the shares were to be transferred in the plaintiff's sole name, probate of the
will was necessary. In the meantime, the plaintiff was asked to make
arrangements for paying the further call of Rs. 30 per share due on 1st June,
1941. The plaintiff wrote Exhibit P-11 stating that he was not able to take out
probate then as he was otherwise engaged in Klang and that he would arrange to
get the shares transferred as soon as he came over to
Succession certificate was
obtained by the plaintiff on 19th December, 1941, from the District Munsiffs
Court of Devakottah in I.A. No. 905 of 1941 in O.P. No. 20 of 1941 and the
plaintiff's lawyer Wrote to the defendant Bank Exhibit P-22 on 19th January,
1942, sending the succession certificate and the share scrips and pointing out
the enormous delay in effecting the transfer of the shares and asking that it
should be effected within 24 hours. The reply that the Bank wrote is Exhibit
P-23 dated 22nd January, 1942. They say that the matter was receiving their
attention but they would like to know in the meanwhile what arrangements were
being made for liquidating a debt of 14,969 and odd dollars which the
plaintiff's father Lakshmanan Chettiar owed the Bank in their Kualalampur
branch. Mr. T.L. Venkatarama Aiyar, the plaintiff's advocate, sent a reply on
26th January, 1942, Exhibit P-24, pointing out that the question of transfer of
the shares in the name of the plaintiff had little to do with the discharge of
the obligations of Lakshmanan Chettiar by which the plaintiff was necessarily
bound. Exhibit P-25 is the Bank's reply in which they raise another new
objection, namely, that the agent should procure and forward to the Bank a
letter from the plaintiff, who was then in the Federated Malay States overrun
by Japan, recognising the Bank's lien for the amount due by Lakshmanan Chettiar
and consenting to be treated as a member of the Bank and to be entered in the
register of its members as such. They pointed out that the power-of-attorney,
which the agent had, did not confer this power on him. Mr. T.L. Venkatarama
Aiyar urged in his reply, Exhibit P-26, the difficulties in getting a letter
from the plaintiff Thenappa, that his agent was prepared to give a letter if
the Bank would be satisfied with it and stating that, as the shares were not
proposed to be transferred to third parties and as it was only a case of the
name of the legal representative being substituted in place of the deceased,
there was no necessity for any such letter. But the Bank would not accept the
position thus taken and they said definitely in Exhibit P-27 dated 19th
February, 1942, that:
"the
question of transfer cannot be proceeded with unless Thenappa Chettiar should
agree to being registered as a member subject to the Memorandum and Articles of
Association of the Bank and for the registration being effected without
prejudice to the lien over the shares in our favour for the amount due to us.
The question of transfer is therefore awaiting further consideration by the
Board pending receipt of the undertakings."
This was followed by the suit notice, Exhibit P-28 dated 24th March,
1942, in which for the first time it was mentioned that the plaintiff had
entered into an agreement with another Chettiar to sell the shares at
advantageous rates and, that by reason of the default of the Bank to transfer
the shares in his name, he lost the benefit of this bargain and had thereby
sustained damages to the extent of Rs. 17,000 and odd. The reply notice to this
is Exhibit P-30.
The suit is to compel the defendant Bank to register the 402 shares in
the name of the plaintiff and to recover a sum of Rs. 20,000 as and by way of
damages. Several defences have been raised. One is that the plaintiff is an
alien enemy and could not maintain the suit. The will under which the plaintiff
claims is not admitted and the plaintiffs title to get a transfer of the shares
under the will or otherwise is repudiated. It is pleaded that the succession
certificate is not of the same force as a probate or letters of administration.
The Bank also urges that it was justified in asking for a letter from the
plaintiff expressly recognising the subsistence of the lien. The Bank bad no
notice of the contract to sell the shares to a third party and therefore no
special damages could be claimed; as a matter of fact, no damages were
sustained by the plaintiff; any way, the amount is highly exaggerated.
Most of the objections raised by the Bank to the transfer of the shares
appear to me to be captious and untenable. The will was executed at Karaikudi
and registered. The provisions in the will, conferring on the plaintiff power
to collect outstandings, pay debts and manage the properties, clearly
constitute the plaintiff an executor by implication, as even a tyro in the
profession would have told the Bank, and yet we find the objection that the
plaint has not stated whether any executor has been appointed under the will.
The will mentions Karaikudi as the place where it was executed. But objection
is raised that the plaint does not disclose by what law the will is governed.
The Bank state in their letter of the 3rd October, 1941, that a succession
certificate would do. But when this was produced, they took no notice of it and
raised other obstacles to the transfer. The plaintiff himself wrote to the Bank
two letters Exhibits P-2 and P-5, wanting the shares to be transferred in his
name and he also sent the telegram Exhibit P-13. Still, the Bank wanted a
letter of request from him consenting to be treated as a member and to be
entered in the register of members as such. The conduct of the Bank cannot but
be described as evasive and dilatory right through and raises a suspicion about
its bona fides.
It was strenuously contended by Mr. V.V. Srinivasa Aiyangar the learned
advocate for the Bank, that under Article 42 of the articles of association of
the Bank, "the executor or administrator of a deceased member shall be the
only person recognised by the company as having any title to his share and the
company is not bound to recognise the executor or administrator unless he shall
have obtained probate or letters of administration." I have pointed out
already that the will, a registration copy of which was sent to the Bank, makes
it perfectly clear that the plaintiff was an executor. As it is a mofussal will
executed at Karaikudy, probate is not compulsory. Article 42 contemplates
"probate or letters of administration or other legal representation from a
duly constituted Court in
Equally unfounded was the objection to the transfer
of shares in the absence of an express letter from the plaintiff as regards the
subsistence of the company's lien for the Kaulalampur overdraft. Apart from the
fact that the objection was raised for the first time only on 2nd February,
1942, in Exhibit P-25—almost at the fag-end of the controversy between the
parties which itself suggests that it was more or less an after-thought—there
does not appear to be any legal basis for the belief that the transfer of the
shares in the name of the plaintiff in place of his deceased father would
destroy the lien in the absence of any such express affirmation. Article 29
which was referred to in this connection provides no doubt, that "unless
otherwise agreed, the registration of a transfer of shares shall operate as a
waiver of the company's lien, if, any, on any such shares." But this
article deals with transfer as distinguished from transmission which is dealt
with in article 43. Transfer and transmission are quite distinct from each
other. The former is based upon the act of parties; the latter is the result of
the operation of law. In the case of a transmission of shares, they continue to
be subject to the original liabilities, and if there was any lien on the shares
for any sums due, the lien would subsist, notwithstanding the devolution of the
shares. On Lakshmanan Chettiar's death, leaving the plaintiff and two minor
children behind, the plaintiff became entitled to have the shares transferred
in his name, and the will recognises this right. The lien, if any, would attach
to the shares in the hands of the plaintiff.
The plaintiff could not give any such letter stating
the obvious, for the simple reason that he was then in territory occupied by
the enemy, namely, the Federated Malay States. They would not accept any letter
from the agent on the ground that the power of attorney did not authorise him
to give any such consent. The plaintiff's advocate pointed out the hollowness
of the objection by his letters Exhibits P-26 and P-28 but the Bank, for
reasons not apparent, remained adamant. It is stated in Exhibit P-28:
"I need hardly say that Thenappa Chettiar, as
the heir of Lakshmanan Chettiar, would be liable to discharge whatever debts
were left by Lakshmanan Chettiar and likewise whatever rights the Bank might
have in regard to the shares by way of lien would continue against those shares
in the hands of the legal representative also."
This position is unexceptionable and it was in my opinion wrong on the
part of the Bank to have ignored it and to have insisted on a letter containing
an express recognition of the lien, a letter which the plaintiff could not
send, because he was in enemy occupied territory then. This objection is not so
bad, as the demand for a letter of consent
to be a member of the Bank after three communications from the plaintiff
requesting the transfer of the shares in his name in the Bank's registers; but
it is bad enough. If the money due on the further call has not been paid so
far, the default is entirely due to the Bank, in not having made the transfer,
as would be apparent from a perusal of Exhibits P-8, P-10, P-11 and P-12.
Great stress was laid on the right
of the company to refuse to admit any person as a member without assigning
reasons and attention was drawn to articles 36 and 43 in this connection.
Article 36 deals with the power of the directors in their absolute and
uncontrolled discretion to refuse to register any proposed transfer of shares
even in a case where the proposed transferee is already a member. Article 43
deals with the devolution or transmission of shares on the death or bankruptcy
of any member, and even here, the person on whom the shares devolve cannot
insist on any right to be registered as a member, the directors not being under
any obligation to accord consent to the transfer. The law on the subject is
found in Bede Steam Shipping Company, Ltd., In re, where the
earlier decisions in Ex parte Penney, In re
Coalport China Co. and In re
Bell Brothers
are all considered and discussed. The right of transfer is absolute as it is
inherent in the ownership of the shares, but it can be restricted by contract,
which has to be found in the articles of association. Even in a case where the
power to refuse registration is conferred in absolute terms, the refusal must
not be arbitrary. Provided they act in a bona fide manner, the directors are
not bound to give any reasons. But if they give reasons, the Court can examine
them, but it will not overrule the decision of the directors merely on the
ground that it would have reached a different conclusion. If the directors
refuse registration on any wrong principle, their act can be rectified. The
true legal position as regards this discretionary power of directors to refuse
or reject transfers is thus stated in the 11th edition of Buckley on Companies
at p. 139:
"If the
directors do give their reasons, the Court will then consider whether they are
legitimate or not, that is, whether the directors have proceeded on a right or
wrong principle, and will overrule their decision, if their reasons are not
legitimate, but not, if they are legitimate, merely because the Court would not
have come to the same conclusion. The Court will also overrule the directors'
decision where, although they have given no reasons, it is proved that they
have acted on a wrong principle or otherwise than bona fide. The principles
applicable are exactly the same whether the power of rejecting transfers is
absolute or limited to particular grounds."
In the present case the. directors have assigned reasons none of which
appears to me to be tenable or sound. The absolute and uncontrolled discretion
referred to in article 36 is not repeated in article 43 where we find the
transmission clause. It is doubtless true that the directors are not under an
obligation to give their consent, but they cannot withhold it arbitrarily on
wholly unreasonable or frivolous grounds. I am fully alive to the distinction
between the right to a share or shares in the company and a right to be treated
as a member of the company holding the share or shares. When consent is with
held for reasons which cannot stand scrutiny and no objection is raised of a
personal kind against him on whom the shares have devolved by operation of law,
to recognise a power in the directors to refuse the transfer is to countenance
an abuse of powers vested in them for the due and efficient management of the
company.
Not satisfied with the objections they had raised prior to the
institution of the suit, a fresh obstacle was sought to be thrown in the
plaintiff's way by the plea that he could not maintain the suit, as he is an
alien enemy. The plaintiff Thenappa went to the Federated Malay States
somewhere in 1941 and is still there presumably. As the territory has been
overrun by Japan after the outbreak of hostilities between Japan and Great
Britain in December, 1941, the argument is raised that the plaintiff should be
treated as an alien enemy within the meaning of the law and therefore
disentitled from maintaining the suit either by himself or through his agent
Ganesa Aiyar. Section 83 of the Code has no application as the Federated Malay
States is not a foreign country the Government of which is at war with the
United Kingdom of Great Britain and Ireland. Mere military occupation by an
enemy is not enough. The lawful and recognised government of the foreign
country must be at war. A Government based on military force is not the
Government contemplated by the section. The Defence of India Act and Rules do
not apply either. It is not enough that Klang which was the place where the
plaintiff was last residing, is in the occupation of Japan. Before it can be described
as enemy territory, we must also say that it was not an area in the occupation
of His Majesty or of a State allied with His Majesty. There is no proof of any
kind, and we cannot assume this in favour of the defendant, that the plaintiff
has been carrying on any business in the place where he is now residing and can
therefore be said to be trading with the enemy. Part 15 of the Rules makes it
clear that what is prohibited and rendered penal is any commercial, financial
or other intercourse, or dealings with, or for the benefit of the enemy. A very
helpful case on this subject is found in In re An Arbitration.
On the question of damages, I ruled at the commencement of the trial, that
the plaintiff was not entitled to give any evidence of the special contract he
entered into with a third party for the sale of the shares. The plaintiff
called upon the Back even as late as January, 1942, to transfer the shares in
his name and gave them some time to do so. If the Bank had complied with this
demand, they would have been under no obligation to pay any damages on the
basis of the contract with a third party which was much earlier. When the
plaintiff alternatively claimed general damages on the footing of difference in
the then and present market rates of the shares, objection was raised that be
could not do so as there was no such claim laid in the plaint on this basis.
But I held in my order of the 5th February that it was open to the plaintiff on
the allegations in the plaint to ask for general damages on the basis of a fall
in the market prices of the shares between the date of the final refusal of the
Bank to comply with the plaintiff's demand and now. The plaintiff has not
succeeded in showing that there was any such fall in the value of the shares.
D. Srinivasan, Manager of the Stock Exchange Association, merely stated that
the Bank shares were quoted at Rs. 100 and Rs. 95 in January, 1942, and that
the present quotation was Rs. 75 per share. The quotations were only notional
and prevailed only as between the members of the association. They were not
based on any actual transactions. He admitted that there was no transaction of
sale in the shares from 15th January, 1941, to 22nd February, 1942. His having
heard of a transaction on 23rd February, 1942, at Rs. 81 per share dividend is
no evidence. P.W. 3, Kuppuswami Aiyar, is a clerk in Swastik & Co.,
Stock-brokers, Madras. Fortnightly reports of prices of shares are published by
his firm. The report, Ex. P-31, dated 23rd January, 1942, quotes the price of
the share at Rs. 100 and the rate for February, 1943, is given as Rs. 78 as per
Ex. P-32. But he had to admit that the quotations did not always represent
actual transactions and that he did not personally know it there was any sale
or purchase of the defendant-Bank's shares during the relevant period. Mr.
Sadasivam, the General Manager of the defendant Bank, examined as D.W. I, said
that there were no transactions to his knowledge from 15th December, 1941, to
20th January, 1942, and that there was only a nominal market because of the war
conditions that had come into existence. The plaintiff has not established any
general damages representing a fall in the price of the shares now as compared
with the prices prevalent in January, 1942.
The fact that the plaintiff has not been able to prove any loss sustained
by him by reason of the refusal on the part of the Bank to transfer the shares
to his name does not however destroy his right of action to have the wrong
rectified and get some damages for the breach by the defendant Bank of its
legal obligation to the plaintiff in the matter of the shares. He is entitled
to nominal, if not substantial damages; and I award Rs. 250 under this head,
besides decreeing the rectification of the Register of Members as claimed in
prayer (a) of paragraph 22 of the plaint. He will get costs only on this part
of his claim and not on the claim as regards damages which he has grossly
inflated. There will be no order as to costs in favour of the defendant.
[1990] 67 COMP. CAS. 306
(MAD.)
HIGH COURT OF
v.
Shardlow India Ltd.
MOHAN AND DAVID ANNOUSSAMY JJ.
O.S. Appeals Nos. 118 to 122 of 1979.
OCTOBER 14, 1988
Vedantham
Srinivasan and T. Venkatanarasimhalu for the Appellant.
R.
Krishnamurthy, T. Dilip Singh and Dr. Y.S. Chitaley for the Respondent.
Mohan, J.—These appeals arise out of the common
judgment of Ramaprasada Rao J., as he then was, rendered in Company Petitions Nos.
27 to 31 of 1976. A common question arose in all those petitions. The nature of
relief was for rectifying the register of members of five incorporated
companies, namely, Shardlow India Ltd., India Pistons Ltd., Tractors and Farm
Equipment Ltd., Bimetal Bearings Ltd. and Reichhold Chemicals India Ltd.
The
rectification sought for was for the removal of the name of Associated Printers
(
The third
respondent in the appeals was the third respondent before the learned judge in
all the company petitions. He is none other than the brother of the petitioner
before the learned single judge and the appellant before us. Since it was
agreed between the parties that the pleadings in C.P. No. 31 of 1976, if
referred to, would be enough to focus the controversy which is identical in all
the cases, the learned judge noted that excepting in the matter of variance of
the number of shares and the value thereof, the point of law being one and the
same, it would be sufficient to confine the consideration only to the pleadings
in C.P. No. 31 of 1976.
The short
facts are as follows :
Mr.
Anantharamakrishnan, a leading industrialist, died on April 18, 1964, leaving
his widow, two sons and two daughters. The third respondent is the eldest son.
On the death of the said Anantharamakrishnan, his estate became liable to pay
estate duty in the sum of over Rs. 150 lakhs. There were other liabilities
also. Principally, the estate of Anantharamakrishnan consisted of agricultural
lands in Tirunelveli District and shares in various companies including the
five companies figuring as the first respondent before the learned single judge
as well as before us. On December 15, 1964, a letter was addressed to the
Assistant Controller of Estate Duty to the following effect by the sons and the
daughters including the appellant herein.
"We are the other
accountable persons to the estate of the late Sri S. Anantharamakrishnan. Sri.
A. Sivasailam has rendered the estate duty account. We agree to abide by the accounts
so rendered by him and any explanation furnished by him with regard to estate
duty matters will be binding on us."
The third
respondent being the eldest son, as stated above, took over the administration
of the estate of his deceased father. According to him, the administration was
taken over pursuant to the oral consent given by all the other heirs including
the petitioner. He had also secured a power of attorney from the co-heirs. The
third respondent's case is that he entered upon the administration and
management of the estate with the full knowledge and consent of the other
heirs. He had to borrow moneys from time to time from third parties including
the second respondent, Associated Printers (
In March,
1974, the third respondent transferred 10 shares of the decease.d,
Anantharamakrishnan, in the first respondent company in favour of the second
respondent company. The value of the shares stood at Rs. 583. The details of
the transfer are as follows :
|
|
Name of company |
No. of shares |
Value per share Rs. |
Price Rs. |
|
1. |
Shardlow India Ltd. |
100 |
10 |
1,010 |
|
2. |
Reichhold Chemicals India Ltd. |
10 |
100 |
583 |
|
3. |
Tractors and Farm Equipment Ltd. |
100 |
10 |
897 |
|
4. |
Bimetal Bearings Ltd. |
400 |
10 |
9,644 |
|
5. |
India Pistons Ltd. |
1 |
10 |
50 |
|
|
Total : |
|
|
12,184 |
The stand of
the third respondent was that the transfer of shares from one company to
another was effected by him bona fide and as administrator of the estate. It
was not intended to defeat the rights of any one. A letter to this effect was
written on August 26, 1974, by the third respondent to the appellant and it
reads as follows :
"Madam,
Reference our letter of the 10th
June, I am detailing the position below.
The shares in Reichhold Chemicals
India Ltd., Bimetal Bearings Ltd., Shardlow India Ltd., Tractors and Farm
Equipment Ltd. and India Pistons Ltd. in the name of father were transferred to
Associated Printers (Madras) Private Ltd. on 8th March, 1974, in partial
liquidation of the amounts due to them by the estate. Details of the shares
with the price realised are given below :
|
|
Name of company |
No. of
shares |
Value per share Rs. |
Price |
|
1. |
Shardlow India Ltd. |
100 |
10 |
1,010 |
|
2. |
Reichhold Chemicals India Ltd. |
10 |
100 |
583 |
|
3. |
Tractors and Farm Equipment
Ltd. |
100 |
10 , |
897 |
|
4. |
Bimetal Bearings Ltd. |
400 |
10 |
9,644 |
|
5. |
India Pistons Ltd. |
1 |
10 |
50 |
|
|
Total: |
|
|
12,184 |
In this connection, I wish to
advise that these shares were transferred at the values determined under the
Wealth-tax Rules, 1957.
As regards filing of wealth-tax returns
for the assessment year 1974-75 (valuation date 31st March, 1974), the assets
detailed in the attached sheet will form part of the estate.
The following liabilities are to
be borne equally by the legal heirs and should thus be claimed as a deduction
in their individual wealth-tax returns.
|
|
|
|
Rs. |
|
1. |
Sri
Paramakalyani Education Society |
13,32,147,20 |
|
|
2. |
Higginbothams
P. Ltd. |
2,40,000.00 |
|
|
3. |
Associated
Publishers (Madras) P. Ltd. |
3,67,613.46 |
|
|
4. |
The Madras Advertising
Co. P. Ltd. |
1,50,000.00 |
|
|
5. |
Associated
Printers (Madras) P. Ltd. |
3,28,550.17 |
|
The other amounts due as on March
31, 1974, namely, Rs. 13,902.40 will be shown in the hands of the estate for which
a separate return will be filed. Please let us have your acknowledgment of
receipt of this letter."
On September
4, 1974, the appellant before us wrote to the third respondent as follows :
"Now that the estate duty
has been fully discharged, I shall be pleased if you will render account
showing the total assets and liabilities of the estate as on March 31, 1974.
This information is required to enable me to submit my wealth-tax returns. The
particulars given in your letter Ref. nil, dated August 26, 1974, are not
sufficient and my auditor has required this information to be obtained from
you.
I also request you to send me
copies of the wealth and income-tax returns submitted for the year ended March
31, 1974.
The income and expenses statement
of the estate for this period may also be sent.
I shall be grateful if these
informations are furnished as early as possible."
To this, a
reply was issued on September 23, 27, 1974, enclosing a copy of the estate
account for the period July 1, 1973, to June 30, 1974. The said reply is
extracted below :
"With reference to your
letter of the 4th September, I am sending herewith copies of the wealth-tax and
income-tax returns of the estate for the assessment year 1974-75.
Apart from the assets and
liabilities mentioned in the wealth-tax return, there are no other assets
relating to the estate. You will observe from the covering letter to the
Wealth-tax Officer relating to the wealth-tax return that the shares in
Amalgamations P. Ltd. were already transmitted to the five legal heirs. The
wealth-tax assessments are pending from assessment year 1965-66 and the
wealth-tax liability, if any, would be known when a ruling on the basis of
valuation of shares, in Amalgamations P. Ltd. is given by the Central Board of
Direct Taxes with whom this matter is pending.
A copy of the estate account for
the period 1st July, 1973, to 30th June, 1974, with Amalgamations P. Ltd. is
sent herewith."
On October
21/25, 1974, the appellant's husband, as power of attorney-holder, replied to
the third respondent that the appellant was very sorry and surprised to be
informed that the shares held by their father in the various companies have
been sold by the third respondent in alleged satisfaction of debts due to Associated
Printers (Madras) P. Ltd. He also stated that she was surprised that she was
never informed about the alleged debt and that she would have paid the amount
if any amount was really due and kept the shares herself. According to her, the
third respondent did not even choose to offer the shares to a co-owner who is
entitled to a pre-emptive right to purchase the same. Therefore, the transfer
of the shares was illegal and was not binding on her. By the said letter, she
also offered to purchase the shares at the rates mentioned in the letter of the
third respondent to the extent that was due to her. The third respondent was
called upon to arrange to have them retransferred to her name within a week
failing which necessary steps would be taken in that regard.
A similar
letter was issued to the second respondent-Associated Printers (Madras) P. Ltd.
and the other companies wherein the stand taken was that the transfer was made
without the consent of the appellant and as such, it was null and void. To this
letter, Shardlow India Ltd. replied to the appellant by its letter dated March
24, 1975, as follows :
"We are in receipt of your
letter dated 13th March, 1975, and in reply wish to state that this company had
received a valid request from Mr. A. Sivasailam, on behalf of the estate of the
late Sri. S. Anantharamakrishnan, for transfer of the shares in favour of
Associated Printers (Madras) P. Ltd.
The directors, in their
discretion as conferred under the articles, entertained the request and
transferred the shares. The company is not concerned with individual
differences and the same cannot render void a validly effected transfer.
The question of rectification of
the register of members, therefore, does not arise. There is no mistake in the
register which requires rectification."
On April 2,
1975, again the appellant called up Shardlow India Ltd. to rectify the
register. The said company, by its reply dated April 29, 1975, took the stand
that the transfer had been properly effected acting in accordance with the
provisions of the articles of association and, therefore, it was unable to
comply with her request. It was under these circumstances that the company
petitions, C.P. Nos. 27 to 31 of 1976, came to be filed.
Under section
155 of the Companies Act, 1956, the appellant launched these petitions for
rectification of the share register of the first respondent company :
(i) by
removing the name of the second respondent as the holder ;
(ii) substituting
the petitioner's (appellant herein) name as the holder of the shares ; and
(iii) declaring
that she would be entitled to hold the shares in her own name.
In the
petitions, a stand was taken that the third respondent had no authority or
power to transfer any assets belonging to the estate of the father without her
knowledge or consent specifically and that any such transactions are not
binding on her. The third respondent had, by virtue of his overwhelming
authority and control over the said companies, either prevented the name of the
petitioner being properly entered in the books or otherwise transferred or
disposed of the shares belonging to her late father in which she is entitled to
1/5th share, to companies controlled by the third respondent.
In the counter-affidavit
filed on behalf of the first respondent, the principal stand taken was that
section 155 of the Companies Act provides only a summary remedy. It is intended
only to adjudicate upon questions arising under the said Act between members.
The petitioner does not claim to be a member of the respondent-company. She
claims to be one of the heirs of a deceased member. The third respondent had
explained that he administered the estate and signed the transfer document with
the knowledge, connivance and acquiescence of the petitioner. In a petition of
this nature, complicated questions of law and disputed questions of fact cannot
be determined. The third respondent acted as de facto administrator and manager
of the estate of the deceased Anantharamakrishnan with the consent of the other
co-heirs. It is incorrect to say that the first respondent is under the control
of the third respondent.
The articles
of association give absolute power to the first respondent to refuse to
register a transfer. As the petitioner has not lodged a transfer in her favour
for registration, the question of refusal has not arisen. The registration of
shares in favour of the second respondent is binding on the petitioner as an
heir of the deceased, Anantharamakrishnan. The transfer has been registered
bona fide and in accordance with law. In view of the fact that the petitioner
is a co-owner, she is not entitled to any relief.
The third
respondent, in his counter, took the stand that the estate of
Anantharamakrishnan was liable to pay estate duty to the tune of Rs. 150 lakhs.
In the course of the administration of the estate, the borrowings from some of
the companies including the second respondent had to be repaid either in cash
or by transfer of shares. In his capacity as the administrator, transfers were
effected bona fide. Not only the petitioner, the other heirs of the deceased,
Anantharamakrishnan, were aware of the management of the estate by the third
respondent. In fact, they had acted on such management, derived benefit thereunder,
connived thereat and acquiesced therein. Therefore, they are estopped. Again,
the stand taken is that section 155 of the Companies Act, being a summary
remedy, it cannot be invoked for the present purpose. In exercising such
jurisdiction, the court cannot partition the shares of the deceased
shareholder. The petitioner is not entitled to have a partial partition of the
estate with regard to the shares alone.
The
management of the estate of the deceased father of this respondent had been
done with the consent of all the heirs including the petitioner which consent
was oral. No succession certificate, probate, letters of administration or any
other representation to the estate of the deceased was taken as it was found
not necessary. This respondent was acting as a de facto administrator with the
knowledge, connivance and acquiescence of the legal heirs including the
petitioner. The estate duty was a statutory liability which had to be
discharged.
In the counter-affidavit,
the details of the borrowing from each of the companies are also furnished.
There were also debts incurred during the lifetime of Anantharamakrishnan
himself. The transfer of shares was made in the best interests of the estate in
his capacity as the administrator of the estate. The transfer was made only to
a 100 per cent. subsidiary of Amalgamations P. Ltd. in which the petitioner has
one-fifth shareholding. Therefore, the petitioner cannot be said to be
prejudicially affected by such transfer of shares whose value is insignificant,
namely, Rs. 12,184. This clearly shows that these petitions had been filed with
ulterior motives.
In the reply
affidavit, the petitioner reiterated her stand.
Ramaprasada
Rao J. held that there was no evidence to show that the third respondent was
controlling all the directors in the concerned companies ; nor did he have a
sway over them so as to lead them to the goal which he desired. The learned
judge further found that it was only on April 20, 1972, that the
petitioner-appellant herein decided to cancel the power of attorney in favour
of the third respondent and further decided to handle the matter directly. The
question, therefore, would be whether the third respondent could continue to
act.
In
determining this question, the learned judge took the view that the estate in
the hands of the third respondent was impressed with the character of a
constructive trust and unless the dealings of the possessor of the estate are
illegal and void abinitio and not to the benefit of the co-owners of the
estate, there could not be no rightful challenge. In so far as it was not
decided that the transfers in question were effected to pay off the preexisting
debts of the deceased, Anantharamakrishnan, or to pay off public dues such as
estate duty or wealth-tax, it could not be held to be illegal or in any way
prejudicial to the other heirs, more so, when the third respondent was acting
as administrator. This would be the position even if section 94 of the Indian
Trusts Act is applied.
It was
further held by the learned judge viewing the matter from the point of view of
section 304 of the Indian Succession Act that all payments made in the course
of due administration are saved even in the case of a person wrongfully acting
as executor.
Section 108
of the Companies Act bars the entertainment of a request for transfer of shares
by an incorporated company because the request is not by all the co-owners, but
only by one disgruntled and dissatisfied co-sharer. The authority in this regard
is Mannalal Khetan v. Kedar Nath Khetan [1977] 47 Comp Cas 185 (SC). The
petition was also premature.
In any event,
the third respondent acted as de facto trustee or at any rate as an
administrator. As such administrator de son tort, his action is valid.
The
petitioner could not be held to be a person aggrieved because she was not a
member of the company. In fine, he held that section 155 of the Companies Act
being a summary remedy, the question of title cannot be gone into. If the case
of the petitioner were to be accepted, it would result in allotment, of shares
in severalty. The same is not feasible and he refused to exercise the
discretion and dismissed the petition. It is under these circumstances that the
present appeals arise.
Mr. Vedantham
Srinivasan, learned counsel, appearing for the appellant, after detailing the
facts, would state that this is not a case of transfer of a share. It only
means "transmission" in consequence of death of any member. In this
case, such transmission of shares did occur on the death of
Anantharamakrishnan, the father of the appellant and the third respondent. Such
a transmission clause is found in article 21 of the articles of association of
the first respondent-company. The various requirements under the said article remain
unsatisfied in this case. Therefore, the transfer cannot stand in the eye of
law. The learned single judge had completely missed this vital aspect of the
matter.
Equally,
there is no scope for the application of section 108 of the Companies Act. That
will arise only if the title of the appellant is in question. Here, it cannot
be denied that, on the death of Anantharamakrishnan, the appellant became
entitled to one-fifth share. On the death of a Hindu male dying intestate, the
heirs succeed to the estate as, tenants-in-common under the provisions of
section 19 of the Hindu Succession Act and not as joint tenants. As such, the
appellant had every right to question the action of the third respondent, more
so, when the authority of the third respondent had been cancelled on June 12,
1972. Under these circumstances, section 108 of the Companies Act cannot be a
bar for the relief prayed for. A clear authority on this is K.P. Antony v.
Thandiyode Plantations P. Ltd. [ 1987] 62 Comp Cas 553 (Ker). A special remedy
had been provided under section 155 of the Companies Act and it cannot be said
that it involves any complicated questions of law or disputed questions of fact
when the title is not disputed. It is perfectly open to the appellant to invoke
section 155 of the Companies Act. In support of this submission, reliance is
placed on Shakuntala Rajpal v. Mckenzie Philip (India) P. Ltd. [1986] 60 Comp
Cas 545 (Delhi).
In so far as
section 22 of the Hindu Succession Act gives a right of pre-emption to a
co-sharer to acquire the properly, the appellant offered to buy the shares on
payment, and in order to defeat the rights, a transfer had been effected,
without the consent and knowledge of the appellant when actually if the
appellant had been informed about the nature of debts, she would have paid off
the value of the shares and kept them herself. At least, for the sake of
sentiment, certainly, the transfer is clearly void. The learned judge was not
correct in relying on either section 94 of the Indian Trusts Act or section 304
of the Indian Succession Act.
Dr. Chitaley,
appearing for the third respondent, would urge that the petitioner is certainly
not interested in the rectification of the register of the company but would
only be anxious in the purchase of the shares. In this case, the transfer is
for the benefit of the estate, as seen from the details furnished in the
counter-statement. The necessity for the borrowings had also been set out
fully.
Since the
debts were incurred prior to the debts incurred by Anantha-ramakrishnan, the
question is, if the administrator acts improperly, is there any remedy under
section 155 of the Companies Act. In this case, the transfer of shares was made
only to a 100 per cent. subsidiary of Amalgamations Ltd., in which the petitioner
has also 1/5th share. It is the common case, as pointed out by the learned
trial judge, that the estate duty liability of Anantharamakrishnan came to Rs.
150 lakhs. Section 155(1A) of the Companies Act talks of transfer without
sufficient cause. Where there is such sufficient cause, it is not open to
contend otherwise. Sub-section (3) of the said section does not apply because
if it is the case of the appellant seeking to establish a title, it cannot be
done in the absence of the other co-sharers, because it is well-settled now
that the proceedings under section 155 are in the nature of a summary trial. In
support of this submission, learned counsel relies on Hemlata Saha v. Stadmed
Pvt. Ltd. [1964] 34 Comp Cas 875 (Cal). Therefore, the company court has no
power to partition and divide the shares. This case arose, after the amendment.
As held therein, an allotment can be done only in an action for partition.
Again, in
Mahendra Kumar Jain v. Federal Chemical Works Ltd. [1965] 35 Comp Cas 651
(All), it was held that where title to the share was disputed, section 155 of
the Companies Act could not apply and the parties were referred to a suit,
since section 155 proceedings were summary in nature.
In Daddy S.
Mazda v. K.R. Irani [1977] 47 Comp Cas 39 (Cal), a serious charge of forgery in
the company records arose and it was held that, without letting in evidence,
section 155 cannot be invoked. This respondent would take it that his position
is that of an intermeddler. Even then, whether his actions could be questioned
is the point to be determined. Learned counsel referred to section 2(11) of the
Code of Civil Procedure containing the definition of "legal
representative" who would include a person who would intermeddle with the
estate of the deceased. Again, the Estate Duty Act, under section 2(12)(ii),
takes within it an "intermeddler". As to what is the position of the
executor or administrator of the estate of a deceased and whether he could be
considered as a legal representative is dealt with in Mulla's Hindu Law,
fifteenth edition, page 489. His power to dispose of the property has been
clearly set out in para 376A. That is exactly the position here.
Even assuming
that this respondent is an executor de sen tort as pointed out in Halsbury's
Laws of England, fourth edition, volume 17, in para 758, the lawful acts of an
executor would bind the estate. But, on the same line of reasoning, section 94
of the Indian Trusts, Act which deals with the constitution of trustees, or
section 304 of the Indian Succession Act, which talks of payment in due course,
is held to be binding.
Article 21 of
the articles of association of the company, which is relied on by the other
side, is a transmission clause. Hence, it has no application.
No doubt the
transfer form has not been correctly filled in. But the signature as against
the transferor shows as an executor. With regard to the method of transfer, all
that the law lays down is that an instrument of transfer must be executed.
Otherwise, there are no restrictions for transfer, except the one imposed by
the article. The appellant, in effect and substance, questions the authority of
the administrator to administer the estate. He cannot do so after having had
the benefit of the third respondent's administration. Whether such a challenge
is permissible under section 155 of the Companies Act is the real question. His
submission is that the same is not permissible.
It is further
submitted by learned counsel that, in the petition, it is not challenged that
the transfer of shares was not in the proper course of administration of the
estate, and the only challenge is to the authority of the third respondent.
That the section is of summary nature is evidenced from the fact that
sub-section (4) provides for appeal only on a question of law.
With regard
to transmission of shares, Palmer's Company Law, twenty-third edition, page
495, paragraph 39-34 sets out the procedure. That will squarely apply.
Lastly, it is
submitted that it is the case of a judge having discretion but failed to
exercise the same, how could it amount to substantial question of law, enabling
this court to interfere.
Mr. Vedantham
Srinivasan, in his reply, submits that the principle of English law of
administrator de son tort does not arise. As submitted earlier, under the Hindu
law, when a Hindu male dies intestate, the heirs take the estate as
tenants-in-common. That is clear from section 19 of the Hindu Succession Act.
As such tenant-in-common, the petitioner has every right to question the
actions of the third respondent; more so when his authority had been revoked.
To a wrong-doer, the court cannot extend its protection.
Section 155
of the Companies Act is not summary in nature. It has been so laid down in
Gulabrai Kalidas Naik v. Laxmidas Lallubhai Patel of Baroda [1978] 48 Comp Cas
438 (Guj). It states that all questions in relation to transfer, right to
transfer and heirship should be decided by a court. With regard to
transmission, Schedule I, Table A of the Companies Act deals with the same.
Therefore, that alone will be applied. The company has a fiduciary duty to
recognize only the legal representative. Otherwise, no title can pass.
Shakuntala Rajpal v. Mckenzie Philip (India) P. Ltd. [ 1986] 60 Comp Cas 545, lays down so. Where there is a transfer by
operation of law, one cannot bring in concepts like administrator de son tort,
etc. That is clearly unwarranted.
We will now
proceed to deal with the respective submissions raised on either side. We have
already set out the facts in detail to show as to how the transfer of shares
came to be effected by the third respondent in favour of the second respondent
and how it was protested. One thing is clear that, during his lifetime,
Anantharamakrishnan had incurred debts as follows :
|
|
Rs. |
|
Higginbothams
Ltd. |
2,40,000 |
|
Madras
Advertising Co. Ltd. |
1,00,000 |
|
Associated
Publishers (Madras) Ltd. |
1,25,000 |
The
counter-statement of the third respondent states that these figures represent
only the principal amount borrowed without adding interest thereon. Similarly, there
was also liability to pay estate duty to the tune of about Rs. 150 lakhs. They
undoubtedly being legal liabilities had to be discharged and there is no escape
from the same. The third respondent is the eldest son who took over the estate
for the purpose of administration. It is in this connection that the letter
dated December 15, 1964, addressed to the Assistant Controller of Estate Duty,
Madras-34, assumes importance. According to him, with the oral consent of the
other co-sharers, he entered upon the administration. Such administration was
fully with the knowledge not only of him, but also of the other two co-sharers.
It is in the course of such administration that the transfer came to be
effected for the purposes of equation. It requires to be carefully noted that
the transfers were only to, a 100% subsidiary of Amalgamations Ltd. in which
the appellant had 1/5th share. All that the appellant would state is that the
third respondent had no authority to transfer the shares in the manner he had
done and called upon him to have the shares retransferred in which event she
would have purchased the same. As a matter of fact, in the letter dated October
25, 1974, it is categorically stated :
"You will, I am sure,
remember that she is entitled to 1/5th share of the estate and as such she is a
co-owner in the entire estate. She is surprised that you never informed her
about this alleged debt and she would have paid the amount, if any, really due
and kept the shares herself. You did not even choose to offer the shares to a
co-owner who is entitled to a pre-emptive right to purchase the same."
Therefore,
rightly, it is urged by Mr. Chitaley that throughout the appellant is thinking
only in terms of purchase of shares. This pre-emptive right is based on the
right found in section 19 read with section 22 of the Hindu Succession Act,
1956. Section 22 reads as follows :
"(1) Where, after the commencement of this Act, an
interest in any immovable property of an intestate, or in any business carried
on by him or her, whether solely or in conjunction with others, devolves upon
two or more heirs specified in class I of the Schedule, and any one of such
heirs proposes to transfer his or her interest in the property or business, the
other heirs shall have a preferential right to acquire the interest proposed to
be transferred.
(2) The consideration for which any interest in
the property of the deceased may be transferred under this section shall, in the
absence of any agreement between the parties, be determined by the court on
application being made to it in this behalf, and if any person proposing to
acquire the interest is not willing to acquire it for the consideration so
determined, such person shall be liable to pay all costs of or incident to the
application.
(3) If there are two or more heirs specified in
class I of the Schedule proposing to acquire any interest under this section,
that heir who offers the highest consideration for the transfer shall be
preferred.
Explanation. —In this section,
'court' means the court within the limits of whose jurisdiction the immovable
property is situate or the business is carried on, and includes any other court
which the State Government may, by notification in the Official Gazette,
specify in this behalf."
But, this is
a case of administration of an estate by the eldest coparcener. It is only in
the course of such administration that he had chosen to transfer. We are
clearly of the opinion that the Tightness or wrongness of the said transfer
cannot be questioned within the narrow scope of section 155 of the Companies
Act. That section (prior to the amendment) may be extracted now :
"155. Power of court to
rectify register of members. —(1) If—
(a) the
name of any person—
(i) is
without sufficient cause, entered in the register of members of a company, or
(ii) after having been entered in the
register is, without sufficient cause, omitted therefrom ; or
(b) defaults is made, or unnecessary delay takes
place, in entering on the register the fact of any person having become, or
ceased to be, a member ;
the person aggrieved, or any
member of the company, or the company, may apply to the court for rectification
of the register.
(2) The court
may either reject the application or order rectification of the register ; and
in the latter case, may direct the company to pay the damages, if any,
sustained by any party aggrieved.
In either
ease, the court in its discretion may make such order as to costs as it thinks
fit.
(3) On an application under this
section, the court—
(a) may decide any question relating to the
title of any person who is a party to the application to have his name entered
in or omitted from the register, whether the question arises between members or
alleged members, or between members or alleged members on the one hand and the
company on the other hand ; and
(b) generally, may decide any question, which it
is necessary or expedient to decide in connection with the application for
rectification.
(4) From any order passed by the court on the
application, or on any issue raised therein and tried separately, an appeal
shall lie on the grounds mentioned in section 100 of the Code of Civil
Procedure, 1908 (5 of 1908)—
(a) if
the order be passed by a District Court, to the High Court;
(b) if the order be passed by a single judge of
a High Court consisting of three or more judges, to a Bench of that High Court.
(5) The provisions of sub-sections (1) to (4) shall
apply in relation to the rectification of the register of debenture holders as
they apply in relation to the rectification of the register of members."
Sub-section
(1)(a) clearly talks of "without sufficient cause". In this case, it
cannot be contended that there was no sufficient cause. It would equally follow
that sub-section (3) cannot apply because the question of title cannot be
decided in the absence of the other co-sharers. It is only a disgruntled
co-sharer who has come forward to claim right in the shares. We do not know how
she could be definite before a partition by metes and bounds takes place. But,
we will ultimately deal with the question of allotment of shares. In this
context, Hemlata Saha v. Stadmed P. Ltd. [1964] 34 Comp Cas 875 ; AIR 1965 Cal
436, is relied on. This case arose after the amendment of Section 155, wherein
the headnotes (of AIR) read thus :
"An allotment in severalty
of the shares can only be done in an action for partition, unless the parties
agree to amicable partition. The company cannot take upon itself the obligation
to divide and allot the shares among the several joint holders and indeed,
under the Companies Act, 1956, it has no power to do so. To hold that the
company can, at the request of one joint holder of shares, insert his or her
name as the separate holder of a particular lot of those shares, would be to
introduce entirely unwholesome principles which may be capable of causing
serious mischief and prejudice. If it is recognised that the company has the
power to make an allotment in severalty of a lot of shares held jointly, it
will amount to recognition of a power in the company to alter its register of
members at any time and at the request of any joint holder of shares. Such a
power the company does not possess and it is for the purpose of avoiding the
serious mischief that may be caused to members of a company, by giving to the
company the power to alter its register of members at the request of one party,
that the mandatory provisions of section 108 have been introduced. Ramesh Chandra
Mitter v. Jogini Mohan Chatterjee, AIR 1920 Cal 789 ; [1920] ILR 47 Cal 901 and
Siemens Brothers and Co. Ltd. v. Burns [1918] 2 Ch 324 relied on. Burns v.
Siemens Brothers Dynamo Works Ltd. [1919] 1 Ch 225 distinguished. Reese River
Silver Mining Co. Ltd. v. Joseph Mackrill Smith [ 1869] LR 4 HL 64 explained.
A company cannot rectify its
share register by recording a transfer unless an instrument of transfer has
been furnished by the transferee as required by section 108 of the Act. Until
such an instrument of transfer has been furnished, a company owes no duty or
obligation to the transferee. Where, therefore, an instrument of transfer is
not lodged by a transferee of shares strictly in compliance with section 108,
it cannot be said that the company has any obligation to register the
transferee or that, by reason of refusal to register, the company has committed
a default as contemplated by section 155(1)(b) of the Act."
However, as
we observed above, Mr. Vedantam Srinivasan would urge that the pre-emptive right
of a coparcener, conferred under section 22 of the Hindu Succession Act cannot
be taken away.
We will now
refer to the Hindu Succession Act. First of all, we find no application to this
section, because it does not say how and when the right of preference is to be
exercised. Secondly, at any rate, that cannot be a matter to be agitated under
section 155 of the Companies Act.
In Mahendra
Kumar Jain v. Federal Chemical Works Ltd. [1965] 35 Comp Cas 651 (All) at pages
653 and 654, it is stated thus :
"It is well settled that
section 155 confers a jurisdiction of a summary nature and that it contemplates
a relief which is available at common law as well. The primary remedy is the
remedy under the general law. The remedy under the Companies Act is a summary
remedy. The object of this provision is not to supersede or oust the remedy at
common law. As observed by Shah J. in Rao Saheb Manilal Gangaram Sindore v.
Western India Theatres Ltd. [1963] 33 Comp Cas 826, 828 (Bom) :
'....this procedure is resorted
to by persons aggrieved by the refusal of the directors of a company to rectify
the register and enter the name of the transferee in place of the name of the
transferor of shares in the register of members, but it is recognised by a long
line of judicial decisions that the court is not bound to give relief under
that section in that proceeding if it finds that complicated questions of facts
and law are involved. It has got the power to direct the party concerned to a
civil court and to file a proper action for the purpose of securing the relief
which he seeks in the summary proceeding.'
Primarily, the civil court has
jurisdiction to decide such matters and it is only by way of summary remedy
that section 155 comes in. If the petitioner's title is not seriously questioned
and the matter is such as could be decided on affidavits, there will be no
objection to a person applying for the summary remedy.
In Sussex Brick Co., In re [1904]
1 Ch 598, it was held that where facts requiring consideration are complicated
and not simple, a separate action alone would be the proper remedy.
In Ex parte, Shaw [1877] 2 QBD
463 (CA), the dictum was that "it is a matter of discretion whether the
court or judge will exercise the summary jurisdiction. In a complicated or
doubtful case, the jurisdiction ought not to be exercised, but when the legal
title in the applicant is clear, the order ought to be made.'
The same view has been adopted by
the Calcutta, Madras, Pepsu and Hyderabad High Courts in :
Mahadeo Lal Agarwala v. New
Darjeeling Union Tea Co. Ltd., AIR 1952 Cal 58, T.A.K. Mohideen Pichai
Taraganar v. Tinnevelly Mills Co. Ltd., AIR 1928 Mad 571, Panna Lal Sood v.
Jagatjit Distilling and Allied Industries Ltd. [1952] 22 Comp Cas 343 (Pepsu)
and Mohamed Athar v. Narsingh Das Jaju, AIR 1953 Hyd 127.
In Dhelahhat Tea Co. Ltd., In re
[1958] 28 Comp Cas 62 (Cal) P.B. Mukharji J. held (at p. 66) :
'.....disputed questions of fact
should not be tried in a summary procedure in an application for rectification
of the share register under section 155 because they are more appropriate
subjects for a trial in a suit on evidence after a full discovery of documents
and inspection'."
In this case,
the rights of the appellant with reference to his shares are yet to
crystallise. We will now refer to Daddy S. Mazda v. K.R. Irani [ 1977] 47 Comp
Cas 39 (Cal), wherein, at pages 43 and 44, it was held :
"The main question involved
in this appeal is where serious disputed questions of fact are involved in an
application under section 155 of the Act, is it open to the court to make an
order for rectification without taking evidence on the disputed questions of
fact or without relegating the parties to a suit ? In other words, in a case
where prima facie serious disputed questions of fact are raised by the
petitioner himself in an application under section 155 of the Act, is it open
to the court to proceed to adjudicate upon the disputes without taking into
consideration oral and documentary evidence on the question of the disputes
raised ? The decision of this appeal would depend upon the answer to this
question."
It was
answered as follows (at page 53) :
"In our view the intensity,
the depth and the sweep of the allegations are such that it is not possible for
the court to come to any conclusion about the truth of the allegations except
upon evidence which can be tested by cross-examination of witnesses. There can
be no doubt that the allegations relate to serious disputed questions of fact
and such disputes can only be resolved by oral testimony tested by cross-examination
and by no other means. To hold that disputes such as those raised in the
application can and ought to be resolved on averments made in the affidavits
would defeat the purpose and object of the summary procedure prescribed by
section 155 of the Act. The principles to be followed by courts in such cases
are well-settled and the trial court had taken notice of those principles. But,
having taken notice of those principles, the trial court ought not to have
directed rectification of the share register having regard to the serious
disputes raised by the parties with regard to the title to the shares.
Counsel for the appellants is
right in his contention that the discretion of the court should not have been
exercised in favour of the respondent directing rectification of the share
register of the company in a summary proceeding under section 155 of the Act,
having regard to the serious disputed questions of fact involved and also the
serious charges of fraud, forgery and impersonation made by the respondent. We
cannot, however, accept the appellant's contention that the parties should be
relegated to a suit, as, in our view, the same object can be achieved if the
application is directed to be tried on evidence after discovery and inspection
of documents by the parties. The purpose of having the disputes adjudicated
upon by a suit can be achieved if the application is heard and disposed of
after taking into consideration, the evidence adduced by the parties, both oral
and documentary."
But, this
case is clearly distinguishable in view of the serious allegations of
"fraud". Therefore, on the basis of this ruling, it cannot be
contended that it is not summary in nature.
One other
ruling on this point is Gulabrai Kalidas Naik v. Laxmidas Lallubhai Patel of
Baroda [1978] 48 Comp Cas 438 (Guj). There, the learned judge lays down (at
page 445) :
"It must be made distinctly
clear that there is nothing in the language of section 155 which even remotely
suggests that jurisdiction conferred upon the court is of a summary inquiry,
and that it precludes or forbids a full thorough inquiry in respect of the
title to shares claimed one way or the other. On the contrary, there is clear
inherent evidence in the provisions contained in sub-section (3) to show that
the jurisdiction is not of summary or limited nature. Now, if wider
jurisdiction is conferred on the court, would it be proper to limit it to make
it fruitless by a process of interpretation ? It was then said that a long line
of decisions has clinched the issue and the matter is no more res integra. The
matter having been examined on principle, I would now turn to the authorities
relied upon on either side to show whether the conclusion reached by me on the
language of section 155 is in any way in conflict with the legal position which
was more often repeated to me to be a settled legal position."
But, we are
obliged to note the following observations (at page 456) :
"A.H. Mehta, however, said
that, apart from the authorities hereinbefore discussed By me, the point is no
more res integra and is finally clinched by a decision of the Supreme Court in
Public Passenger Services Ltd. v. M.A. Khader [1966] 36 Comp Cas 1. The
pertinent observation specifically relied upon reads as under (page 6) :
'Counsel for the appellant
contended that the relief under section 155 is discretionary, and the court
should have refused relief in the exercise of its discretion. Now, where by
reason of its complexity or otherwise the matter can more conveniently be
decided in a suit, the court may refuse relief under section 155 and relegate
the parties to a suit. But the point as to the invalidity of the notice dated
January 20, 1957, could well be decided summarily, and the courts below rightly
decided to give relief in the exercise of the discretionary jurisdiction under
section 155. Having found that the notice was defective and the forfeiture was
invalid, the court could not arbitrarily refuse relief to the respondents.'
Now, with great respect, it is
not possible to agree with Mr. Mehta that the question that the remedy under
section 155 is of summary nature and that as soon as complex or complicated
questions are raised, the party ought to be relegated to a suit is concluded by
this decision. In the initial part of the question there is submission of
counsel. While disposing of the contention the court observed that where a
matter can be more conveniently decided in a suit the court may refuse relief
under section 155. It is more a matter of convenience and less a matter
touching on the jurisdiction. The form in which the contention is now raised
was not canvassed before the Supreme Court and a passing observation was made
that jurisdiction under section 155 is of a summary nature. True, even the
passing observation of the Supreme Court is binding and may conclude the point,
yet the ratio is not to the effect that as soon as a complex or complicated
question is raised in a petition under section 155, the court becomes functus
officio. Hence, it is not possible to accept the submission of Mr. Mehta that
the matter is no more res integra and this court cannot undertake examination
of the contention whether section 155 is only limited to cases where relief can
be granted in a summary way."
This case is
distinguishable for two reasons :
(i) Because
it is a case of forgery, which unravels everything ;
(ii) The
learned judge found, as seen from page 458 :
"Therefore, again with
respect, I find no complicated or complex questions raised in this
petition."
Section 155(4)
also describes that the remedy under this section is of summary nature. The
said sub-section reads :
"From any order passed by
the court on the application, or on any issue raised therein and tried
separately, an appeal shall lie on the grounds mentioned in section 100 of the
Code of Civil Procedure, 1908."
If,
therefore, only on a question of law, an appeal would arise, that is a point as
to the nature of jurisdiction exercised by the original authority.
The positive
stand of the third respondent is that he dealt with the estate as an
administrator de son tort. No doubt, a letter was given on December 15, 1964,
stating :
"We agree to abide by the
accounts so rendered by him and any explanation furnished by him with regard to
estate duty matters will be binding on us."
This came to
be revoked on June 12, 1972. The complaint of the appellant is that in spite of
such revocation, without informing her, the transfer of shares had been made.
It is important to note at this stage that in the petition filed before the
learned single judge, it is not challenged any where that the transfer of
shares was not in due course of administration of the estate, but what is
challenged is the authority to transfer (emphasis
supplied). Even in the grounds of appeal, grounds Nos. 2 and 3 read as follows
:
"2. The learned company judge has erred in holding
that respondent No. 3 was authorised to borrow moneys or to administer the estate
of the late Anantharamakrishnan forgetting that he was given a very limited
authority to represent the petitioner before the Estate Duty Officer and render
accounts by her letter dated December 15, 1964, and to do no other thing on her
behalf.
3. The finding that the petitioner gave oral
consent to the third respondent to enter upon the administration of the estate
of the late S. Anantharamakrishnan and incurred debts and entered into
arrangements for repayment of loans by transferring shares to the second
respondent company is contrary to record and is unsupportable in the teeth of
the revocation of the limited authority given to respondent No. 3 in and by the
letters of the appellant-petitioner dated April 20, 1972, and October 25, 1974,
expressly prohibiting respondent No. 3 from acting for her on and from April
20, 1972."
Where,
therefore, as executor de son tort, if shares had been transferred, what is the
position in law ? It is in this view that we refer to section 2(11) of the Code
of Civil Procedure :
"'legal representative'
means a person who in law represents the estate of a deceased person, and
includes any person who intermeddles with the estate of the deceased and where
a party sues or is sued in a representative character the person on whom the
estate devolves on the death of a party so suing or sued." (emphasis supplied).
The Estate
Duty Act, 1953 (Central Act 34 of 1953), in section 2(12)(ii) reads:
"'legal representative'
means a person, who in law represents the estate of a deceased person, and
includes—...
(ii) as regards any obligation
under this Act, any person who takes possession of, or intermeddles with, the
estate of a deceased person or any part thereof," (emphasis* supplied).
Mulla's Hindu
Law, fifteenth edition, paras 376 and 376A read :
"376. Vesting of estate in
Hindu executor or administrator.—The executor or administrator of a deceased
Hindu is his legal representative for all purposes, and all the property of the
deceased vests, in him as such.....
376A. Power of Hindu executor or
administrator to dispose of property.—.....(2) A Hindu administrator has power
to dispose of the property of the
deceased vested in him (section 376 above)."
In Halsbury's
Laws of England, fourth edition, volume 17, in para 758, it is stated :
"Effect of acts of executor
de son tort.—758. Lawful acts bind the estate.—Generally speaking, all lawful
acts done in the professed administration of the estate, by a person purporting
to act as personal representative which a rightful executor would have been
bound to perform in due course of administration, bind the estate....
A person who takes possession of
or intermeddles with the property of a deceased person without the authority of
the personal representatives or the court is, as regards any liability for
payment of death duties or capital transfer tax, a 'personal representative'
within the definition contained in the Administration of Estates Act,
1925."
About
'executor de son tort intermeddling' Williams, Mortimer and Sunnucks on
executors, Administrators and Probate, 16th edition, at page 92, state :
"Executor de son
tort—intermeddling.—A person not lawfully appointed executor or administrator
and without title to a grant may by reason of his own intrusion upon the
affairs of the deceased be treated for some purposes as having assumed the
executorship. Such an intermeddler is called a tort executor or an executor de
son tort (i.e., on his own wrong). The same term is used whether the deceased
died testate or intestate, for the law knows no such appellation as
'administrator de son tort'."
We may now
see the position under the Indian Succession Act. In Paruk's Indian Succession
Act, seventh edition, defining "Executor de son tort" it is stated
thus :
"Definition of executor de
son tort.—An executor de son tort is one who takes upon himself the office of
an executor or intermeddles with the estate of the deceased without having been
appointed an executor and without having obtained a grant from a competent
court. He is not necessarily a wrong doer and his possession cannot always be
regarded as wrongful at its inception. Shivaprasad Singh v. Prayag kumari
Debee, AIR 1935 Cal 39 ; ILR 61 Cal 711 dissented from in Masireddi
Suryanarayana v. Akula Anasuyamma, AIR 1963 AP 298. The mere taking away of a
portion of the property of the deceased when there is a legal representative
present does not make that person an executor de son tort: Satya Ranjan Roy
Choudhry v. Sarat Chandra Biswas, AIR 1926 Cal 825. But a very slight
circumstance of intermeddling will make him an executor de son tort: Prayag
Kumari Debi (Rani) v. Siva Prosad Singh, AIR 1926 Cal 1 at page 50; Navazbai v.
Pestonji Ratanji [1897] ILR 21 Bom 400. The term is equally applicable in the
case of an intestacy as there is no such term as an administrator de son tort:
Khitish Chandra Acharjya Chowdhry v. Radhika Mohan Roy [1908] ILR 35 Cal 276
(Mad), Magaluri Garudiah v. Narayana Rungiah [1881] ILR 3 Mad 359, Halsbury's
Laws of England, 4th edition, volume 17, para 702. In order to constitute a
person executor de son tort there must be no rightful executor or
administrator. Therefore, if a person who is named in the will as executor acts
before taking out probate, he is not an executor de son tort: Mt. Balak Bala
Dassi v. Jadu Nath Das, AIR 1931 Cal 45 ; [1930] ILR 57 Cal 1358.
Liability of executor de son
tort.—A person can only be an executor de son tort as long as he intermeddles with
the estate. The assumption of authority or an intention to exercise the
functions of an executor or administrator will be regarded as executor de son
tort and will render him liable : Chintaman Dhundiraj v. Sadguru Narayan
Maharaj Datta Sans-than, AIR 1956 Bom 553."
In this case,
therefore, as rightly held by the learned single judge, in the absence of any
denial that the shares in question were transferred in order to pay off the
pre-existing debts of the late Anantharamakrishnan or to pay off public dues
such as estate duty or wealth-tax, it could never be surmised or much less
inferred that the dealings of the third respondent as an administrator of the
estate in his capacity as the eldest member of the family is illegal or deemed
to prejudice other heirs or co-sharers of the estate. We are in entire
agreement with this finding of the learned single judge. Even if it is a case
of a constructive trust, section 94 of the Indian Trusts Act would come to the
help of the third respondent. That section reads :
"In any case not coming
within the scope of any of the preceding sections, where there is no trust, but
the person having possession of property has not the whole beneficial interest
therein, he must hold the property for the benefit of the persons having such
interest, or the residue thereof (as the case my be), to the extent necessary
to satisfy their just demands."
Article 21 of
the company, on which reliance is placed by Mr. Vedantam Srinivasan, talks of
transmission of shares. The said article is to the following effect:
"Any person becoming
entitled to shares in consequence of the death or insolvency of any member upon
producing such evidence that he sustained the character in respect of which he
proposed to act under this clause or of his title, as the board think
sufficient, may with the consent of the Board (which they shall not be under
any obligation to give) be registered as a member in respect of such shares or
may, subject to the regulations as to transfer herein contained, transfer such
shares. This clause is hereinafter called the 'transmission clause'."
In our
considered view that has no application because this is a case of transfer by
an administrator de son tort. In this connection we may note the transfer form
:
Share Transfer Form
|
Transfer
from |
|
|
Transferor
(s) |
|
|
(Name (s)
in full) |
Mr. S.
Anantharamakrishnan |
|
(preferably
typewritten or |
|
|
in block
capitals) |
|
But, this
alone cannot be pressed into service without resort to what is obtainable
below:
|
Signatures
of transferor (s) |
|
(Sd.) K. Sivasailam |
|
|
|
(For the estate of the late |
|
Signature
(s) of transferee (s) |
|
(Sd.).............................. |
|
|
Director |
|
It has come
to be signed as transferor for the estate of the late Anantharamakrishnan.
Therefore, as an administrator of the estate, he had signed the same. Only if
it is a transfer of company shares, Schedule I, Table 8 or article 25 of the articles
of association of the company would apply. Because that article says as follows
:
"25 (a) Shares in the company shall be transferred in
the following form or in any usual or common form which the Board shall
approve: 'I, A.B. of..............................in consideration of the sum
of Rs...............paid to me by C.D. of..........................(hereinafter
called the transferee), do hereby transfer to the transferee the share or
shares numbered........to.......inclusive in the under taking called..........to
hold unto the said transferee, his executors, administrators and assigns,
subject to the several conditions on which I held the same immediately before
the execution hereof, and I, the transferee, do hereby agree to take the said
share or shares subject to the conditions aforesaid.
As witness
our hands this........day of......19..........witness to the signature of,
etc.......
(b) A fee not exceeding one rupee may be charged
upon any registration under the transmission clause hereinafter contained and
also upon the registration of any transfer, and shall if required by the Board,
be paid before registration.
(c) Every instrument of transfer shall be left at
the office duly stamped for registration accompanied by the certificate of
shares proposed to be transferred and such other evidence as the board may
require to prove the title of the transferor or his right to transfer the
shares. The Board may waive the production of the certificate upon evidence
satisfactory to them of its loss or destruction.
(d) All instruments of transfer which shall be
registered shall be retained by the company, but any instrument of transfer
which the board may decline to register shall (except in any case of fraud) be
returned to the person depositing the same.
(e) (i) On
the death of a member, the survivor or survivors where the member was a joint
holder, and his legal representatives where he was a sole holder shall be the
only person recognised by the company as hav ing any title to his interest in
the shares.
(ii) Nothing in the above clause shall release
the estate of a deceased joint holder from any liability in respect of any
share which had been jointly held by him with other persons."
But, as we
have seen above, this is not a case of transmission.
We will now
look at Shakuntala Rajpal v. Mckenzie Philip (India) P. Ltd [1986] 60 Comp Cas
545 (Delhi) where the headnote reads :
"The provisions of section
155 of the Companies Act, 1956, are meant to provide speedy and inexpensive
remedy to heirs and transferees of shares where the companies choose to adopt a
recalcitrant attitude. It is true that the court has discretion to refuse to
consider a matter if it raises complicated questions of fact but that does not
mean that there is an automatic bar to the relief being given under section 155
simply because one of the parties chooses to raise a defence and call it a
complicated one, while the judge finds that the matter is such that he could
decide on the material on record without any difficulty. It cannot be said that
the judge would be committing any irregularity or illegality if he decides a
disputed question of fact on the basis of documentary evidence on record,
finding that it was not necessary to have the matter tried as a suit
separately.
The MP company was incorporated
by S and his brother, K, in 1951 each holding 50 shares of the value of Rs. 100
per share. At that time, three brothers of S and K were minors. As and when
each of them attained majority, he was allotted shares. Their mother was also
given shares and as a result, in the mid-sixties, S had 167 out of 1,000
shares. S was the chairman of the board of directors and K was the managing
director. S died in 1968. The other brothers admitted that S's widow and her
sons and daughters were entitled to the 167 shares but the shares were not
transferred to them. Instead, formalities like production of estate duty
clearance and succession certificate were insisted upon. It was then agreed
that S's widow would become the shareholder in his place but the shares were
not transferred to her. In the meantime, S's widow died and it was contended on
behalf of the company that the sons and daughters of S were not entitled to
have the shares transferred to them. S's mother had not claimed any share in
S's estate but a controversy was raised after sixteen years that she was
entitled to a share. Meanwhile, fresh shares had been issued and a group which
could be termed the Aggarwal group had been inducted as shareholders as a
result of which the percentage of shareholding of the petitioners was reduced
to less than 5% as against 167/1000 when S died. On a petition by the heirs of
S for rectification of the share register and cancellation of the new shares :
Held,
(i) that the controversy was a simple one and could be adjudicated upon
under section 155 ;
(ii) that in the case of transmission of shares by
operation of law, estate duty clearance certificate should not be insisted
upon. Moreover, the status of the petitioners as children of S had not been
disputed, and in the circumstances, the respondents should not have insisted
upon asking for succession certificate or estate duty clearance. It had been
mutually agreed that S's widow would become the shareholder in his place. The
respondents could not take advantage of the agreement to obstruct the rights of
the petitioners when S's widow had died. The respondents had not taken the
stand at any stage in the proceedings that S's mother had a share in the estate
of S. The facts showed that S's mother had never claimed such share. It should,
therefore, be taken that she had relinquished her rights in S's estate. The
petitioners were, therefore, entitled to the registration of the 167 shares of
S in their names ;
(iii) that
till 1980, the company had been a closely knit family concern. It was in the
nature of a partnership, and any alteration in the share structure naturaly
required the consent and/or approval of all. So also, the induction of new
members. The petitioners were not allowed to have a say in all this as they
were wrongfully kept excluded and were not treated as members. However, rights
had risen in favour of the Aggarwal group as a result of the issue of fresh
shares. In order to set matters right, the petitioners should be given the
choice to subscribe to the shares in proportion to their shareholding at all
stages when additional shares were allotted."
But, this is
not a case of transmission of shares, as we have pointed out above.
Palmer's
Company Law, twenty-third edition, in paragraph 39-43, says as follows :
"Where a member of a company
dies, his shares vest in his executors or administrators and the estate is
liable for calls if the shares are not fully paid. The executors or
administrators, in whom shares have so become vested, are entitled to be registered
as the holders of the shares, in the absence of provisions in the articles to
the contrary but the executors or administrators do not ipso facto become
members of the company, nor is the company entitled, without their consent, to
register them as members."
We will now
look at section 108 of the Companies Act. That lays down that a transfer is not
to be registered except on production of the instrument of transfer. It is only
such a form which came to be signed by the third respondent on behalf of the
estate, as seen above.
Halsbury's
Laws of England, fourth edition, volume 7, page 216 in para 396 states :
"An instrument of transfer
must be executed; but otherwise there are no restrictions on transfer except
such as are imposed by the articles."
Concerning
this, K.P. Antony v. Thandiyode Plantations P. Ltd. [1987] 62 Comp Cas 553
(Ker) lays down as follows (headnote) :
"The order passed by the
court under section 155 of the Companies Act, 1956, on a petition for rectification
of the register of members of a company, is not based on any summary decision.
From a reading of clauses (a) and (b) of section 155(3), section 2(1), and
section 156, it is clear that it is not possible to file a separate suit in the
ordinary civil court for obtaining relief of rectification of the register of
members of a company. In case of resort to a civil court, the provisions in
section 156 may even be defeated.
Where the petitioner has still to
establish his title to shares in the company, non-compliance with section 108
of the Companies Act, 1956, is not fatal to his petition under section 155. The
question of compliance with the provisions of section 108 will arise only if it
is found that the petitioner has title to the shares in question ..."
On this basis
it is argued that section 108 of the Companies Act is no bar. But, we would
like to note the following passage in paragraph 50-14 of Palmer's Company Law,
twenty-third edition :
"It is a corollary from the
principle that the register of members is to be the creditors' guarantee,
showing them to whom and to what they have to trust, that the register should
be properly kept and that the names appearing therein should be the names of
the persons really for the time being liable to the creditors. But, if there is
an error in the register this cannot be rectified by the company without
applying to the court. Accordingly, section 116 of the 1948 Act provides a
summary mode of rectifying the register from time to time by application to the
court in two classes of cases :
(1) Where the name of any person is without
sufficient cause entered in or omitted from the register of members.
(2) Where default is made or unnecessary delay
takes place in entering on the register the fact of any person having ceased to
be a member.
This jurisdiction is exercisable
after as well as before winding-up, and is frequently exercised. It may be
invoked by the company, or by the person aggrieved (whether a member or not).
or by any member. The following are a few illustrative cases in which orders
have been made : where the applicant was induced to take shares by
misrepresentation, where the company improperly neglected to register a
transfer where shares had been issued to the applicant as paid up without
filing a contract in compliance with what is now section 52 of the Act of 1948.
Where shares were improperly forfeited ; where the company, acting on a forged
transfer, had removed the name of the applicant, the real owner ; where there
was a dispute between the vendor and purchaser of shares ; where shares had
been irregularly allotted to an applicant; where the signatory of an
underwriting letter not constituting a contract had been placed on the register
; where a shareholder, who had made an ultra vires surrender of his shares to
the company, claimed to have his name reinstated."
The Kerala
decision reported in K.P. Antony v. Thandiyode Plantations P. Ltd. [1987] 62
Comp Cas 553 is distinguishable because here the transfer is effected at the
request of the administrator de son tort and certainly the company cannot be
expected to go into the questions of title, before registering the transfer. We
have seen in the previous paragraph as to when rectification can be made.
In fine, we
hold that this is a case in which the appellant is attacking the transfer of
shares on the ground that the third respondent has no authority to do so, after
having had the benefit of the administration of the estate. Whatever may be her
other rights, with which we need not deal having regard to the scope of section
155, this is a case in which we are firmly convinced that the remedy under
section 155 cannot be invoked.
In the
result, we dismiss the appeals ; however, there will be no order as to costs.
[1962] 32 COMP. CAS. 117 (PUNJ.)
Jagatjit Distilling & Allied
Industries Ltd.
v.
Shiv Ram Batta
G.
D. KHOSLA CJ. AND TEK CHAND J.
JANUARY
14, 1960
KHOSLA CJ.- In this case we are concerned with the
interpretation of section 19 of the Displaced Persons (Debts Adjustment ) Act
and its effect on the rights of Shiv Ram Batta in respect of certain shares
held by him in the appellant’s company. The facts briefly are that Shiv Ram
Batta held a number of shares in the Jagatjit Distilling and Allied industries
Limited. The present dispute relates o 1200 of those shares each of the nominal
value of Rs. 10. The shares were paid up to the extent of Rs. 7-8-0 each. On
the 15th of August 1947 Shiv Ram batta’s name appeared on the registers of the
company. Some time after partition an application was made to the company by
Khushi Ram Erry who claimed that the ;shares had been purchased by him. The
company replied that the shares had been forfeited, because the call of Rs. 1
per share in respect of them had had remained unpaid. This call had been made
before the 15th of August 1947. It transpired that Shiv Ram Batta had
transferred these shares by delivering the sharescrips and blank transfer deeds
to the Laxmi Commercial Bank Limited. The shares passed through other hand
before they come into possession of khushi Ram Erry. The company’s case was
that these shares had become forfeited, because the call-money had not been
paid. Shiv Ram Batta then approached the Tribunal constituted under the
Displaced Persons (Debts Adjustment) Act, for a declaration that these shares
be declared to be fully paid up. This application was opposed by the appellant
company on the ground that Shiv Ram Batta had lost all interest in them by
transferring them before the 15th of August, 1947 and, therefore, he was hot
competent to maintain this application. The objections of the company were
repelled ad the declaration prayed for was granted. The company then come up in
appeal to this court and Chopra J. dismissed the appeal holding of the shares
within the meaning of section 19 of the Act.
Before us it
is argued that Shiv Ram Batta had no interest whatsoever in these shares
because he had parted with them for due consideration. Subsequently the all
notices were disregarded and the shares were forfeited. Khushi Ram Erry therefore,
also had lost all rights in these shares.
As between the
transferor of shares and the transferee there is no doubt that certain
obligations. exist. The transferor must be deeded to be the trustee of all
monies received by him from the company on account of dividends etc., on behalf
of the transferee, but as long as hid name continues to remain on the registers
of the company he must be treated as holding the shares, and, registers of the
company he must be the company cannot raise the plea that he has parted with
his interest in the shares and cannot be treated as a shareholder. The articles
of this company are quite clear on this point, and article 11 which has been
quoted in the judgment of Chopra J. is in the following terms:
“The company
shall be entitled to treat the registered holder of any share as the absolute
owner thereof, and accordingly shall not be bound to recognize any equitable
;or other claim to or interest in such share on the part of any other ;person
save as herein provided”
Again article
14 says.
“Save as
herein otherwise provided, the company shall be entitled to treat the
registered holder of any share as the absolutes owner thereof and accordingly
shall not, except as ordered by a court of competent jurisdiction or as by statute
required, be bound to recognize any benami, equitable or other claim to or
interest in such share on the part of any other person.”
Until the
registers of the company are altered and the name of the transferee in entered
as a new shareholder , the old shareholder or the transferor continues to be
entitled to deal with the company in all matters relating to the shares. Our
attention has been drawn by Mr.Tulito certain remarks made by; Patker J. in
Dharwar Bank Ltd. v. Mohamad Hayat 1. That, however, was a case dealing with a
benami transaction and the court acted in order to protect the beneficially’s
interests as against the beamidar. In the present case Khushi Ram Erry is not
claiming anything adversely to Shiv Ram Batta. In fact, there is a letter on
the record with expresses his consent to Shiv Ram Batta’s claim.
Whether Khushi
Ram Erry has any rights in these shares or not is a matter entirely between him
and Shiv Ram Batta. As between Shiv Ram Batta and the company, Shiv Ram batta
is entitled to the declaration claimed.
It is next
urged by Mr. Tuli that the wording of section 19 implies that the displaced
person must have had interest in the shares on the 15th of August,1947, and the
call must have been made on or after the 15th of August,1947. The opening part
of section 19 is in the following terms:
“Where a
company or a co-operative society has made any call upon a displaced person or
a displaced bank in respect ;of any moneys remaining unpaid on any share held
by him or it on the 15th day of August,1947............”
This may be,
for the purposed of clarity, split up as follows:
“Where a
company.............has made any call upon(a) a displace
person..............(b) in respect of any money, remaining unpaid on (c) any
share held by him on the 15th day of August, 1947,...................”.
Therefore, in
order to apply section 19, three things are necessary. The call must have been
made from a displaced person and it must be in respect of shares which he held
on the 15th day of August ,1947. There is nothing in this section to warrant
the assumption that the call must be made on or after the 15th day of August.
The phraseology of section 19 covers the case of a call which is made before
the 15th day of August. ,1947, as long as the call is made from a displaced
person and is in respect of shares held by him on the 15th day of August, 1947,
All these three requirements in the present case are fulfilled and, therefore,
it is clear that Shiv Ram Batta’s case comes within the previews of the reliefs
provided by the Displaced Persons (Debts Adjustment) Act.
There is o
force in this appeal, and upholding the order of the learned single judge I
would dismiss it with costs.
TEK CHAND
J.--Iagree.
Appeal
dismissed.
[1958] 28 COMP. CAS. 262 (PEPSU)
Jagatjit Distilling And Allied
Industries Ltd
V.
Shiv
Ram Nanak Chand
CHOPRA, J.
SEPTEMBER 17, 1956
This appeal is directed against an order of the Tribunal, Patiala, appointed under the Displaced Persons (Debts Adjustment) Act (70 of 1951).
Shiv Ram Batta,
respondent, a resident of Lahore, was the holder 1,280 shares (1,230 in his own
name and 50 in the name of sister-in-law, Shakuntala Devi) in the Jagatjit
Distilling and Allied Industries Ltd., Hamira, the appellant the shares were
partly paid-up and each was of the value of Rs. 10. On August 6,1947, the
appellant company made a call of Rs. 1 per share; the money was to be paid
within a month. The call money having not been duly received the shares of MR.
Batta were declared to be forfeited on May 15,1948. Mr. Batta had n the
meantime left Lahore on account of civil disturbances of the partition days and
settled at Nabha. He filed the present application under section 19 of the
Displaced Persons (Debts Adjustment) Act before the Tribunal at Patiala on
December 16,1952, praying that the forfeiture of his shares be declared to be
void and ineffective and the company directed to restore the share to the
respondent and also to pay him all the dividends pertaining thereto. The
application was opposed by the company on various grounds, the principal one of
which was that the applicant was not entitled to the benefit of section 19 for
he had transferred his shares to a third party sometime before the crucial
date, viz., August 15,1947.
As regards the
50 shares standing in the name of Shakuntala Devi, the applicant gave up his
claim. With respect to thirty others, it was found that they had been
transferred to one Rup Narain; the petitioner’s claim to that extent was
consequently dismissed.
In respect of
the remaining 1,200 shares, the application was accepted and it was directed
that the company shall restore these shares to the applicant after converting
them into such smaller number of fully paid-up shares as the company may have
issued. It was further declared that the applicant was entitled to all the
dividends that might have accrued with respect to those shares since August
15,1947. The present appeal is directed against this order of the Tribunal.
Mr. Tuli,
learned counsel for the appellant, contends that section 19 of the Displaced
Persons (Debts Adjustment) Act has no application to the present case for two
reasons ; (i) the call for non-payment of which the shares were forfeited was
made before August 15,1947, and (ii) Mr. Batta did no longer hold shares on
August 15,1947, for he had already transferred them to one Mr. M.R.Erry.
The facts with
regard to the alleged transfer are :somewhere in the year 1947, MR. Batta
executed blank transfer forms in respect of his 1,200 shares and handed them
over to Laxmi Commercial Bank, Lahore, along with the relevant share
certificates. These documents were subsequently passed on to Mr. M.R. Dhawan
and Company, Share Brokers, Delhi. they, in their turn, sold the shares to Mr.
K.R.Erry. Mr. Erry then filed up the blanks in the transfer deeds, including
his own name as the transferee, and sent them, along with the share
certificates, to the appellant company through the Allahabad Bank, Amritsar,
for registration of his name, in place of Mr. Batta, as owner of the 1,200
shares. The company replied back to say that the transfer could not be accepted
as the shares had already been forfeited. This letter of the company is dated
June 18,1948.
It is
unnecessary to refer to the subsequent prolonged correspondence between Mr. Batta
or Mr. Erry on the one hand and company on the other. The company did not agree
to restore the shares to either of the claimants and that gave rise to the
present applications on behalf of Mr. Batta. In the course of the proceedings
before the Tribunal, Mr. Batta admitted his signatures on the blank transfer
forms and the above facts are not disputed before me by his l;earned counsel
Shri Dalip Chand.
The relevant
portion of section 19 of the Displaced Persons (Debts Adjustment) Act says :
“(1) Where a
company or a co-operative society has made any call upon a displaced person or
a displaced bank in respect of any moneys remaining unpaid on any share held by
him or it on the 15th day of August, 1947, in the company or co- operative
society, as the case may be, and there has been a failure on the part of the
shareholder to pay any moneys due in respect of such call, then,
notwithstanding anything to the contrary contained in the Companies Act, or in
the memorandum or articles association or the Co-operative Societies Act, no
interest shall be payable in respect of any such moneys due and the company or
the co-operative society, as the case may be, shall not be entitled to forfeit
the share or any part thereof, and any forfeiture made before the commencement
of this Act in respect of any share in the circumstances specified its
sub-section shall be deemed..... to have ceased to be a member of the company
or co-operative society merely by reason of such forfeiture.
(2)
Notwithstanding anything contained in the Companies Act, or in the memorandum
or articles of association, or the Co- operative Societies Act, is shall be
lawful for a displaced person or a displaced bank to apply to the company or
the co-operative society, as the case may be, for the conversion of any partly
paid-up share held by him or it in the company or society into such smalls
number of fully paid-up shares as the society or company may have issued and in
respect of which calls have already been made...
(4) If the
company or the co-operative society refuses to comply with any such request as
is contained in an application under sub-section (2) the Tribunal may, on
application made to it in this behalf and if satisfied that there is no cause
for such refusal, issue a direction to the company or the co-operative society
accordingly, and the company or society shall be bound to comply therewith and
every such direction shall take effect from the date thereof...
(6) The
provisions of this section shall have effect for a period of ten years from the
15th day of August, 1947, and thereafter shall cease to have effect except as
respects things done or omitted to be done.”
The contention
on behalf of the appellant is that sub- section (1) of the above section can
have no application to a case where the call was made before August 15,1947. I
have not been able to understand how that interpretation can possibly be placed
on what is actually stated in the sub- section the sub-section simply requires
(i) that the call must have been made from a displaced person and (ii) that the
call must be in respect of shares held by the displaced person on August
15,1947. The date refers to the time when the displaced person must have been
holding the shares in respect of which the call was made. Where the displaced
person had ceased to be the holder of those shares before August 15,1947, or if
he acquired the shares after that date, the displaced person would to be
entitled to the benefit of the provision. On the other hand, if he was holding
the shares on the particular date, it is immaterial whether the call was made
before or after August 15,1947; in either case he shall be entitled to the
immunity from his shares being forfeited on account of non-payment of the call
money. This immunity is to apply to the shares already forfeited before the
commencement of the Act and is to last for ten years counted from August
15,1947.
According to
section 2(10) of the Act, a “displaced person,” inter alia, means any person
who, on account of the setting up of the Dominions of India and Pakistan, or on
account of civil disturbance or the fear of such disturbances in any area now
forming part of West Pakistan, has after March 1,1947, left, or been displaced
from, his place of residence in any such area and who has been subsequently
residing in India. A call made from a person who, on account of the civil
disturbance, migrated to and had settled in India after March 1, 1947, would
undoubtedly be a cal “upon a displaced person,” even though the call was made
before August 15,1947. The protection is given because of he assumed inability
of the person, on account of the peculiar circumstances, to pay the call-money.
There appears to be absolutely no reason why benefit of the provisions was not
intended to be given to a displaced person in case the call was made after
March 1,1947, but before August 15,1947. There is all the more reason why it
should be so. It is because of the possibility, may almost certainly, of the
call notice having not reached the person at his original address registered
with the company. It would be against the very scheme and object of the Act to
confine the application of section 19 to calls made after August 15,1947, and
not to extend it to those made prior to that date, but after March 1,1947. I do
not find anything in the sub-section to support the interpretation placed on it
by Mr. Tuli.
Mr. Batta
states that he left Lahore, on account of the civil disturbances, in July,
1947. He first went to Simla and thereafter settled at Nabha. The statement
stands unrebutted and the correctness of it is not being challenged. It is not
denied that notice for the call; made on August 6,1947, was sent to him at his
registered address at Lahore. In view of the extraordinary circumstances that
then prevailed the notice my safely be presumed not to have reached him; and he
says he did not receive it. Undoubtedly he was a displaced person at the time
the call was made, and in case he succeeds in showing that he was holding the
shares, with respect to which the call was made, on August 15,1947, he would be
entitled to the concession given by section 19. The first contention of the
appellant must, therefore, fail.
As to the
second ground, it is urged that Mr. Batta relinquished all his rights in the
shares as soon as he executed the transfer forms in blank and delivered them
and the share certificates to the Lakshmi Commercial Bank, Lahore. The sale, so
far as Mr. Batta was concerned, became complete and thenceforth his position
was to remain as that of a trustee till the shares were registered in the name
of the transferee. When the documents reached Mr. Erry and he filed up his name
as the transferee, Mr. Erry, for all intents and purposes, became the sole
beneficiary of the shares. The argument proceeds :after the sale, Mr. Batta “
was not only the trustee of the corpus but also the trustee of the income and
of the dividends that he may receive and that he was bound to pay them over to
the beneficiary.” Reliance in this connection is placed on certain observations
in Mathalone v. Bombay Life Assurance Co. LTd., and also on E.D.Sassoon &
Co. Ltd., v. K.A.Patch. Particulars stress is being laid on the following
observation of PRATT J. in the Bombay case:
“Under section
94 of the Indian Trusts Act the transferor holds the shares for the benefit of
the transferee to the extent necessary to satisfy his demands. Accordingly as
the transferee holds the whole beneficial interest and the transferor has none,
the transferor must comply with all reasonable directions that the transferee may
give. The reason for this is plain, for the equitable interest of the
beneficiary is brought into existence by the Court of Chancery for the purpose
of promoting fair dealing.
It would be
most unconscionable for the seller of the shares t take advantage of
non-registration and to deal with the shares as his own after taking the price
from the purchaser. Equity therefore treats the purchaser as if he was the real
owner and compels the registered holder to act as the agent of the
beneficiary.”
Mr. Tuli, therefore,
contends that Mr. Batta could on longer be regarded as owner of the shares and
he cannot be said to be holding those shares on August 15,1947, so as to title
him, at least on his own account, to submit an application under section 19 of
the Displaced Persons (Debts Adjustment) Act. Consequently, the application of
Mr. Batta, brought as it was on his own behalf, ought to have been dismissed.
At the outset,
it may be observed that the two decisions cited by Mr. Tuli are of no help to
the appellant. the dispute here is not between the transferor and the
transferee or regarding the liabilities of a trustee towards its cestui que
trust. It is corrected that as against the transferee the transferor holds the
shares as a trustee so long as the transfer’s name is not registered as the
holder of those shares. As between them, all the incidents that flow from that
relationship have t be adhered to. But, for the purposes of the company and its
dealings, the transferor continues to be the legal owner of the shares so long
as his name stands as the holder thereof in the company’s register of members.
Till the name of the purchaser is register as the holder of those shares, the
company ordinarily shall not recognise the rights of the purchase or take any
notice of a specified individual remains liable to the company for payment of
call money until and unless the transfer is accepted by the company and the
name of the transferee is brought on the register. the company is not concerned
with the person in whose favour the transfer-form is executed or who pays the
consideration for the transfer. Section 153 of the Companies Act (1 of 195)
expressly lays down:
“No notice of
any trust, express, implied or constructive, shall be entered on the register
of members or of debenture holders, or be receivable by the Registrar.”
Section 41 of
the Indian Companies Act provides, inter alia, that every person who agrees to
become a member of a company and whose name is entered in its register of
members, shall be a member of the company. Section 82 of the same Act says that
the shares or other interests of any member in a company shall be movable
property, transferable in the manner provided by the articles of the company.”
According to
section 84 of the Act, a certificate, under the common seal of the Company
specifying any shares held by any member, shall be prima facie evidence of the
title of the member to such shares. These and some such other provisions of the
Indian companies Act leave no doubt that a transfer of shares becomes valid and
enforceable against the company only when it is duly accepted by the company
and the name of the purchaser is entered in its register of members. Till then,
the legal title to the shares remains in the vendor, although the beneficial
interest is transferred to the purchaser. The registered shareholder alone is
liable in respect of anything unpaid on the shares.
The matter is
further clarified by the company’s articles of association. Article 11 says :
“The company
shall be entitled to treat the registered holder of any share as the absolute
owner thereof, and accordingly shall not be bound to recognise any equitable or
other claim to or interest in such share on the part of any other person save
as herein provided.”
Article 14
repeats :
“Save as
herein otherwise provided, the company shall be entitled to treat the
registered holder of any share as the absolute owner thereof and accordingly
shall not, except as ordered by a court of competent jurisdiction or as by
statute required, be bound to recognize any benami, equitable or other claim to
or interest in such share on the part of any other person.”
Article 43
relates to the transfer of shares and it provides :
“The instrument
of transfer of any share shall be signed both by the transferor and transferee,
and shall contain the name and address both of the transferor and transferee,
and the transferor shall be deemed to remain the holder of such share until the
name of the transferee is entered in the register in respect thereof.”
It becomes
abundantly clear that so far as the company is concerned, it makes no
difference whether the registered member is the beneficial owner of the shares
or holds them merely as a trustee for some one else. In his position of a
trustee, he may have the right to be indemnified by his cestui que trust
against the calls, and he may also be liable to certain duties towards him.
But, that is a matter peculiar to the relationship between the transferor and
the transferee, with which the company has no concern.
15. In
Murshidabad Loan Office Ltd. v. Satish Chandra Chakravarty, it was observed :
The whole
scheme of the Companies Act seems to be that the company has got to proceed on
the basis of its own register of members and it is neither obliged nor
competent to enquire into the rights of other persons whose names are not
entered in it”;
and again as
follows :
“Assuming that
the registered shareholder is not the real owner of the share but if he is the
member in the books of the company it is he alone who would be entitled to
exercise the rights of a shareholder, viz., to vote as such or to receive the
dividend payable in respect of the share and it certainly follows that he alone
is liable for share calls or to be put on the list of contributories in case
the company is wound up.”
The dispute in
the present case is entirely between the company and a shareholder whose name
appears in its register of members, and the dispute relates to the non-payment
of a call in respect of the shares entered in his name for which he alone was
liable. They were his shares which the company forfeited. The company,
therefore, cannot now be heard to say that the respondent was not the holder of
those shares of the time they were forfeited. Consequently, Mr. Batta shall be
deemed to be holding the shares on August 15,1947.
No other point
has been urged. The appeal is consequently dismissed with costs. Counsel fee
shall be Rs. 32.
The question
involved being one of some importance and not covered by any direct authority,
I accept the prayer orally made by Mr. Tuli for grant of a certificate under
section 52 of Ordinance 10 of 2005 Bk.
Appeal
dismissed.
[1960]
30 COMP. CAS. 491 (BOM.)
V.
MUDHOLKAR
AND PATEL, JJ.
FIRST
APPEAL NO. 794 OF 1955
SEPTEMBER
28, 29, 1959
MUDHOLKAR,
J.-This is an appeal under
section 202 of the Indian Companies Act (VII of 1913), from the order of the
District Judge, Ahmedabad.
The relevant facts
are as follows; Inthe former State of Idar a private limited company called the
Himatnagar Glass & Ceramic Industries LTD., was founded. Originally it was
a private limited company, but eventually it was converted into a public
limited company. Just before this conversion the State of Idar purchased
preference shares of the face value of Rs.1,00,000 in this company and paid the
full amount of the share money. Along with these shares the State also
purchased ordinary shares of the value of Rs. 1,00,000. Only half of the share
money had been called and, therefore, the State paid only Rs.50,000. Thus a
balanced of Rs. 50,000 was the unpaid call in the respect of these shares. The
state also lent Rs. 10,000 to the company partly on March 5,1945, and partly on
April 6, 1945.
It would
appear that this concern ran into difficulties and the Government of Idar was,
therefore, desirous of getting rid of its shares. An agreement was thereupon
entered into between a concern known as the M.D. Industries Ltd. of Ahmedabad
and the Himatnagar Glass & Ceramic Industries Ltd. Under that agreement the
former was to be appointed as the sole selling agents of the Himatnagar Glass
& Ceramic Industries Ltd. In consideration of their agreeing to render
financial help to the aforesaid industries it was also agreed that the M.D.
Industries Ltd. were to take over all the shares which stood in the name of
Idar States in the books of the company. They were to pay an amount of Rs.
1,50,000 to the Idar State as purchase price of the those shares within a
certain period. They never paid this money.
On January 24,
1948, the State of Idar took possession of the factory with all the properties
of the company and was in possession of those properties through its Director
of Industries till the date of merger. The Idar state merged in the State of
Bombay on April 10, 1948, and it would appear that thereafter the Collector of
sabarkantha took possession of the factory and the other assets of the company
on behalf of the State of Bombay.
On August 30,
1950, the collector and two shareholders of the company made an application to
the District Judge at Himatnagar for the compulsory winding up of the company.
An order of compulsory winding up of the company was eventually made by the
District Judge and respondent No. I, Jiwanlal Sankarchand Shah, was appointed
liquidator. On April 15 or 16 1952, Jiwanlal addressed a letter to the
collector of Sabarkantha. In that letter the liquidator made a demand from the
Government for the unpaid call of Rs. 50,000 and also claimed from the
Government a certain sum of money by way of rent and some other amounts. The
Government did not make any payment and, therefore, the liquidator made an
application to the court on February 25, 1955, asking for certain reliefs. The
most important reliefs are :
" (a) delivery of possession to him of the
properties belonging to the company ;
(b) permission to the liquidator to sell the properties by auction
or otherwise as the court may direct him ;
(c) ordering the State Government to pay Rs. 50,000 to the
liquidator with interest at 9 per cent per annum from August 4, 1946 ;
(d) ordering
the State Government to pay arrears of rent."
The Collector
on behalf of the State Government denied the liability of the State to pay any
money to the liquidator. According to the collector a charge had been created
in favour of the State of Idar in respect of one lakh and fifty thousand rupees
which was the value of the shares held by the Idar State in the company. It is
also contended that by virtue of the agreement entered into in the year 1945,
the liability was on the M.D. Industries Ltd. at to pay the unpaid calls and
not on the State Government. Further, according to the Government, it is not
liable to pay interest or rent to the liquidator .
The court
below held that the State of Bombay was liable to pay interest at 9 per cent on
this amount from August 4, 1946, and also was liable to pay rent for a certain
period irrespective of this agreement. It directed the state Government to hand
over possession of the property of the company to the liquidator and granted
permission to the liquidator to sell those properties.
Before us it
was most strenuously urged by Mr. Rane,the Assistant Government Pleader, that
the State of Bombay was not liable to pay any call money to the liquidator. He
disputed the liability of the State on three grounds. They are :In the first
place, the obligations of the former Idar state did not devolve on the State of
Bombay. In the second place, the legal effect of the agreement entered into in
1945 was to absolved the Idar State form paying the call money to the company
and in the third place, the State of Bombay was not a contributory whose name
has been settled on the list of contributories by the liquidator.
Relying upon a
decision of a Division Bench of this court in the case of Ganpatrao v. State of
Bombay (1958) 60 Bom. L>R> 888, 891, Mr. Rane contended that after the
merger a former subject of the Idar State was incompetent to hold the State of
Bombay liable upon any contract which had been entered into with him by the
Idar state. He relied in the particular upon the observations of Shah J., who
delivered the judgment of the court :
" It is a
well settled rule of international law that a successor State by whatever
process the succession is effected whether by conquest, by merger, by agreement
or by treaty, is not under any obligation to recognise the liabilities of the
former State, and unless the obligations have been recognised, the municipal
courts of the successor State are not competent to enforce that liability
against the successor State."
The law on the
point has been laid down by the Supreme Court in Maharaj Umeg Singh v. State of
Bombay [1955] 2 S.C.R. 164.,which itself accepts the view of the Privy Council
as expressed in the case of Vajesingji Joravarsingji v. Secretary of State for
India (1924) L.R.51 I.A. 357,366. The Privy Council has laid down in that case
:
" But a
summary of the matter is this : when a territory is acquired by a sovereign
State for the first time that is a an act of State. It matters not how the
acquisition has been brought about. It may be by conquest, it may be by cession
following on treaty, it may be by occupation of territory hitherto unoccupied
by a recognised ruler. In all cases the result is the same. Any inhabitant of
the territory can only make good in the municipal courts established by the new
sovereign such rights as that sovereign has, thought his officers, recognised.
Such rights as he had under the rule of predecessors avail him nothing. Nay
more, even it in a treaty of cession it is stipulated that certain inhabitants
should enjoy certain rights, that does not give a title to these inhabitants to
enforce these stipulations in the municipal courts. The right to enforce
remains only with the high contracting parties. "
It will thus
be clear that the Privy Council has recognised the right of a subject or an
inhabitant to enforce against the successor State such rights as are recognised
by that State. Now, it has been made clear by the Supreme Court that a
successor State can do this either expressly or by implication. We have
considered this aspect of the matter in Messrs. Vrajlal Nanalal & Co. v.
State of Bombay (1959) Special Civil Application No. 3251 of 1958, decided by
Mudholkar and Patel J.J. of April 22, 1959 (unrep.) , and have observed :
" The
effect of all these cases is that when a sovereign acquires or seizes any
property or territory for the first time it amounts to an act of State and the
municipal court has no power to enquire into the justice or injustice of the
act and the subject of the ceding sovereign could not carry on the previously
acquired rights under the new sovereign. The only enforceable rights they could
have against the new sovereign are those that the new sovereign has by
agreement, express or by legislation conferred upon him."
Here we have
the fact that the State of Idar had entered into possession of this property by
virtue of the agreements of 1945 on the ground that it was a shareholder to the
extent of the two lakhs of rupees. After the merger the state of Bombay entered
into the possession of this property. It would, therefore, follow that the
State of Bombay intended to assert the same rights which the former Idar State purported
to assert when it had entered into the agreement. Those rights were based,as
already stated upon the initial fact that the State of the Idar was a
shareholder to the extent of Rs. 2 lakhs and in respect of which it had paid
Rs. 1,50,000by way of share money. A balanced of Rs. 50,000 was payable by the
State to the company. This liability must naturally attach to the right which
the State of Idar had by reason of the fact that it had paid Rs. 1,50,000. Now,
the State of Idar could not have exercised those rights and ignored the
liabilities which were attached to those rights. The State of Bombay did not
repudiate expressly any liability after it entered into possession of this
property. It could therefore be said that by implication the State of Bombay
accepted that liability. Apart from that, the court cannot permit a party to
allow itself to take only the benefits arising out of a contract or a bargain
and dispute the liabilities arising therefrom. Therefore looking at the matter
either way, it would be clear that the State of Bombay as the successor state
is bound by the same obligation by which the State of Idar was bound.
Alternatively it can be said that the state of Bombay cannot be allowed to
assert their rights as share-holders but dispute the liabilities arising from
the fact that they are the shareholders.
As regards the
seconds grounds we may point out that though the agreement between the state of
Idar and the M.D. Industries Ltd., whereunder the latter had undertaken to take
over the shares standing in the name of the State and pay for them and though
there is also an agreement between the company on the one hand and the M.D.
Industries on the other that the latter would pay the price of the shares to
the Idar States and get the shares transferred to themselves, there has in fact
been no transfer of the shares in the name of M.D. Industries Ltd. In the
absence of any such transfer we are clear that the liability of the original
shareholders, i.e., the State of Idar, continued. Since the State of Idar was
liable, the state of Bombay, which is the successor of the State of Idar, is
also liable.
The third
ground urged by Mr. Rane was that the order of the court below requiring the
Collector of Sabarkantha to hand over possession of the factory and the other
assets of the company is bad, because though it purports to be made under
section 195 of the Companies Act, the conditions of that section are not
satisfied in this case. Now, section 195 provides that an order of the court
could be made against a contributory whose name is settled in the list of
contributories. Mr. Rane points out that no such list has been made and, at any
rate, the state of Bombay has not been settled in the list of contributories.
That may be so. Here again the point was not taken either in the court below or
in the memorandum of appeal. In such a circumstance we do not permit Mr. Rane
to raise this point.
Then Mr. Rane
contended that the claim of the liquidator is barred by time. In this
connection he relies on article 112 of the Limitation Act. That articles
provides that the suit has to be instituted within three years of the date from
which the call by a company is payable. Mr. Rane points out that a resolution
was passed on August 4, 1946, by the board of directors calling for the money
and providing for payment apparently by the end of September 30, 1946.
Therefore, according to Mr. Rane the suit was to be brought within the three
years of September 30, 1946 Since the suit was to be brought in time he
contends that the court could not allow the application of the liquidator
wherein he claims for recovery of an unpaid call money from the State of
Bombay. Now, there are two sections of the old Companies Act which deal with
the applications of a liquidator in winding up proceedings for recovery of call
money. One is section 186 and the other is section 187. These sections are as
follows :
" 186. At
any time after the making of the winding up order the Court may make an order
on any contributories to pay in the manner directed by the order, any money due
from him or from the estate of the person whom he represents to the company
exclusive of any money payable by him or the estate by virtue of any call in
pursuance of the Act. The court shall not allow any set-off in such a case
except as provided below :
(a)
In the case of an unlimited
company the court ....
(b) In the case of a limited
company , make any director whose liability is unlimited or to his estate the
like allowance ; and
(c) In the case of limited or unlimited
company when all the creditors are paid in fully, the court may allow the
contributory by way of set-off any money due to him on whatever account against
any subsequent call."
" 187. At
any time after the making of the winding up order and before or after it has
ascertained the sufficiency of the assets of the company, the court may make
calls on and order payment thereof by all or any of the contributories to the
extent of their liability, for payment of any money which the court considers
necessary to satisfy the debts and liabilities of the company and the costs,
charges and expenses of winding up, and for the adjustment of the rights of
contributories among themselves. In making the call the court may take into
consideration the probability that some of the contributories may partly or
wholly fail to pay the calls. "
It will be
clear that section 186 deals with recovery of debts, that is the recovery of
money due upon a contract. Now, where a liquidator makes an application for
recovery of such moneys then obviously the claim has to be within time.
Therefore, the liquidator's application in so far as it is referable to section
186 of the Companies Act would be beyond time. Mr. Rane says that the
liquidator's application must fall under section 186 only, because he wants to
recover the unpaid call money in pursuance of the resolution of August 4, 1946.
It seems to us that this contention is not correct because no reference
whatsoever is made to that resolution in the liquidator's letter. Apart from
that, under that resolution only Rs.25 per share, i.e.,in all a sum of
Rs.25,000, was called, while the total amount of unpaid share money was Rs.
50,000. The liquidator in his letter had made a demand for the amount of Rs.
50,000. Therefore, it is clear that his demand is not based upon the
resolution. Since it is not based upon that resolution he could have recourse
to the provisions of section not 186 of the Act.
Mr. Rane then
points out that in his application to the court the liquidator has claimed
interested at 9 per cent from the date of the resolution and,therefore, it must
be inferred that the demand made by the liquidator was based on the resolution.
The most that can be said is that the demand for interest was based on that
resolution but nothing more. We do not think that this circumstance
conclusively indicates that the liquidator had based his demand for the unpaid
call money on the resolution of the board of directors.
Under the
Companies Act a liquidator is given a right to move the court for recovery of
moneys due under certain provisions of that Act. Section 187 of the Act is a
provision which empowers the courts to order in certain circumstances the
payment to the liquidator of moneys which he can claim under the statue. It is
contended by Mr. Rane that even in such a case the question of interest would
arise. Whether it does so or not,it is sufficient for the purpose of this case
to say that no proper application was made by the receiver under section 187 of
the Act. The Companies Act provides a form for making an application in this
behalf. The liquidator should have made an application in that particular form
and given all the particulars which are required to be mentioned in the
application. Then again before the court can grant an application under section
187 it must be satisfied that the payment of the money sought by the liquidator
is necessary to satisfy the debts and liabilities of the company and costs,
charges or expenses of the winding up or for the adjustment of the rates of the
contributories themselves. The application which is before us cannot be
ascribed to section 187 of the Act because all the particulars which are
necessary to be placed before the court for enabling it to decide the various
matters referred to in section 187 are not set out in that application. There
is apparently no time limit for making an application under this section and it
will be open to the liquidator to make such an application even now. The
consequence of our view would, therefore, be that the order of the court below
requiring the State to pay Rs. 50,000to the liquidator in respect of the call
money will have to be set aside.
The next
question to be considered is whether the direction regarding the payment of
interest at 9 per cent on Rs. 50,000 is correct. In our opinion, in the absence
of a provision in the Companies Act and in the absence of demand for interest
in the letter of the liquidator it was not competent to the court to award
interest against the State. That direction is also liable to be set aside.
Finally, there
remains the question of payment of rent. It is said that the court was
competent to make such an order under section 185 of the Act. That section runs
thus : " At any time after the making of the winding up order,the court
may require any contributory and any trustee,banker, agent or officer of the
company to pay, deliver, surrender, or transfer forthwith or within such time
as the court directs, to official liquidator any money, property or documents
in his hands to which the company is prima facie entitled."
We have
already held that the State must be regarded as a contributory and that the
contention that it does not appear that a list of contributories had been
settled ought not to be permitted to be raised on behalf of the state. From
this it would follow that the provisions of section185 could be availed of
against the State. There is, however, nothing in those provision which entitled
the court to require a contributory to pay rent in respect of property in the
possession of the contributory. If the State had collected any money belonging
to the company or had in its possession any money belonging to the company
then, of course, an order could have been made by the court requiring the State
to pay such money to the liquidator. Mr. Shah, who appears for the respondent,
says, that the State of Bombay had let out the buildings belonging to the
company to the Civil Supplies Department on a rent of Rs. 500 per month and
that after collecting the rent from the Civil Supplies Department, the State
had let out the building belonging to the company to the Civil Supplies
Department on a rent of Rs.500 per month and that after collecting the rent
from the Civil Supplies Department, the State had actually paid a part of the
rent so collected to one of the directors of the company and that consequently
the State must be held liable to pay the rent for the entire period during
which the Civil Supplies Department was in occupation of the building. For one
thing,it does not appear that any rent was collected by the State form the
Civil Supplies Department except for a period of five months or so and a part
of the rent for this period was actually paid by the Government to a director
of company. Apart, however,from that it cannot be disputed that the Civil
Supplies Department is a limb of the State and is not a separate entity.
Therefore, even though the premises may have been made available for the use of
the Civil Supplies Department and even though a rent of Rs.500 per month was
fixed with respect to those premises and actually recovered for a period of
five months, it cannot be said that the State had in its hands moneys belonging
to the company collected by the State from any person or entity. In these
circumstances, we are of the opinion, that no order can be made against the
Government requiring it to pay rent of Rs. 500 per month to the company in
respect of rent payable by the Civil Supplies Department.
For these
reasons we modify the order of the court below by deleting the direction
regarding the payment of Rs.50,00 by the State to the liquidator with interest
at 9 per cent from April 1,1952, and the direction for payment of rent at Rs.
500 per month from July 8, 1950 till possession of the property and the
machinery is handed over to the liquidator, and dismiss the cross- objections.
As regards the
costs, we direct that the parties will bear their own costs of the appeal and
the respondent will pay the costs of the cross-objections to the appellant and
bear his own costs. As regards the costs in the court below those incurred so
far will be borne as incurred.
Order
accordingly.
[1990] 67 COMP. CAS. 491 (
HIGH COURT of
v.
Luxmi Tea Co. Ltd.
AJIT KUMAR SENGUPTA J.
Suit No. 670 of 1986
JULY 6, 1988
S.B.
Mukherjee and R. C. Nag for the Appellant.
Bholanath
Sen, P.C. Sen and Bhaskar Sen for the Respondent.
Ajit Kumar
Sengupta J. —In this
interlocutory application, the plaintiffs have, inter alia, asked for the
following reliefs :
(i) Appointment of an administrator and/or
special officer over the defendant-company, the Luxmi Tea Co. Ltd. to take over
its management;
(ii) For certain orders of injunction,—
(a) restraining
defendants Nos. 2 to 8 from holding out or acting as directors ;
(b) restraining defendant No. 9 from holding out
or acting as the secretary of the defendant-company ;
(c) restraining the defendants from dealing with
or alienating or encumbering the company's assets or parting with its
possession or from entering into any further contracts or operating the
company's bank account or selling the company's tea except by public auction
and restrain ing the defendant-company from allowing Carritt Moran and Co. P.
Ltd. ("Carritt Moran") to act as tea-broker of the defendant-company
and allowing one Debu Chatterjee to act as manager of the defendant-com pany's
Narayanpur Tea Estate both pursuant to the company's board resolutions ;
(d) injunction restraining the defendant-company
from giving effect or further effect to the transfer of any of the 1,348 shares
mentioned in annexure 'A' to the petition and from allowing any right to be
exercised in respect of such shares including the voting rights or receiving
any dividend ;
(e) injunction restraining defendants Nos. 2 to
9 from using any funds of the defendant-company for the purpose of defending
the pending proceedings under section 155 of the Companies Act, 1956 (Companies
Act), and appeal pending before the Central Government under section 111 of the
Companies Act;
(iii) An order directing the administrator and/or
special officer to be appointed to conduct and preside over the company's
seventy-fourth annual general meeting which was for the financial year ended on
March 31, 1986, with ancillary directions upon the administrator and/or special
officer regarding such meeting ;
(iv) And
for ad interim orders in terms of the aforesaid.
On the said
interlocutory application which was moved on September 16, 1986, R.N. Pyne J.
(as his Lordship then was) made an interim order directing that the resolution
passed at the said annual general meeting due to be held shall be subject to
and would abide by the results of the application and the advocates-on-record
of the plaintiffs and the defendants were appointed as joint special officers
for the purpose of making an inventory of the share register, share transfer
register and transfer deeds relating to the said 1,348 shares.
Pursuant to
the said order, the inventory has been completed in the month of September,
1986. It appears that the plaintiffs preferred an appeal. It is alleged that
the company, while contesting the said application filed by the plaintiffs in
the said appeal, contended that the disputed shares were not 1,348 but were
only 779 shares which were described as "dead shareholders". It may
be mentioned that the said 1,348 shares and 779 shares constitute 8.4% and 4 8%
respectively of the paid-up capital of the company.
Orders were
passed by the appellate court from time to time adjourning the said annual
general meeting and eventually by an order of the appellate court dated January
28, 1987, the said adjourned annual general meeting was directed to be held on
March 7, 1987, and a retired judge of this court, Mr. C.K. Banerjee, was
appointed as chairman of the meeting. Direction was also given by the appellate
court that votes, if cast in the abovementioned meeting in respect of the said
779 shares, would be separately shown in the chairman's report. The chairman
has since then filed a report.
The suit
having been instituted with leave under Order 1, rule 8 of the Code of Civil
Procedure, an advertisement was published in newspapers on September 29, 1986.
By several orders passed by justice Mrs. Pratibha Bannerjee in the months of
November and December, 1986, on applications made under Order I, rule 8 of the
Code of Civil Procedure, eleven persons who had purchased 716 shares
constituting about 4.4% of the company's paid-up capital and who had made
applications under section 155 of the Companies Act, five other persons who had
purchased 1,149 equity shares constituting about 7.18% of the company's paid-up
capital and nineteen other persons who had purchased 1,143 equity shares
constituting 7.1% of the defendant-company's paid-up capital, were added as
parties to the suit. As a result of the said order, persons having purchased
shares constituting about 18.7% of the paid-up capital of the company were
added as parties to the suit supporting the plaintiffs. Supplementary
affidavits have been filed by or on behalf of such persons putting on record
their support to the plaintiffs.
On September
4, 1986, the learned company judge passed an order on one of the applications
made under section 155 directing rectification of the register of members of
the defendant-company in respect of 56 shares purchased by one Champalal
Dharewa. It is contended by the plaintiffs that in spite of such order, no
rectification has been made and an application for contempt is pending in
respect of the same.
On the eve of
the annual general meeting, the applicants whose applications under section 155
were pending, obtained orders from Justice Mrs. Monjula Bose in the said
company proceedings appointing special officers, to exercise voting rights in
respect of the shares purchased by them but not registered by the company in
accordance with their wishes, at the ensuing adjourned annual general meeting.
The said special officers have exercised their voting rights at the annual
general meeting to which I shall refer presently.
According to
the plaintiffs, 49 applications under section 155 of the Companies Act were
pending in respect of more than 3,000 shares constituting about 20% of the
company's paid-up capital, purchased by some of the present plaintiffs and
their supporters.
The present
application is opposed by the company, its directors and secretary. Two sets of
affidavits-in-opposition have been filed. Supplementary affidavits have also
been filed by the parties in the present proceeding.
The contention
of the plaintiffs is that the company was incorporated in the year 1912 with
its liability limited by shares and on February 6, 1963, a new set of articles
was adopted by the company following the amendment of the Companies Act in
1960, inter alia, of section 111 of the Companies Act. Under the amended
articles, the board of directors of the company has no power to refuse
registration of the transfer of fully paid-up shares over which the company has
no lien. It is nobody's case that the company is claiming any lien over the
shares which were awaiting registration in the pending proceedings under
section 155 of the Companies Act or otherwise.
According to
the plaintiffs, the first plaintiff purchased 12 equity shares on February 7,
1986, and the second plaintiff purchased 12 equity shares on January 24, 1986,
and another 12 shares on February 9, 1986, which were registered by the company
on March 5, 1986. The first, second and third plaintiffs are the registered
shareholders in respect of 12, 24 and 26 equity shares respectively ; the first
plaintiff claimed to have subsequently purchased a further two equity shares
and lodged the same with the company for registration. The fourth plaintiff
purchased six equity shares from one Durga Prasad Agarwalla and seven others
who were joint-holders in respect of the said six shares and had lodged the
same with the company for registration. The fifth, sixth and seventh plaintiffs
claimed to have purchased respectively, 309, 210 and 546 fully paid-up equity
shares and lodged the same for registration with the company, but the
registration has been refused by the company. The fifth, sixth and seventh
plaintiffs have already filed applications under section 155 of the Companies
Act. According to the plaintiffs, 44 persons have filed three separate
affidavits through three deponents, Nav Ratan Surana, Suresh Kumar Kanoi and
Jaga-dish Chandra Ghosh claiming to have purchased 3,369 shares. The plaintiffs
rely on an affidavit of the first plaintiff affirmed on January 6, 1987, filed
before the appellate court showing that the plaintiffs have the support of
persons holding 6,157 shares.
Two main
disputes are involved in this application. The first dispute relates to
transfer of shares and non-registration thereof. The second dispute relates to
the alleged mismanagement of the affairs of the company and oppression of the
plaintiffs and their supporters who have purchased shares and have allegedly
failed to obtain registration thereof in alleged breach of the provisions of the
Companies Act and the company's articles of association. I shall deal with
these two controversies separately.
The broad
facts relating to the first dispute as regards the transfer of shares and the
alleged non-registration thereof are as follows :
The board of
directors of the company comprised the Sahas holding only 3,690 shares out of
the total paid-up capital of 16,000 shares of Rs. 100 each and the said 3,690
shares constituted only 23.06% of the total paid-up capital. Thus, the Sahas
were in management on the. basis of only a minority shareholding. One Dipankar
Chatterjee, the second defendant, in the month of January, 1986, obtained
control of 1,652 shares held by the then director, Arun Kumar Saha, and the
said shares constituted 10.3% of the total paid-up capital. According to the
plaintiffs, the said Dipankar Chatterjee was in a position to dominate the
board of the company and he was in de facto control of the company since
January, 1986, although he became a director only on April 28, 1986. He also
purchased the shares of other directors and their relatives. The allegation is
that the said Dipankar Chatterjee is deemed to be a director since January,
1986, and rather even prior thereto and he has cornered a large number of
shares by misrepre- sentation immediately after coming into the management. In
January, 1986, the said Dipankar Chatterjee started transferring a large number
of shares in his favour and in favour of his nominees even though dividends in
respect of such shares remained unclaimed since 1976. The said Dipankar
Chatterjee was formally co-opted as a director in the board meeting held on
April 28, 1986, and at this board meeting, the transfer of a large number of
shares out of the said 1,348 shares was approved. It may be mentioned that 12
shares purchased by the first plaintiff were also approved at the said meeting.
The case of the plaintiffs in substance is that directors have acquired shares
in their own names and in the names of the nominees by dubious and illegal
methods.
In January,
1986, the shareholding in the defendant company was scattered. A large number
of shareholders were either dead or not traceable or have not responded to the
notices of the company for annual general meetings. For a number of years, they
have not attended such meetings. According to the plaintiffs, the dividends in
respect of the disputed 1,348 shares have not been encashed since last several
years and are lying in deposit in the account of the Central Government under
section 205A of the Companies Act, 1956.
It is also
the grievance of the plaintiffs that in January, 1986, Dipankar Chatterjee and
his supporters have resorted to a device for illegally acquiring the said 1,348
shares so as to create an ostensible majority in their favour. Such devices, inter
alia, were issue of advertisements by the defendant company in various
newspapers, stating that the original share certificates have been
"reported to be lost" and if no objection was received within 15
days, duplicate share certificates would be issued. Such advertisements were
issued in respect of 152 shares held by 16 shareholders. Before issuance of
such advertisements, no request was made to the defendant company by the
registered shareholders stating that the share certificates have been lost and
duplicate share certificates should be issued in their favour. Nonetheless,
such advertisements were issued in newspapers by the defendant company. It is
further contended by the plaintiffs that issuance of duplicate share
certificates are in violation of the Companies (Issue of Share Certificates)
Rules, 1960. No board resolution of the company has been disclosed showing any
authority of the board to issue either such advertisements or duplicate share
certificates and yet on the basis of such duplicate share certificates transfer
of about 152 shares in favour of the present management and their nominees are
shown to have taken place. On these transfers, in some cases, the company
claims to have taken indemnity from the persons concerned but the validity of
such indemnities are in dispute by reason of lack of adequate stamp, without
any affidavit, etc.
The case of
the plaintiffs made in the affidavit-in-reply is that although transfers of 586
shares have been alleged by the company to have taken place prior to January,
1986, the said transfers have been deliberately antedated. In view of such
allegations having been made in the affidavit-in-reply, the company, with the
leave of the court, filed a supplementary affidavit through one Sukhendu Bikash
Saha affirmed on March 28, 1987. The company, however, denied the allegation of
antedating in the supplementary affidavit and did not rely on any records to
refute the allegation or to establish that approvals of transfers of such
shares in fact took place prior to January, 1986. It is also alleged that the
company did not even make any reference in its pleadings in the annual return.
The plaintiffs, in their supplementary affidavit-in-reply, have contended that
in respect of the shares transferred in favour of Dipankar Chatterjee and his
nominees in the year 1986, no dividend has been collected by the original
shareholders and the same have been transferred to the account of the Central
Government as late as September 20, 1986, long after the date of the transfer
of shares. According to the plaintiffs, this would indicate the ante-dating of
the transfer of many shares.
The further
contention of the plaintiffs is that the records of the company have been fabricated
and in order to conceal their detection, the same have not been referred to in
the pleadings of the company. The plaintiffs have been kept at bay by refusing
inspection of such records without which the plaintiffs cannot demonstrate
further the wrongful acts complained of. The plaintiffs have given some
illustrations regarding the alleged illegal acquisition of shares by Dipanker
Chatterjee by alleged dubious methods.
One Durga
Prasad Agarwalla and seven other persons jointly held six shares in the company
bearing distinctive numbers 7,008 to 7,010 and 15,129 to 15,131. The fourth
plaintiff purchased the said shares on May 29, 1986, from the said Durga Prasad
Agarwalla and the said joint holders who executed the transfer deed lodged with
the company on June 2, 1986, together with the share certificates, but the
company, however, sent to the fourth plaintiff a copy of the letter addressed
to Durga Prasad Agarwalla questioning the transfers and as to the reasons for
not withdrawing the dividend for the year 1983-84 and lack of response to the
advertisements in newspapers.
The attitude
of the company, however, remains unexplained. The failure of the registered
shareholder in not collecting the dividend or encashing the dividend warrant
cannot be a relevant consideration in dealing with an application for transfer
of shares by the company particularly having regard to the fact that even
according to the company, the registered shareholder was alive and was still a
member. It prima facie appears to me that this is an irrelevant consideration
for the board of directors in exercising their powers of refusal to transfer
the shares. Whether the defendant company and its board have power under clause
39 of the company's articles of association to refuse approval of transfer of
the fully paid-up shares over which the company has no lien is a matter for the
company court to decide. Suffice it to say at this stage that deciding the
question about the balance of convenience, the court may take into account what
would be the effect if these applications under section 155 are allowed and the
applicants are treated as members of the company who would be supporting the
plaintiffs. But the advertisements in newspapers can be issued only upon
receipt of an application by the registered shareholder or in case of his death
by his heir and legal representatives stating loss of original share
certificates and asking for issue of duplicate share certificates. Prima facie
the advertisements were issued unauthorisedly. Accordingly, the absence of
response to such unauthorised issuance of advertisements in newspapers cannot
justify such application and cannot make the issue of duplicate share
certificates valid or proper particularly when the registered shareholder is
alive at the time the company is considering the approval of transfer of shares
by him.
The company
contended that an application was made by one Madanlal Agarwaila representing
himself to be the son and heir of the said Durga Prasad Agarwaila and on the
basis of the said application, the shares were mutated in the name of Madanlal
Agarwaila after obtaining an indemnity from him. The company has not disclosed
before this court as to what steps have been taken by it to enforce such
indemnity in view of the unassailable claim of the fourth petitioner to such
shares by purchase. No affidavit has been affirmed by the said Madanlal
Agarwaila and the supposed application of Madanlal Agarwaila has not been
produced before this court. Even the supposed indemnity has not been produced.
The said Madanlal Agarwaila is shown to have subsequently sold the said six
shares to one Rabin Malakar who, according to the plaintiffs, is a nominee of
Dipankar Chatterjee. The said Durga Prasad Agarwaila and the seven joint
holders are still alive or at least are not claimed by the company to be dead.
There is no explanation as to why an enquiry was not made by the company with
the other seven joint holders before issuing the duplicate share certificates.
The company has not produced before this court the transfer deed in favour of
Rabin Malakar showing that the same was signed by the joint holders as well.
The company
subsequently filed an interpleader suit in the City Civil Court, Calcutta, and
obtained an order of injunction restraining the parties including the fourth
plaintiff from initiating any proceedings against the company and its officers
relating to the transfer of the said six shares. The transfer of the said
shares in favour of Rabin Malakar is thus prima facie not tenable in view of the
circumstances in which the duplicate share certificates were issued and on the
basis of which the transfer in his favour was made and approved. No doubt the
number of shares involved is small. It will not tilt the balance one way or the
other. But the method by which the transfer of the said shares has been brought
about discloses a serious mismanagement in the affairs of the company. This
fact has to be taken into account in dealing with the allegations regarding
mismanagement in the affairs of the company. It also lends support to the
grievance of the petitioner that Dipankar Chatterjee, by illegal methods, has
been trying to acquire more shares in the company and bring about registration
thereof in his name and in the name of his nominees with a view to create a
semblance of majority in his favour.
The company,
in its affidavit-in-opposition filed before the appellate court, produced a
list of transfers of 286 shares which, according to the company, were approved
by the board and mutation took place in the year 1986. A copy of the said list
has been included in the affidavit-in-reply to the present application. This
list, however, was not filed by the company in its affidavit-in-opposition to
the instant application. According to the plaintiffs, the said list discloses
the transfers of shares in two cases and their approval by the board in the
year 1986, but even in such cases, they suffer from incurable infirmities
undecided hereinafter.
Pritheswar
Misra and nine others held 12 shares in the company. On the basis of two
affidavits affirmed by Saileswar Misra and six others on December 13, 1985, and
Nikhileswar Misra also on the same date and the death certificate of Pritheswar
Misra, the transmission of the said shares in the name of one Asha Misra was approved
by the board on January 7, 1986. In the first affidavit, it has been alleged
that out of ten persons, six persons were dead and yet the death certificate of
only one person has been disclosed. There is no indispensable death
certificates in the case of the other five persons. The indemnities obtained by
the company from the so-called legal heirs, according to the plaintiffs, are
understamped and are liable to be impounded. The company has, however,
contended that Smt. Asha Misra sold the said 12 shares to Arun Kumar Saha and
Purnima Saha on December 16, 1985. The plaintiffs in their supplementary
affidavit- in -reply have challenged the factum and validity of such transfer
on the ground of lack of competency of Smt. Asha Misra to sell the said shares
on December 16, 1985, when she was not a registered shareholder in respect of
the said 12 shares, the said shares having been mutated in her favour by reason
of transmission only on January 7, 1986. No transfer deed executed by the said
Asha Misra has been produced before this court.
Four shares
previously standing in the name of Smt. Durga Bewa were transmitted in favour
of one Ram Lal Agarwalla and were approved by the board on April 21, 1986,
which, in turn, has transferred the shares to one Rabindra Nath Malakar who,
according to the plaintiffs, is a nominee of Dipankar Chatterjee. The said Ram
Lal Agarwala has affirmed an affidavit on the above mentioned impugned
transaction on the basis of which the transfer of the said shares in his favour
was approved by the board. In my view, no reliance can be placed in the said
affidavit. It is alleged in the said affidavit that share certificates in
respect of the said four shares were "issued"to the said Ram Lal
Agarwala and the same were "lost or destroyed" "though those
were returned"to him by the company. The said Ram Lal Agarwala has further
stated in the said affidavit that he has "filed a request to the
company" for issuance of duplicate certificate for the said shares. The
meaning of such statements is not at all clear. A company can issue share
certificates or even duplicate share certificates only to a registered
shareholder and that too only if the duplicate share certificates have been
issued lawfully and properly, of which there is no proof or evidence in the
instant case. It is not also clear as to why the share certificates should have
been returned to Ram Lal Agarwala which necessarily indicates that the share
certificates were previously made over to the company. If so, by whom and its
purpose is not at all clear. This document purports to give an indemnity and is
understamped and liable to be impounded.
The
contention of the defendants is that the first, second and third plantiffs held
only 62 shares. The other plaintiffs are not yet members of the company and
have filed applications under section 155 of the Companies Act which were
pending. Hence, until the names of such other persons are mutated, they can
have no cause of action in the plaint. There is no prayer for rectification of
the share register in respect of the impugned transfer of the shares nor is
there any decree for cancellation of the transfers of shares. There is only a
prayer for prospective injunction in respect of the impugned transfers of 1,348
shares in the plaint. As most of the shares in question have already been
transferred and mutated in the books of the company, no relief can be asked for
in respect of the shares already mutated.
It is also
the contention of the defendants that the instant application was moved on
September 16, 1986, and the order was passed on the following day. The
plaintiffs took a chance by preferring an appeal against the ad interim order
and the appellate court also directed that the votes cast in respect of 779
shares need to be shown separately. Even according to the report of Mr. P.K.
Jhunjhunwala; the advocate-on-record of the plaintiffs, as to the results of
the voting, the defendants have won at the election and hence there is no room
for restraining the elected majority from managing the affairs of the company.
Ultimately, the minority has to sell their shares to the majority and the
defendants constituting the majority are prepared to purchase the shares of the
plaintiffs at a fair price.
It is also
contended that the plaintiffs alleged that the 1,348 shares are ineffective
shares. The advertisements were published in relation to only 16 shareholders
who, according to the plaintiffs, held only 159 shares. Thus, the dispute is
not as to 1,348 shares but only to 159 shares.
Although the
plaintiffs suspected foul play with regard to the transfers of the shares, some
of them wrote letters offering very high prices of Rs. 3,000 per share.
Mr. Dipankar
Chatterjee became a director of the company only in April, 1986, and has
nothing to do with the transfers which took place in 1984 or 1985. The
complaint in the suit is confined to transfer of shares which took place in the
affidavit-in-reply of the plaintiffs that the transfers have been ante-dated.
It is a matter of record that in 1986, only 286 shares out of 1,348 shares were
transferred and approved and the annual returns would also support this. The
transferors of such shares have voted at the annual general meeting after
mutation of the said shares and it is not possible to ante-date the transfer of
such shares as alleged by the plaintiffs. It may be mentioned that the
plaintiffs took objection to this contention that the annual return, not
referred to in any pleadings of the defendants, would support the contention of
the company.
The appellate
court directed the votes in respect of 779 shares to be recorded separately.
One does not know how the votes in respect of the balance 569 shares out of
1,349 shares were cast, inasmuch as the report of the chairman is silent on
this point. In any event, only 286 shares had been transferred during the year
1986. It may be mentioned here that the plaintiffs have taken serious objection
to this contention inasmuch as the defendants did not disclose any records of
the company in support of this contention.
Regarding the
shares of Durga Prasad Agarwalla and seven other joint holders, it was
contended that only a small lot of six shares was involved in the transaction
and under the articles, the directors had a discretion to approve the transfers
without a succession certificate. Madanlal Agarwalla, claiming to be the son of
Durga Prasad Agarwalla, approached the company and the company, relying on his
representation, accepted the transmission of the shares in his favour.
Thereafter, Smt. Iva Bose, plaintiff No. 4, contacted the company. The company
wrote to everybody. It was accepted by the defendants that some foul play had
been done by somebody and hence the inter-pleader suit has been filed in the
city civil court. The defendants laid stress on the fact that the said Smt. Iva
Bose purchased the shares after advertisement. According to the defendants,
apart from the above, no other incident has been complained of by the
plaintiffs.
Regarding the
ten shares of one Swapan Kanti Bagchi purchased by Dipankar Chatterjee, the allegation
is merely that he was induced to sell the shares at a low price but there was
no dispute regarding the ownership of the shares.
Regarding the
shares purchased by Smt. Asha Mishra, it was contended that there was nothing
wrong in a transmission and a transfer taking place on the same day. The
application for transmission of the heirs of Pritish-war Misra in favour of
Asha Misra having been entertained by the company, thereafter the sale was
approved. It was further contended by the defendants that this procedure has
been followed in all cases where transmission of shares was accepted and
followed by transfer of the shares and its approval by the board.
Regarding
Durga Bewa, the submission was that it involved only four shares.
The company,
in its supplementary affidavit-in-opposition, has referred to three cases where
applications for transmission of shares were made and approved and applications
were also made for issue of duplicate share certificates on the basis of which
transfers of shares were made and approved by the company, viz., Pijush Kanti
Datta, Debendra Nath Roy and Chanchal Biswas. The plaintiffs have joined issue
as to the validity of transmission of such shares.
In the case
of Pijush Kanti Datta, the plaintiffs contend that the identity, included at
page 31 of the supplementary affidavit-in-reply, is under-stamped, stamp of
only Rs. 5 having been put although a stamp of Rs. 30 was necessary and, as
such, the said identity is liable to be impounded. Further, the document has
not been affirmed before any Magistrate or a notary public and does not bear
any date and is without any jurat. The plaintiff's further complaint is that it
appears from the endorsement made on the said document that the company has
issued duplicate share certificates on the basis of the said illegal and
improper document.
One Bhabesh
Chandra Roy made an application to the company on February 27, 1987, for
mutation of two shares standing in the name of his deceased father, Debendra
Nath Roy, but he could not produce the original share certificate along with
his application for transmission on the ground that the same was mislaid.
Strangely enough, he subsequently forwarded the share certificates to the
company after he came to know that the notice sent by the company in the year
1982 by registered post with acknowledgment due had been returned by the post
office to the company on February 26, 1987, with the remarks "addressee
deceased". A strong comment was made on behalf of the plaintiffs on
this letter to the effect that by no stretch of imagination, the said Bhabesh
Chandra Roy could come to know of the return of the said letter by post office
to the company and particularly on February 26, 1987, and on the very next day,
i.e., on February 27, 1987, he could not have sent the share certificate in
support of his previous application made nearly five years earlier on September
20, 1982, for transmission. This shows that the said shares remained inactive
for about five years and suddenly came to life on the basis of inspired
correspondence.
One Chanchal Biswas made an application to the
company on the basis of a succession certificate for mutation of two shares
that stood in the name of Kalipada Biswas, a deceased member, and the mutation
of the said shares has taken place. The plaintiffs' comments with regard to the
transfer of these shares are that the said two shares are not included in the
list of 286 shares which are claimed to have been transferred during the year
1986, although the succession certificate is dated August 28, 1986. No votes
were exercised in respect of the said two shares at the said annual general
meeting and significantly, the said two shares were valued at Rs. 50 only and
the company has accepted the said valuation. The company, however, has taken a
point of inadequate stamping of the transfer deeds in respect of many of the
shares of the plaintiffs and their supporters that were the subject-matter of
the applications under section 155 of the Companies Act.
Having considered the submissions of the learned
advocates appearing for the parties and in the light of the facts and
circumstances narrated herein-above, I am prima face satisfied that the conduct
of the company makes it clear that many of the transfers have been improperly
executed. No documents were disclosed by the company in support of its
contention that only 286 shares were transferred in the year 1986. The company
and its board appear to have taken a partisan attitude in the matter of
approval of the transfer of such shares. The allegation of the plaintiffs that,
with regard to the shares transferred in favour of Dipankar Chatterjee and his
supporters, the documents were always found to be in order notwithstanding the
serious infirmities indicated, has substance. In the case of transfer of shares
in favour of the plaintiffs and their supporters, it appears that the company
found it unable to approve the transfer of the shares. Even when an order has
been passed in one application under section 155 allowing rectification, the
mutation has not taken place resulting in a contempt application.
The results of voting at the annual general meeting
can have no bearing on the question as to the legality and validity of the
impugned transfers of the shares. The appellate court did not enter into any
controversy as to the legality and
validity of the impugned transfers of the shares. The said question has been
left open to be decided by the trial court at the time of hearing of the suit.
At this stage, I am only concerned with whether the impugned transfers and/or
transmissions of shares are valid and legal. The appeal court directed the
votes to be recorded separately in the case of disputed transfer of shares. At
this stage, it cannot be decided finally as to whether the transfers and
transmissions of shares are valid and legal or not The direction of the appeal
court, as it appears is to ascertain, pending the prima facie adjudication of
the question as to the legality and validity of the impugned transfer of
shares, whether the management in office has a clean and substantial majority
to warrant their continuance in office. This exercise is more relevant for the
purpose of considering the balance of convenience rather than the prima facie
adjudication of the question of legality and validity of the transfer of
shares.
It appears
from the scrutineer's report by Mr. P.K. Jhunjhunwala, accepted on behalf of
the company for the purpose of argument, that votes in respect of 7,518 shares
excluding part of the disputed 779 shares were cast in favour of Dipankar Chatterjee.
Out of these 7,518 shares, 14 shares are also disputed on other grounds and 569
shares form part of the 1,348 shares disputed by the plaintiffs. If the
aggregate of 583 shares are deducted from 7,518 shares, it would appear that
Dipankar Chatterjee and his group have the support of only 6,935 shares.
It has been
argued on behalf of the respondents that the present management has the support
of one Tushar Baran Sana who holds 350 shares and his votes were rejected by
the scrutineer nominated on behalf of the petitioners on the ground that the
signature on the ballot paper differed from the admitted signature. At the
hearing, it was also submitted that if necessary, the present management can
file an affidavit of Tushar Baran Saha to the effect that he is supporting the
present management. It is, however, significant to note that the chairman has
not made any comments on this aspect. In view of conflicting reports, the
chairman has not decided whether the votes cast by Tushar Baran Saha should be
accepted or not. No attempt has been made on the part of Tushar Baran Saha to
intervene in the present proceedings. Except a verbal submission made at the
hearing, there is nothing on record to show that Tushar Baran Saha supports the
present management or that his votes were wrongly rejected by the scrutineer.
In that view of the matter, the votes cast by Tushar Baran Saha cannot be taken
into consideration. In the premises, the present management has the support of
only 6,935 undisputed shares. The petitioners, however, claimed that they have
the support of persons holding 7,007 shares. It has been contended on behalf of
the respondents that the said shares include 144 shares in respect of which the
Custodian of Enemy Property has cast votes and about 4,278 shares in respect of
which the special officer had exercised voting rights. In so far as exercise of
voting rights by the Custodian of Enemy Property is concerned, the chairman has
merely raised a doubt but has not decided the matter. It has been urged on behalf
of the petitioners that the Custodian of Enemy Property is lawfully entitled to
exercise voting rights in respect of the shares, although his name may not be
recorded in the register of members.
Under section
5 of the Enemy Property Act, 1968, the enemy property vests in the Custodian of
Enemy Property. It is, therefore, seen that the Custodian of Enemy Property is
the legal owner of the shares. Reliance has been placed by the petitioners on
the articles of the company and more particularly article 78 read with articles
44 and 45, whereunder, the executor and legal representative of a deceased
member, any committee or guardian of a lunatic or minor member or any person
entitled to transfer in consequence of death, bankruptcy or insolvency of any
member, is entitled to exercise voting rights, although not a member. On the
same analogy, the Custodian of Enemy Property is also entitled to exercise
voting rights since the property in the shares vests absolutely in him. There
is no infirmity in the Custodian of Enemy Property exercising voting rights in
respect of the said 144 shares.
There is also
ho infirmity in the special officer exercising voting rights. The special
officers have exercised voting rights in pursuance of various orders passed in company
proceedings to which the respondent company is a party. The company judge must
have been satisfied as to the right, title and interest of the respective
applicants and, thereafter, the orders were passed. In any event, and it is
well-settled that equity exists between transferor and transferee and the
transferor is obliged to exercise voting rights in accordance with the wishes
of the transferee. In this connection, reference may be made to the decision of
the Supreme Court in R. Mathalone v. Bombay Life Assurance Co. Ltd. [1954] 24
Comp Cas 1 ; [1953] AIR 1953 SC 385, where the Supreme Court held that on the
transfer of shares, the transferee becomes the sole beneficial owner of those
shares sold by the transferor the legal title to which is vested in him. Thus,
the relation of trustee and "cestui que trust" is thereby established
between them. The transferor holds the shares for the benefit of the transferee
to the extent necessary to satisfy the demands of section 94, Indian Trusts
Act, 1882. As the transferee holds the whole beneficial interest and the
transferor has none, the transferor must comply with all reasonable directions
that the transferee may give. In this situation, if he becomes a trustee of
dividends, he is also a trustee of the right to vote because the right to vote
is a right to property annexed to the shares and as such the beneficiary has a
right to control the exercise by the trustee of the right to vote.
The
relationship arises by reason of the circumstance that till the name of the
transferee is brought on the register of shareholders, in order to bring about
a fair dealing between the transferor and the transferee, equity clothes the
transferor with the status of a constructive trustee and this obliges him to
transfer all the benefits of property rights annexed to the sold shares to the
"cestui que trust". That principle of equity cannot be extended to
cases where the transferee has not taken active steps to get his name
registered as a member on the register of the company with due diligence and in
the meantime, certain other privileges or opportunities arise for purchase of
new shares in consequence of the ownership of the shares already acquired.
It has been
further argued on behalf of the respondents that the constituted attorney of
one Nityananda Saha holding 351 shares voted in favour of the petitioners and
the said Nityananda Saha having renounced the world, the power of attorney
executed by Nityananda Saha stood revoked and extinguished and his constituted
attorney was not entitled to exercise voting rights. In this context, it may be
mentioned that the chairman has not decided on the validity of the votes cast
by the said constituted attorney of Nityananda Saha. It has not been
conclusively proved that Nityananda Saha has renounced the world ; on the other
hand, the petitioners have contended that Nityananda Saha, although a Sanyasi,
has not renounced the world. Dividends are being received and collected by
Nityananda Saha and there is no reason why the votes cast by Nityananda Saha
should be rejected.
The next head
of grievance of the plaintiffs is mismanagement of the affairs of the defendant
company by Dipankar Chatterjee and the members of his group. According to the
plaintiffs, the working results of the defendant company have deteriorated
since the assumption of control by Dipankar Chatterjee and his group. This
would be apparent even from the partially disclosed working results of the
company and from the previous audited balance-sheets of the defendant company.
For the year ended March 31, 1984, the company made a profit of Rs. 57 lakhs
and declared dividends at the rate of 30 per cent. For the following year
ending on the March 31, 1985, the profits fell to Rs. 47.36 lakhs but the
dividend went up to 40 per cent. For the next year ended on March 31, 1986, the
profits dropped to Rs. 17 lakhs and the dividend fell to 15 per cent. According
to the plaintiffs, Dipankar Chatterjee became a de facto director of the
defendant-company in or about the month of January, 1986, and the accounts for
the said year ending March 31, 1986, were finalised after he and his nominees
became directors.
In the course
of the hearing of the interlocutory application, the company applied for
appointment of auditors and submitted that the accounts for the year ended on
March 31, 1987, were ready. The plaintiffs contend that the company
deliberately suppressed the results for the year ended on March 31, 1987, and
the accounts remained unpublished obviously because the results were poor. By
an order passed on May 20, 1987, on an agreed basis on this application, Price
Waterhouse and Co. were appointed as auditors to audit the accounts of the said
year ended on March 31, 1987. But subsequently, upon mentioning by the company,
the order has been kept in abeyance. The results thus appear to be that the
accounts for the financial year ended on March 31, 1987, remained unaudited,
unpublished and unapproved by the members. In the meantime, another financial
year has run by, viz., the financial year ended on March 31, 1988. Although the
company obtained or agreed to the order for the appointment of Price Waterhouse
and Co. for auditing the accounts for the year ended on March 31, 1987, the
same were not placed before the court for its perusal and for refuting, if
possible, the allegations of depressing the working results of the company. In
the absence of such accounts being produced before the court, prima facie, the
allegation of mismanagement of the working results stand approved and remains
unrebutted.
It is
contended by the company that the manager of the tea gardens has been changed
only since the last two months and the replacement of the broker of the company
for selling tea by Carritt Moran shows better working results. The claim of the
company remains unsupported by any tangible evidence. The company contends that
the former brokers of the company, Tea Brokers P. Ltd., was involved in company
proceedings under section 397 but the implication of this contention is not at
all clear. It is accepted by the defendants that the said Carritt Moran have
given loans to Dipankar Chatterjee for buying shares in the company and one
finds that the said Carritt Moran has replaced the previous tea brokers. Such
replacement has been rewarding and profitable for the new tea broker, Carritt
Moran. The satisfaction of Carritt Moran as to the solvency of Dipankar
Chatterjee for the loans incurred is no answer to the allegation of
mismanagement of the affairs of the defendant company. The allegation is not
that the company has received any loans from Carritt Moran without having the
means to repay. Hence, the satisfaction, if any, of Carritt Moran as to the
solvency of Dipankar Chatterjee to repay the loans is beside the point.
As a further
instance of mismanagement, the plaintiffs have contended that the value of
21,633 kgs. of tea dust lying in stock during the year 1984-85 has been valued
in the balance sheet for the year ended on March 31, 1985, at Rs. 1,29,798, but
the value of the stock of 10,548 kgs. of tea dust in the following year 1985-86
has been shown to be nil in the balance-sheet for the said year. There is no
explanation for such a state of affairs and strangely enough, the auditors of
the company, Lovelock and Lewes, have also failed to ask for any explanation for
qualifying their report. The abovementioned balance-sheets were produced before
this court by the plaintiffs and no explanation could be given by the
defendants. In view of such absence of explanation, the criticism of the
defendants as to the defective verification of the petition or failure of the
plaintiffs to identify records of the company which will substantiate the
charges in the petition is not at all meritorious and is not acceptable.
Further, as laid down by the Supreme Court in Needle Industries (India) Ltd. v.
Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 (SC), even
if the charge of oppression is not made out, the court is not powerless to do
substantial justice between the parties and technical objections indicated above
cannot be permitted to defeat the exercise of equitable jurisdiction.
In this
interlocutory application, the court is concerned with the broad question as to
whether there are reasonable grounds to come to a prima facie finding as to the
manipulation of the transfer of shares which would justify an order for
investigation and at the trial of the suit pending such investigation, the
supersession of the board. It is no doubt true that 1,348 shares are the
balance shares and if the transfer of such shares impugned by the plaintiffs is
ultimately upheld at the trial, the present management cannot be said to have
the support of the majority. In view of the rival contentions of the parties
and pending such investigation, it is difficult, to prima facie accept the
claims of the defendants that they have the support of the majority.
Thus, the
balance of convenience cannot be said to be in favour of the defendants for
allowing them to continue in office in the face of serious prima facie
infirmities of several transfers and transmissions of shares followed again by
transfers resulting in mutation. The complaint of the plaintiffs in this
respect requires further probe and investigation and cannot be dismissed as
frivolous. Pending such investigation which is possible, at the trial of the
suit, the question arises as to what further interim protection can and should
be granted. The first ad interim order passed on September 17, 1986, has left
the question of the validity of the annual general meeting to abide by the results
of this application. In view of the absence of prima facie evidence being
produced by the company in support of the impugned transfers of 1,348 shares
and having regard to the unsatisfactory evidence produced in respect of the
transfers and/or transmissions of some of the shares, it cannot be said that
the votes in respect of the said 1,348 shares or a part thereof, in favour of
the present management, were validly cast. As a result, the support of the
majority, claimed by the management, cannot be upheld. Hence, it is not
possible to allow the defendants to give effect to the results of the said
annual general meeting as claimed by them at this stage.
In view of
the aforesaid facts and circumstances, it is just and proper that the interest
of the petitioners, their supporters and all other shareholders of the company
should be protected. Sections 397 and 398 of the Companies Act, 1956, confer a
right on the shareholders who have the requisite qualification under section
399 of the said Act to apply to the court for appropriate reliefs. These
sections do not oust the jurisdiction of the civil court to entertain suits on
the same subject-matter and where shareholders complain of mismanagement or
oppression and of acts prejudicial to the interest of the company or
prejudicial to public interest, the civil court may entertain a suit by
shareholders and grant appropriate reliefs. On a construction of the provisions
of section 2(11) and section 10 of the Companies Act, 1956, it has been held by
the Division Bench of this court in Asansol Electric Supply Co. v. Chunnilal
Das, [1972] 75 CWN 704, that the Companies Act does not exclude the
jurisdiction of the civil court. Moreover, unless a statute, by express
provision or by necessary implication, ousts the jurisdiction of the civil
court, the civil court will have jurisdiction to try all suits of a civil
nature. The ouster of jurisdiction of the civil court shall not be readily
inferred. Sections 397 and 398 of the Act do not exclude, either expressly or
by necessary intendment, the jurisdiction of the civil court.
It is the
complaint of the petitioners that a large number of shares have been purported
to be transferred and/or transmitted in violation of section 108 of the
Companies Act. These transfers have been effected in favour of the present
management, that is to say, the group of Dipankar Chatterjee. Any transfer
effected in violation of section 108 of the Companies Act is illegal and void.
In Mannalal
Khetan v. Kedar Nath Khetan [1977] 47 Comp Cas 185 (SC) ; AIR 1977 SC 536, an
agreement was entered into for exchange of blocks of shares in the company. A
contention was raised that the transfer of shares in the company's register had
been made illegally and without authority because no proper instruments of transfer
duly stamped and executed by and/or on behalf of the appellants were delivered
to the respondent company. It was contended before the High Court of Allahabad
that the transfers were in contravention of the mandatory provisions of section
108 of the Act. The High Court held that the provisions contained in section
108 of the Act were directory because non-compliance with section 108 of the
Act is not declared an offence. The Supreme Court repelled that contention and
held that the provisions contained in section 108 of the Act are mandatory. It
was also held that where a contract, express or implied, is expressly or by
implication forbidden by statute, no court can lend its assistance to give
effect to it. Therefore, the company, by registering the transfer of shares,
was obviously permitting the transfer and such action on the part of the
company, being in violation of the prohibition, is contrary to law.
It is an
admitted fact that a large number of shares have been transmitted and,
thereafter, transferred on the same day. It appears that the persons in whose
favour the shares were transmitted executed the transfer deeds even prior to
their becoming registered members although they had no absolute interest in the
shares on the date when the transfer deeds were executed. Such transfer deeds
are, therefore, invalid and not in compliance with the provisions of section
108 of the Companies Act, 1956. In this connection, the case of Asha Misra may
be referred to. On the date of execution of the transfer deeds, Asha Misra had
no absolute title to the shares in question and consequently the transfer of
shares in favour of Arun Kumar Saha and Purnima Saha is invalid and void.
On the one
hand, the persons in management are increasing in strength day by day by execution
of several invalid and/or void transfers and, on the other hand, are
deliberately refusing registration of transfer of large number of shares
purchased by the petitioners and their supporters. It has been prima facie
established that the register of members of the company does not reveal the
true and correct state of affairs and calls for further probe and
investigation.
The
petitioners and their supporters, on being wrongfully refused by the company to
be registered as shareholders, had to apply under section 155 of the Companies
Act for the rectification of the register of members. Prior to the holding of
the last annual general meeting of the company, these petitioners had to apply
for appropriate directions from the court for appointment of special officers
to exercise voting rights in respect of the shares purchased by them.
The question,
therefore, is what order will protect the interests of the two groups. The
contention that the present management is wrongfully seeking to remain in power
and is arbitrarily and wrongfully seeking to refuse registration of transfer of
shares in order to perpetuate their control over the company cannot be said to
be without substance. The allegation of mismanagement, although not proved to
the hilt, are allegations and these allegations cannot be determined finally
one way or the other until the accounts are audited. In the circumstances, the
court has the power to restrain the board or supersede the board or otherwise to
change the management of the company. The contention that the directors
represent the majority shareholders and, therefore, hold a sacrosanct position
is wholly untenable in facts and in law in the instant case. In a proper case,
there is no impediment in the exercise of power by the court to supersede the
board which has the support of the majority if it is found that they are acting
illegally, mala fide or in a manner oppressive to the minority shareholders or
in a manner prejudicial to the interests of the company or prejudicial to
public interest. The court always has jurisdiction to prevent abuse of majority
power. In fact, it is incumbent on the court to interfere in such matters and
to temporarily take over the management of the company until the legitimate
grievances of the shareholders regarding the management of the affairs of the
company are set right.
In the case of T.S. Sivaprakasa Mudaliar v. K.M.
Samarapuri [1949] 19 Comp Cas 292 (Mad), the Division Bench of the Madras High
Court held as follows (at page 294 of 19 Comp Cas) :
"Very many points have been argued on behalf of
respondent No. 3 and the two members of his faction who filed I. A. No. 54 of
1949. The first is that the court had no jurisdiction to appoint a receiver in
a going concern like Ramaswami and Co. Their learned advocate seeks as
authority for that contention a brief dictum to be found at the conclusion of
the judgment of Greaves J. in Kailashchandra Dutta v. Saddar Munsif, Silchar
[1925] ILR 52 Cal 513 at page 521 ; AIR 1925 Cal 817. There, the learned judge
said without giving any reasons :
'. . . there is no jurisdiction in a court to appoint
a receiver of a company. If it is necessary to protect the assets of a company,
other means must be sought which are provided by the provisions of the
Companies Act.'
We find no provision in the Companies Act which
excludes the jurisdiction of a court to appoint a receiver ; though since the
Companies Act makes provision for dealing with the circumstances in which a
company is mismanaged, it should not be necessary in the vast majority of cases
to appoint a receiver. It might even be improper to do so in certain
circumstances. Our attention has been drawn to a number of instances in which
receivers have been appointed; and although the particular case that we are
here considering does not fall within one of the categories of cases in which
receivers have been appointed by courts, we think this is a case in which, if
the allegations are accepted, the appointment of a receiver would be the most
satisfactory way of dealing with the temporary difficulty that exists during
the pendency of the suit. If the allegations of respondent No. 1 be true, he is
kept out of possession and management by respondent No. 3 and seeks in his suit
to have it declared that he is entitled to participate equally with respondent
No. 3 in the management of Ramaswami and Co. Ltd."
In the case of Raghunath Prasad Tandon v. Budaun
Electric Supply Co. Ltd., AIR 1949 All 112, the Division Bench of the High
Court held as follows
"The
simple question thus which we have to consider is whether, in view of the
cirumstances of this case, it is just and convenient to uphold the order of the
lower court appointing a receiver in the suit now pending before it. In Benoy
Krishna Mukerjee v. Satish Chandra Giri [1928] 55 ILR 720 ; AIR 1928 PC 49,
their Lordships of the Judicial Committee of the Privy Council made the
observation set out below (at p. 50) :
'On an
interim application for a receivership such as this, the court has to consider
whether special interference with the possession of a defendant is required,
there being a well-founded fear that the property in question will be
dissipated, or that other irreparable mischief may be done unless the court
gives its protection. Such an order is discretionary, and the discretion is, in
the first instance, that of the court in which the suit itself is pending.' 'On
the facts before them, their Lordships came to the conclusion-that there were
various wastes and therewas a danger of loss or injury to the properties in
question if they remained in unrestricted control of the defendant Mahant. In
the present suit, there are allegations supported by an affidavit, which have
not been rebutted by any counter-affidavit on behalf of the defendant, of
waste, falsification of accounts, of destruction of accounts, of removal of
machinery and embezzlement of money on the part of the plaintiffs. In view of
these allegations, the strained relations between the parties and the various
litigations, civil and criminal, to which reference has been made by us before,
we are not able to say that the learned civil judge did not exercise a proper
and judicial discretion in appointing a permanent receiver in this case. The
interim receiver operated for a period of nine months and the permanent
receiver has been working for another nine months. The appellant's counsel has
not been able to show that the management of the undertaking has in any way
suffered by the financial control which the lower court has vested in the
receiver. We are not oblivious of the fact that the company in question is a
public utility concern, but that by itself is, in our opinion, no sufficient
ground for refusing to provide a check in the shape of a receiver over the
financial management of the concern, the title of which is seriously in dispute
between the plaintiffs and the defendant. The learned civil judge came to the
conclusion that it was just and convenient in the interest of the safety of the
property and its preservation from destruction and dissipation that a receiver
should be appointed. We are not disposed to say, on the material before us,
that the trial court was in error in taking this view."
In the case
of Ratan Lal v. Jagadhri Light Railway Co. Ltd., AIR 1946 Lahore 193, the short
question for decision was whether a company judge exercising jurisdiction under
the Companies Act has jurisdiction to appoint a receiver to take over the
management and possession of the company and also take over possession of its
property pending decision of an application. There, the Division Bench observed
as follows :
"It is,
no doubt, true that ordinarily, when the affairs of a company reach a deadlock,
then the appropriate procedure is the one provided for in the winding up
chapters of the Companies Act and by the appointment of an ad interim
liquidator. But there may be cases where winding up is not just and equitable
and, otherwise, there are no grounds to wind up the company which is solid and
yet the court may have to protect the property from being alienated and wasted
owing to mutual bickerings and troubles among the directors and the court may
be called upon to hold a meeting of the company in exercise of the powers given
to it in the Act in order to elect new directors or to undo the effect of
certain ultra vires resolutions. .
I am further
supported in this view by the fact that there are several English cases in
which a receiver has been appointed to conduct the business of a company. Reference
in this connection may be made to the cases in Stanfield v. Gibbon [1925] WN 11
; 159 LT 29, Featherstone v. Cooke [1874] 16 Eq 298; 21 WR 835 and Trade
Auxiliary Co. v. Vickers [1874] 16 Eq 303 ; 21 WR 836. These were no doubt
cases in which the receiver was appointed in an action and not in summary
proceedings. But I see no difference in the exercise of court's powers to
appoint a receiver, where the matter comes to it in exercise of its ordinary
civil jurisdiction. Therefore, in my view, it is possible in suitable cases
under the Companies Act to appoint a receiver who may take up the business of
the company and the management of its property and its affairs, pending the
decision of the court in that litigation".
These
authorities support the proposition that the court can temporarily take over
the management of the affairs of the company by the appointment of a receiver
or a special officer. Even the court may not appoint a receiver or a special
officer for all times to come but it may, for a limited period and for limited
purpose, appoint a receiver or a special officer to take over the management.
The present
management is bent upon remaining in power by any means. They have rejected
registration of transfer of shares for the said purpose so that no change takes
place in the composition of the board of directors. If the present board is
allowed to continue, they will resist such transfers being registered
perpetually and remain in power as long as they want to. The conduct of the
present board does not inspire confidence.
Before I part
with this case, I must dispose of another contention which has been raised by
the defendants. The objection of the defendants as to the non-joinder of
necessary parties, i.e., the persons in whose names the shares have been
transferred and which is being challenged by the plaintiffs, for the purpose of
the present interlocutory application, cannot be upheld for the simple reason
that without investigation into the impugned transactions of transfer of
shares, the full particulars as to the persons in whose favour the shares Have
been transferred, as to that number of shares, date of transfer and mutation,
the share distinctive numbers, etc., cannot be ascertained. These are matters
for the trial of the suit upon proper discovery and inspection and, if
necessary, after interrogatories are administered.
For the
reasons aforesaid, this application is allowed. The present board of directors
of the respondent-company is superseded and is restrained from functioning any
further.
Mr. Chandan
Kumar Banerji, a retired judge of this court, is appointed special officer of
the company. The management of the company shall be conducted by a committee or
a board of management consisting of two representatives from each side headed
by the special officer. The company shall not conduct or hold any general
meeting, whether an annual general meeting or an extraordinary general meeting,
until further order of this court.
There will
also be an order in terms of prayer (g) of the notice of motion. The existing
interim orders are confirmed.
The special
officer will be entitled to a remuneration of 200 G. Ms. per month to be paid
by the respondent-company. The special officer will be at liberty to engage a
clerk or a manager to assist him. The special officer will also be at liberty
to appoint any member of the Bar to assist him, if he so desires. The
remuneration of the clerk or the manager or any member of the Bar junior to him
shall be determined by the special officer and will be paid out of the funds of
the company. No effect shall be given to the resolutions passed in the annual
general meeting.
The suit is
expedited as follows :
The
defendants shall file their written statement, if any, within four weeks from
the date of service of this, signed copy of the operative part of this judgment
and order. Cross-order for discovery within a fortnight thereafter and
inspection forthwith thereafter. Liberty to mention for early hearing.
The special
officer shall get the accounts audited by any auditor, preferably Price
Waterhouse and Co. to be appointed by him and not by the auditor of the
company. All the accounts shall be audited from April 1, 1985, onwards.
It is stated
that the rectification application was allowed by the company court and an
appeal was preferred by the company. The said appeal has been dismissed
by the Division Bench against which a special leave petition has been filed
before the Supreme Court and special leave has been granted.
Mr. Sen, appearing for the company, asks for stay. Having
regard to the facts and circumstances of the case, stay is refused.
The
special officer and all parties shall act on a signed copy of the operative
portion of this judgment and order upon usual undertaking.
[1990] 68 COMP. CAS. 576(
HIGH COURT OF
v.
JAGDISH CHANDRA J.
E.A. NO. 57 OF 1987 AND C.C.P. NO. 58 OF 1984 IN EXECUTION
CASE NO. 56 OF 1983
NOVEMBER 2, 1987
Jitendra
Chawla for the Appellant.
S.C. Dhanda
and Nandita Chandra for the Respondents.
Jagdish Chandra
J.—In Execution Case No. 56
of 1984, 2,375 shares standing in the name of the judgment-debtor, P.S.
Khambete, in the company, Superior Air Products Ltd., were ordered to be
attached, vide order dated March 29, 1984. The order dated August 10, 1984,
shows that the statement of the judgment-debtor, P.S. Khambete, was recorded by
the court wherein he stated that the shares of the said company had been lost
by him a few years back. There was a letter on the records of this company that
the shares mentioned in the records of this case were standing in the name of
P.S. Khambete, judgment-debtor, vide order dated August 10, 1984, Shri U.L.
Watwani, advocate, was appointed by the court as a receiver to take charge of
the shares attached from the Delhi Stock Exchange Ltd. It was further directed
that the receiver would also take steps to get duplicate shares of Superior Air
Products Ltd. standing in the name of P. S. Khambete who was present in court
on that day and he was also directed to assist the receiver in all respects in
getting the duplicate shares issued by the said company in accordance with law.
The Code of
Civil Procedure was then moved by the decree-holder on September 19, 1984,
wherein it was alleged that the managing director and the secretary of the said
company flatly refused to obey the order of the court and had rather shown
disrespect to the receiver when the receiver visited the premises of the
company on August 18, 1984, and August 21, 1984. The contempt application was
resisted by Superior Air Products Ltd., New Delhi, by filing two
counter-affidavits —one of Avinash Chander, managing director of this company
and the other by Shri S. Ganguli, secretary of this company.
By means of
the application being I. A. No. 57 of 1987 filed under Order 47, rule 1 of the
Code of Civil Procedure, Superior Air Products Ltd., New Delhi, has sought
review of the order dated August 10, 1984, only to the extent as far as this
company was directed by the court to issue duplicate shares and consequently
for the dismissal of the contempt petition. This application for review has
been resisted by the decree-holder.
The position
taken up by the company, Superior Air Products Ltd., New Delhi, and also
contended by Mr. Dhanda, learned counsel of this company, is that out of the
attached 2,375 shares of this company standing in the name of the
judgment-debtor, P. S. Khambete, P. S. Khambete sold as many as 2,300 shares to
one A. K. Maheshwari resident of 57, Mahatma Gandhi Road, Calcutta 9, through
Raja Ram Bhasin and Co., Share Brokers, 8/4, Deshbandhu Gupta Road, New Delhi,
long time back prior to the year 1977. Shri Maheshwari lodged these shares with
this company with 12 share transfer deeds duly executed by the judgment-debtor,
P. S. Khambete. The company duly considered the matter and, vide its resolution
No. 5 dated September 21, 1977, resolved to reject the application of Shri
Maheshwari and refused to transfer the shares from the name of P. S. Khambete
to the name of Shri Maheshwari, the purchaser. Even the appeal filed by Shri
Maheshwari against the aforesaid decision of the company before the Company Law
Board (being Appeal No. 10 of 1978) was heard and dismissed on February 13,
1981, by Shri S. M. Duggar, Member, Company Law Board. In pursuance of the
request of Shri Maheshwari, the company returned to him the transfer deeds
along with share certificates which he had submitted to the company for the
transfer of the shares in his name.
Full price of
the shares is stated to have been received by P. S. Khambete from Shri
Maheshwari in respect of the above mentioned shares in the said company. When a
transferor makes a transfer, he makes an implied representation that the
transfer shall be registered by the company in the name of the transferee in
the place of the transferor. If the company refuses to register the transfer
for no fault or default of the transferee, the transferor, by reason of the
share continuing to stand in his name, shall, in cases where he has received
consideration for the transfer, be treated as trustee for the transferee and
bound to act in accordance with his directions and for his benefit in respect
of the share, unless the transferee rescinds the contract and seeks to recover
his money on a consideration which has failed.
Under these
circumstances, the legal ownership of the shares has continued to remain with
the judgment-debtor, P. S. Khambete, whereas the equitable title therein has
vested in Shri Maheshwari who has paid the entire consideration and it follows
that in the absence of any agreement to the contrary, Shri Maheshwari is
entitled to all the benefits attached to the shares (e.g., dividends, bonus
shares) and liable for all the obligations falling due on the shares (e.g.,
calls) after the date of the contract of sale. The company, under these
circumstances, is entitle a to deal with the judgment-debtor as in the records
of the company it is he who is mentioned to be the owner of the shares and the
sale thereof in favour of Shri Maheshwari has not been accorded any recognition
by the company. In this view of the matter, the judgment-debtor, P. S.
Khambete, is for all intents and purposes for the outside world only a defunct
legal holder of these shares whereas the true beneficiary and the equitable
owner is Shri Maheshwari. These facts were not known to the court when the
impugned order dated August 10, 1984, was passed by the court appointing the
receiver to take charge of the said shares and to take steps to obtain
duplicate shares from the said company. The duplicate shares were ordered to be
obtained by the receiver from the company palpably for the reason that P. S.
Khambete, judgment-debtor, had made a statement before the court that the said
shares of Superior Air Products Ltd. standing in his name had been lost by him
a few years back which was an incorrect statement. Thereafter, a statement of
P. S. Khambete was recorded on January 16, 1986, by the court wherein P. S.
Khambete admitted having sold shares of Superior Air Products Ltd. as far back
as in 1975 or 1976, and it was nowhere stated by him that the aforesaid
contract of sale which he entered into with Shri Maheshwari stood rescinded at
any point of time after the making thereof. In view of the aforesaid factual
and legal position which emerges in this case, even though the technically
legal ownership of P. S. Khambete, judgment-debtor, only could be attached and
not the real and actual beneficial ownership of Shri Maheshwari, the receiver
appointed could not be directed to take any steps to obtain from the said
company the duplicate shares of this company standing in the name of the
judgment-debtor, P. S. Khambete, as the same were not lost and P. S. Khambete
had made a wrong statement regarding having lost the same while in fact the
same had been sold by him prior to 1977 which sale was not registered by the
company. So, there is a patent error apparent on the record of the case
necessitating review of the impugned order dated August 10, 1984, so far as it
directs the receiver to take steps to get duplicate shares of Superior Air
Products Ltd. standing in the name of the judgment-debtor, P. S. Khambete.
In view of
the above discussion, the review application, E. A. No. 57 of 1987 is accepted
and the impugned order dated August 10, 1984, is reviewed so as not to contain
the direction to the receiver to take steps to obtain duplicate shares from
Superior Air Products Ltd. standing in the name of the judgment-debtor, P. S.
Khambete. For the same reason, the Code of Civil Procedure also fails and is
dismissed with costs. Counsel fee Rs. 500. This order of review shall not
affect the remaining 75 shares of the judgment-debtor, P.S. Khambete.
[1985] 57
COMP. CAS. 7 (MAD.)
HIGH
COURT OF
v.
TAX CASE PETITION NO. 125 OF
1983.
JULY 27, 1983
A.N.
Rangaswamy and Mrs. Nalini Chidambaram for the Appellant.
P.P.S.
Janarthana Raja, Subbaraya Iyer, Padmanabhan and Ramamani for the Respondent.
Ramanujam
J.—The two questions that are sought
to be referred to this court for its opinion by the Revenue are as follows :
"1 Whether, on the facts and in the
circumstances of the case, the Appellate Tribunal is justified in law in
holding that the shares pertaining to the ' sick mills ' have been validly
transferred to Messrs. Karumuthu Ramaswamy Finance (P.) Ltd., during the
accounting year relevant for the assessment year 1977-78 and, hence, the
assessee is entitled to loss on such transfer ?
2. Whether the
Appellate Tribunal's further finding to the effect that share being movable
property can be transferred as per the articles of the company and the
transferee gets the right of ownership even if the transaction is not entered
in the share registers of the company is sustainable in law ?”
The
facts leading to the filing of this reference petition may briefly be stated:
The assessee is an individual having income from a partnership firm, share
dividends, sitting fees, etc. He sold some shares during the year which he held
in the Bank of Madurai and Rajendra Textile Mills Ltd. The said amount was
considered for capital gains. He also sustained some loss in selling the shares
of Alagappa Textiles (
On
appeal, the AAC held that the sale transactions were not sham, as found by the
ITO, but yet he agreed with the ITO that in the absence of entries in the share
registers of the respective companies indicating the sale of shares, the sales
cannot be taken to be complete and that, therefore, the assessee is not
entitled to the set off of the "capital loss".
The
assessee preferred an appeal before the Tribunal contending that as between the
transferor and the transferee the transaction of sale of shares is complete and
from the mere fact that the company has not recognised the transfer and made
entries in the share registers, it cannot be said that the transfer is
incomplete. The Tribunal, following the decision of the Supreme Court in Shelat
v. Thakar [1975] 45 Comp Cas 43, held that the ownership of the shares stood
transferred from the assessee to the purchasers, Messrs. Karumuthu Ramaswamy
Finance (P.) Ltd., notwithstanding the fact that the transfer of shares had not
been registered in the company's books, and, therefore, the assessee was
entitled to claim adjustment of the "capital loss".
Aggrieved
by the decision of the Tribunal, the Revenue seeks to raise the aforesaid two
questions for the opinion of this court.
The
learned counsel for the Revenue contends that even though all the formalities
have been completed as between the transferor and the transferee, the transfer
of shares cannot be said to be complete so as to enable the purchasers to
acquire title to the shares, unless the transfer is registered in the company's
share registers. In support of the said submission, the learned counsel refers
to the statement of law in Palmer's Company Law (twenty-first edition, page
334):
"A
transfer is incomplete until registered. Pending registration, the transferee
has only an equitable right to the shares transferred to him. He does not
become the legal owner until his name is entered on the register in respect of
these shares".
The
learned counsel for the Revenue also refers to the decision of the Supreme
Court in Howrah Trading Co. Ltd. v. CIT [1959] 36 ITR 215 at p. 219, and that
of this court in Subba Naidu v. CGT [1969] 73 ITR 794, in support of his
contention that until the transfer is registered in the books of the company,
the transferee acquires no right, though as between the transferor and the
transferee, there may be equities to be adjusted. But, in a later decision of
the Supreme Court in Shelat v. Thakar [1975] 45 Comp Cas 43, the Supreme Court
has clearly laid down that where, as between the transferor and the transferee,
all formalities have been gone through, such as the execution of a document of
transfer and the physical handing over of the shares by the transferor to the
transferee, the shares should be taken to have been transferred to the
transferee, though until the transfer of shares is registered in the company's
books in accordance with the company law, the transfer could not enable the
transferee to exercise rights of a shareholder vis-a-vis the company. The facts
of the case before the Supreme Court were more or less similar to the case on
hand. In that case, there was a registered gift deed purporting to transfer
certain shares held by B in different companies to her brother, V. The deed was
signed by the donor as "the giver" as well as by the donee as
"the acceptor" of the gift and was duly attested by witnesses. In
that deed, the donor specified and gave particulars of the shares meant to be
gifted and undertook to get the name of the donee put on the registers of the
companies concerned. The donor declared that she was thenceforth a trustee for
the donee with regard to the income she might get, till such time as the donees
name was entered in the registers of the companies. The donor delivered the
registered gift deed together with the share certificates to the donee and had
also signed several blank transfer forms so as to enable V to get the transfers
registered in the share registers of the companies, but, before the transfers
could be entered in the registers, the donor died. A question arose as to
whether, on the facts and in the circumstances of the case, there was a
complete transfer of shares even during the lifetime of the donor. The Supreme
Court held that the requirements of both ss. 122 and 123 of the Transfer of
Property Act, 1882, were completely satisfied so as to vest the right in the
donee to obtain the share certificates in accordance with the provisions of the
company law, that the gift of the right to get share certificates made out in
the name of the donee became irrevocable and complete by registration of the
deed as well as by delivery and nothing was left to be done so far as the
vesting of such a right in the donee was concerned and that the actual
transfers in the registers of the companies concerned, which were necessary to
enable the donee to exercise the rights of a shareholder, were mere enforcement
of that right, and the mere fact that such transfers had to be recorded in
accordance with the company law did not detract from the completeness of what
was donated. According to the said decision of the Supreme Court, if the
transferor has transferred the right to get the share certificates from the
company in the name of the donee, then, as between the transferor and the
transferee, the transfer is complete, though the transferee cannot exercise his
rights as a shareholder vis-a-vis the company, until the transfer of shares is
recorded in the register of shareholders of the company. The aforesaid decision
of the Supreme Court practically takes away the force of the contention of the
learned counsel for the Revenue that till the shares are actually registered by
the company in the name of the transferee, the transferee cannot be taken to
have acquired certain equitable rights in relation to his shares and that he
cannot be taken to have become the transferee of the shares. As a matter of fact,
in the present case, the transfer forms duly signed by the transferor along
with the share certificates have been handed over to the transferee and the
transferee has sought registration of the transfer in the books of the company.
The company has not refused to recognise the transfer, but it has stated that
the registers are not immediately available to record the transfer of shares.
In these circumstances, the aforesaid decision of the Supreme Court in Shelat
v. Thakar [1975] 45 Comp Cas 43, directly applies to the facts of this case
and, therefore, the decision of the Tribunal cannot be said to be erroneous.
In this
view, the petition is dismissed. There will be no order as to costs.
[1984] 55 COMP. CAS. 182 (KER.)
HIGH COURT OF KERALA
v.
Income-tax Officer
M.P. MENON J.
Original Petition Nos. 3444 and 3445 of 1979
SEPTEMBER 15, 1982
K.S. Paripoornan and C.S. Balagangadharan for the petitioners.
P.K.R. Menon and N.S.K. Nair for the respondents.
M.P. Menon J.—K.N. Narayana Iyer and the
members of his family were holding 1.19,760 out of the 3,12,800 fully paid up
equity shares of Boileyburia Tea Estate Ltd., Kottayam. By Ex. P-1 dated
December 15, 1976, he agreed to transfer all the aforesaid shares to the Sales
& Allied Industries (
Shares held by the two petitioners herein were also
covered by the agreement and 1,700 shares belonging to each were actually
transferred on March 31, 1977. They filed returns under the I.T. Act showing
long-term capital gains on the sales so effected, and the ITO assessed them
under s. 143(1). It so transpired, however, that permission was not obtained
from the Reserve Bank in time for transferring 40,000 shares held by another
member of the family, who was a non-resident Indian. The vendors were thus
obliged to buy back the shares in terms of Ex. P-1 agreement. A contention was
then raised by the petitioners that the transfers effected on March 31, 1977,
were only conditional and that no capital gains were actually made. The
Commissioner rejected the contention in proceedings under s. 264 and the two
writ petitions are directed against such rejection.
The controversy is about the scope of the transaction
covered by Ex. P-1. According to the petitioners, the agreement has to be read
as a whole to discover its true legal effect, and when so read, it only
disclosed an intention that property in all the shares would pass only when the
process was completed by April 30, 1978. The sales effected on March 31, 1977,
were thus non est due to the non-fulfilment of the above basic condition. There
were no completed sales in law, and no taxable point giving rise to capital
gains had arisen on March 31, 1977. The transferees could have obtained full
title only if the whole of the 1,19,780 shares had been transferred by April
30, 1978.
The correct approach to be made in cases like these
is indicated by the Supreme Court in CIT v. B.M. Kharwar [1969] 72 ITR 603.
There, a firm engaged in the manufacture, purchase and sale of cloth closed
down the manufacturing side of the business and transferred the machinery to a
private limited company in the share capital of which the partners had the same
proportional interest. The ITO brought to tax the excess realised over the
written down value of the machinery, but the High Court held that the substance
of the transaction consisted of only a change from the business of the firm to
the business of the company. The Supreme Court disagreed with the High Court,
holding that the taxing authorities were bound to go by the legal effect and
character of the transaction, and not by the substance of the matter. Referring
to the doctrine relating to the substance of a transaction, their Lordships
observed that the question of taxability or non-taxability had to be determined
on the basis of the legal rights and liabilities flowing from the contract of
the parties, and not on the basis that they were different from what they were
in law.
What then were the legal rights and liabilities of
the parties under Ex. P-1 contract? Paragraph 1 of Ex. P-1 provided for the transfer
of shares in accordance with the following schedule
(i) 19,250 shares to be transferred on
or before December 15, 1976;
(ii) 33,600 shares to be transferred on
or before 31-3-77;
(iii) 35,132 shares to be transferred on or
before 30-4-77; and
(iv) the remaining 28,758 shares to be
transferred on or before 30-4-78.
It was also provided that as soon as the respective
lots were transferred by duly executing the transfer deeds and delivering the
share certificates to the purchaser, the latter was to pay consideration at the
rate of Rs. 20 a share. Paragraphs 2 and 3 laid down that three named directors
of Hoileyburia were to vacate office by April 30, 1977, to make room for two
nominees of the purchaser, and that the managing director himself was to
continue up to April 30, 1978, acting in consultation with the purchasers in
respect of all policy matters affecting the management of the company.
Paragraph 4 contained an assurance that the vendor would duly register all the
transfers and perform "all acts, deeds, things required or necessary"
for the purchasers to fully enjoy the rights and interests in the shares agreed
to be transferred. And the last paragraph, on which reliance was placed by
counsel for the petitioner, was in the following terms:
"It is further agreed between the parties that
this agreement is conditional upon obtaining necessary permissions, approval or
sanctions from the Government of India, Reserve Bank or any other authorities
and also of the consent of the authorities and also of the consent of the other
shareholders mentioned in the schedule hereunder and if in the event of the
aforementioned 1,19,760 shares are not transferred to the purchaser and/or its
nominees or duly registered in the registers of the said company in the names
of the purchaser and/or its nominees, the vendor shall repay all moneys paid by
the purchaser and the purchaser shall return or retransfer all shares which
have been transferred or delivered to the purchaser or its nominees".
On a careful examination of the above terms, it is
difficult to reach any conclusion other than that as and when each lot was
transferred in accordance with the schedule, the transferees were to get full
title in respect of the shares concerned, under the provisions of the Companies
Act and under the general law as well. When an instrument of transfer duly
stamped and executed by the transferor and the transferee is delivered to the
company along with the concerned share certificate, and when the transfer is
registered in the books, the transferee gets full title for the purposes of the
Companies Act, under ss. 108 to 112 of the said Act. Even in cases where the
company refuses to register a transfer, the transferee becomes owner of the
shares in equity, with a right to claim dividends from the transferor when they
are declared by the company, and also a right to give directions to the
transferor as to how he should vote at the meetings of members. So far as I
could see, paras. 1 to 4 of Ex. P-l are consistent with the above legal effect,
and there is nothing in para. 6 to defeat it. The provision in para. 2 for
inducting two nominees of the purchasers as directors of the company from April
30, 1977, and the assurance held out by the vendor in para. 4, are clear
indications that the parties intended that the transfers were to take effect as
and when they were made, and long before April 30, 1978. Even the use of the
word "retransfer" in the last paragraph of Ex. P-1 postulates only a
reversal of a completed process. On the terms of Ex. P-1, therefore, it is
impossible to assume that the transfers effected by the petitioners on March
31, 1977, were conditional and had not taken effect at any time The agreement
was not for conditional transfer of shares, but for full legal transfer in lots,
with a condition added that the lots sold were to be bought back under certain
circumstances.
The theory that there was no completed transfer and
that there was "no taxable point giving rise to capital gains" is
also belied by the circumstance that the petitioners themselves had included
the long-term capital gains in the returns filed by them. They themselves were
then of the view that the transfers had become effective, and in proceedings
under art. 226 of the Constitution, this court cannot also now permit them to
take up a different stand.
The original petitions are, therefore, dismissed. No
costs.
[1985] 57 COMP. CAS. 834
(BOM.)
v.
V.S. DESHPANDE, C.J.
AND MRS. SUJATA V. MANOHAR,
J.
APPEAL NO. 8 OF 1982 IN
COMPANY APPLICATION NO. 322 OF 1981 IN COMPANY PETITION NO. 628 OF 1981
FEBRUARY 17,18, 1982
I.M. Chagle, R.A. Dada, J. Dwarkadas, Miss D.H.
Cooper and J.P. Avasia for the Appellants.
K.S. Cooper, G.A. Thakkar, S.D. Parekh, M.O. Chinoi,
R.A. Kapadia, S. Ganesh, P.V. Mehta, M.H. Shah, Y.H. Muchhala, J.B. Chinai and
S.P. Chinoi for the Respondent.
The Judgment
of the court was delivered by
Mrs. Sujata
Manohar, J.—Five petitioners
have filed this petition under ss. 397 and 398 of the Companies Act, 1956,
against Killick Nixon Ltd. and the other respondents. The petitioners are the
Bank of India, the Union Bank of India, Dhanraj Mills Pvt. Ltd., Mahesh
Jayantilal Patel and Tejkumar Balkrishna Ruia. The petition on behalf of the Bank
of India and the Union Bank of India is signed by petitioner No. 5, Tejkumar:
Balkrishna Raja, as their constituted attorney. In the petition, it is stated
that Bank of India holds, inter alia, 17,187 fully paid up shares in Killick
Nixon Ltd. (hereinafter referred to as "the company"). The
registration of shareholders of the company shows the Bank of India as the
holder of 17,187 fully paid up shares. The Bank of India has sold 16,706
shares out of these shares to Dhanraj Mills Pvt. Ltd. These shares, however,
have not been transferred by the company in its register of shareholders in the
name of Dhanraj Mills Pvt. Ltd.
The Union Bank of India holds, inter alia, 5,000
fully paid-up equity shares in the company and its name is shown on the
register of shareholders of the company as the holder of these shares. The
Union Bank of India has sold these 5,000 shares to Dhanraj Mills Pvt. Ltd. The
transfer has not, however, been effected in the register of shareholders by the
company.
Dhanraj Mills Pvt. Ltd. is also a member of the
company and holds 20 fully paid-up equity shares in the company. Petitioner No.
4, Mahesh Jayantilal Patel, is also a member of the company and holds 20 fully
paid-up equity shares in the company. Tejkumar Balkrishna Ruia, who is the fifth
petitioner, holds 10 fully paid-up equity shares of the company and his name is
shown as such in the register of shareholders of the company. Four other
members of the company holding 11,253 shares have consented to the petition
being filed. Letters of consent on their behalf are signed by the fifth
petitioner, Tejkumar Balkrishna Ruia, who holds a power of attorney from these
consenting members. The members so consenting are Hiralal Amritlal Kotadia, who
holds 5,466 shares, Amit Hiralal Kotadia, who holds 267 shares, Revindra
Mulraj, who holds 4,150 shares, and Jawahar Ravindra Mulraj, who holds 1,400
shares.
After this petition was admitted, the company and the
other respondents took out a judge's summons praying that the order admitting
the company petition should be revoked or set aside and the company petition
should be dismissed. The picas which were taken in the judge's summons were
taken on a demurrer on the basis that the petition as filed was not
maintainable. Basically the contention of the respondents was that petitioners
Nos. 1 and 2, viz., the Bank of India and the Union of Bank of India, could not
be considered as "members" of the company for the purposes of ss. 397
and 398 of the Companies Act, 1956, inasmuch as they had sold their shares and,
as such, they did not have the necessary "interest" to maintain the
petition. In their absence, the other petitioners could not maintain the
petition under ss. 397 and 398 of the Companies Act as they did not have the
necessary shareholding contemplated under s. 399 of the Companies Act. The
respondents also submitted that the consent given by the holders of 11,253
shares was not a valid consent in law and that the holder of the power of
attorney on their behalf had no right in law to give such consent. The
contentions of the respondents were rejected by a learned single judge of this
High Court who dismissed the judge's summons of the respondents by his judgment
dated December 9, 1981. The company and
the other respondents have thereupon filed the present appeal.
The basic
question that requires determination is whether a member of a company who has
transferred his shareholding; to another person but whose name continues to be
on the register of members of the company because the company has not deleted
his name and entered the name of the transferee in his place, can maintain a
petition under ss. 397 and 398. Section 397, in plain language, states that a
petition can be filed by any mombor or members of a company. Such a petition
can be filed by them if the affairs of the company are being conducted in a
manner prejudicial to public interest or in a manner which may be oppressive to
any member of the members. Such members who arc being oppressed may or may not
include the petitioning members. Under s. 398 also, a petition can be filed by
any member of the company. Such a petition can be filed if the affairs of the
company are being conducted in a manner prejudicial to public interest or in a
manner prejudicial to (he interests of the company. Under sub-s. (1)(b) of s.
398, a petition can also be filed if, as a result of any material change in the
management or control of the company as provided therein, it is likely that the
affairs of the company will be conducted in a manner prejudicial to public
interest or in a manner prejudicial to the interest of the company. Under ss.
397 and 398, there is a further qualification in respect of the members of the
company who may wish to file a petition. This qualification is spelt out in s.
399 of the Companies Act. Under clause (1) of s. 399, the members coming before
the court must constitute not less than 1/10th of the total number of members
or a minimum of 100 members, whenever is less; in the alternative, any member
or members who hold not less than 1/10th of the issued share capital of the
company are also entitled to file
a petition under s. 397 or s. 398 provided they have paid all calls and other
sums due on their shares.
Under ss. 397 and
398, as they stand, therefore, any member or member; who have the requisite
qualifications under s. 399 can file a petition under those sections.
We have to
examine whether there is any good reason for departing from the plain meaning
of these sections and read down the term "member" in order to exclude
from its ambit "bare" members whose names continue on the register of
members although they have sold their shares. Who is to be considered as a
member for the purpose of ss. 397 and 398 of the Companies Act? Section 41 of
the Companies Act defines a "member" as follows.
"41.
Definition of 'member'.—(1) The subscribers of the memorandum of company shall
be deemed to have agreed to become members of the company and, on its registration, shall be entered as members in its
register of members.
(2) Every
other person who agrees in writing to become a member of a company and whose
name is entered in its register of members, shall be a member of the
company."
We are no:
concerned here with s. 41,sub-s. (1). Under s. 41, sub-s. (2), a person whoso
name is entered in the register of members shall be a member of the company.
Ordinarily, the name of a person who does not hold shares in a company cannot
be entered in the company's register of members. Hence, there is no distinction
between a member and a shareholder in the case of a company having a share
capital. In A. Ramaiya's Guide to the Companies Act, 9th edition, page 123, it
is stated as follows:
"In the
case of a company limited by shares, a company limited by guarantee and having
a share capital and an unlimited company whose capital is held in definite
shares, the terms 'member' and 'shareholder' are synonymous and there can be no
membership except through the medium of shareholding."
In Painter's
Company Law, Volume 1, 22nd edition, page 527, it is stated.
"In the
case of a company limited by
shares, a member is a person holding shares in the company; there can be no
membership, i.e., proprietary relationship to a company, otherwise than through
the medium of shareholding. Consequently the terms 'member' and 'shareholder'
are synonymous, apart from the now exceptional case of the bearer of a share ho
is a shareholder but is not a member because he is not the register of members.
"
Section 2(27)
of our Companies Act also spells out the same exception when it states that a
"member" in relation to a company does not include a bearer of
share-warrant of the company issued in pursuance of s. 114. of In the case of
Howrah Trading Co. Ltd. v. CIT [1959] 36 ITR 215; 29 Comp case 282 (SC), the
Supreme Court has also observed that (at p. 287 of 29 Comp Case):
"The
words 'holder of a share' are really equal to the word 'share-holder', and the
expression 'holder of a share' denotes, in so far as the company is concerned,
only a person who, as a shareholder, has name entered of the register of
members."
It is
important to bear this in mind because Mr. Chagla, learned counsel for the
company, has sought to base his arguments on the distinction between the rights
of a member and the rights of a shareholder of a company. He has submitted that
there are certain rights which are give to a member irrespective of his
shareholding while there are other rights which are directly proportionate to
his shareholding. The former, he has designated as the rights of a member and
the latter, as the rights of a shareholder. The argument, though attractive, is
fallacious. The Companies Act dies not contemplate a member who has no shares
in the company. It is true that under the provisions of the Companies Act,
there are various types of rights which have been given to the members of a
company. Some of these rights which are given to a member are not dependent on
the number of shares held by him, e.g., the right to attend or speak at a
meeting of the company, the right to receive notices of meetings and so on.
There are other rights which are given to the members which are directly
proportionate to the number of shares held by them, e.g., the right to receive
dividends, the number of votes cast by a member on a poll and so on. There are
also other rights which may be exercised by a member either jointly with other
members or by himself if he holds the requisite minimum number of shares. Thus,
for example, under the articles of association of a company, there may be a
minimum share qualification for a member who wishes to stand for the post of a
director. All these rights are rights which are conferred on the members of the
company who are also described as its shareholders. In so far as some of these rights
are in direct proportion to the number of shares held, it may be possible to
look upon such rights as rights which are attached to the shares. But the
rights of all types are rights enjoyed by the members of a company.
Mr. Chagla, learned counsel for the company, has
submitted that a member who has transferred his shares enjoys only what he
calls the rights of a member. He cannot exercise the rights of a shareholder.
He has then submitted that the right to file a petition under ss. 397 and 398
is the right of a shareholder. A "bare" member who has transferred
his rights as a shareholder to others cannot file such a petition. There are a
number of fallacies in this argument. In the first place, there is no
distinction between the rights of a member and the rights of a shareholder. A
company recognizes only its members as its shareholders and confers on them
certain rights. A peculiar situation can, however, arise in the case of a
member who has transferred his shareholding to another person. Ordinarily, a
transferee who has purchased the shares of the company is entitled to have his
name entered in the register of members of the company and become its member.
Under s. 111 of the Companies Act, however, a company may have under its
articles a right to refuse to register the transfer of, or the transmission by
operation of law of, the right to any shares of the company. In such a case, a
transferee who has been refused registration may go in appeal to the Central
Government under the provision of s. 111 of the Companies Act. He is also
entitled to take action for rectifying the register of members under s. 155 of
the Companies Act if the company has refused registration of his name without
sufficient reason. In the present case, the transferees have applied to the
company for registering their names as holders of the shares which they have
purchased from the Bank of India and Union Bank of India. The company refused
to register these transfers. We are told that an appeal under s. 111 as well as
an application under s. 155 of the Companies Act are both pending. In the
meanwhile, however, since the transferees are not members of the company in
respect of these shares, it would not be open to them to file a petition under
ss. 397 and 398 of the companies Act relying on these shares as qualifying them
under s. 399 of the Act. The question is whether they can file such a petition
through the transferors.
For this purpose it is necessary to examine the
nature of the relationship between (1) the transferor on the one hand and the
transferee of shares on the other hand, (2) the company on the one hand and the
transferor on the other hand as also, (3) the company on the one hand and the
transferee on the other hand. If we examine the relationship between the
transferor is in the position of a constructive trustee who holds the shares
which have been sold for the benefit of the transferee. As such constructive
trustee he is required to carry out all the just demands of the beneficiary.
This relationship has been explained by our High court in the case of E.D.
Sasson & Co. Ltd. v. K.A. Patch [1943] 45 Bom. LR 46. Pratt J., in that
case, observed as follows ;
"…under s. 94 of the Indian Trusts Act, the
transferor holds the shares for the benefit of the transferee to the extent
necessary to satisfy its demands. Accordingly as the transferee holds the whole
beneficial interest and the transferor has none, the transferor must comply
with all reasonable directions that the transferee may give. The reason for
this is plain, for the equitable interest of the beneficiary is brought into
existence by the Court of Chancery for the purpose of promoting fair dealing.
It would be most unconscionable for the seller of the shares to take advantage
of non-registration and to deal with the shares as his own after taking the
price from the purchaser. Equity therefore treats the purchaser as if he was
the real owner and compels the registered holder to act as the agent of the
beneficiary. For this reason, the beneficiary has a right to control the
exercise by the trustee of the right to vote."
He has also further observed that as a trustee of shares, the
transferor, is also a trustee of all property rights annexed to the shares.
Since the right to vote is a right of property attached to the shares, the
beneficiary is entitled to ask the transferor to exercise the right as per his
direction. The observations of Pratt J. ([1943] 45 BLR 46) have been cited with
approval by the Supreme Court in the case of Mathalone v. Bombay Life Insurance
Co. Ltd. [1954] 24 Comp. Cas 1 in page 10. There is, therefore, good authority
for the proposition that a constructive trustee can be asked by the beneficiary
to exercise on his behalf all rights which pertain to his ownership of shares
of a company. It is not, however, open to the beneficiary to ask the trustee
nor can a trustee be compelled to undertake at the instance of the beneficiary,
additional obligations. Thus, in the case of Mathalone v. Bombay Life Assurance
Co. Ltd. [1954] 24 Comp Cas 1, the Supreme Court held that a constructive
trustee who has sold his shares could not be compelled by the transferee to
puchase new shares which have been offered by the company to its members,
especially because these were partly paid shares. The court observed (p. 15): "We
see no principle of equity or of general law which obliges a trustee to buy new
shares in his own name for the benefit of the 'cestui que trust' and when in so
doing he has to bear a heavier pecuniary burden than he undertook to bear as
constructive trustee by reason of the sale of his shares in favour of the
'cestui que trust' and which relationship was contemplated to last only till
the time when the shares sold could not be registered in the name of the
transferee."
The company, however, recognizes only the person who
is its member as a shareholder. In other words, the rights that may exist
between the company and its members or shareholders can be exercised only by
members. Similarly the company can only look to its members for the discharge
of their obligations to the company as its shareholders. The only person,
therefore, who is entitled to exercise these rights and privileges or discharge
these obligations is the transferor. The transferee is an outsider as far as
the company is concerned and his only right is to have the transfer registered
and thus to get himself accepted a member and shareholder of the company. If
the transferee is denied this right, he has a remedy under ss. 111 and 155 of
the Companies Act. (cf. Ved Prakash v. Iron Trusts (P.) Ltd. [1961] 31 Comp
Case 122(Punj)). He cannot, however, claim to exercise the right of privileges
as a member of the company or to discharge any obligations as a member or as a
shareholder of the company. He can only exercise such rights through the transferor
who is his constructive trustee. Applying this principle, the Supreme Court, in
the case of Howrah Trading Co. Ltd. v. CIT [1959] 36 ITR 215; 29 Comp Cas 282,
observed that the transferee cannot claim any benefit which a shareholder may
be having. We have been addressed at length on the question whether a
transferor can be compelled by the transferee to file a petition under ss. 397
and 398 of the Companies Act. It was submitted before us that the transferor
can only be compelled by the transferee to perform those acts and duties which
are attached to the holding of share; for example, the transferee can compel
the transferor to hand over to him dividends received in respect of such
shares. He can also compel the transferor to hand over any benefits received in
respect of these shares because these are rights of property which are attached
to the shares. It was submitted that the transferee cannot compel the
transferor to do anything more or to perform on his behalf or to exercise at
his behest his other rights which are the rights arising from the membership of
the company. More specifically, a transferee cannot compel a transferor to file
a petition under ss. 397 and 398. It is not necessary to go into this aspect
because in the present case the transferor has not resisted any demand made by
the transferee to file a petition under ss. 397 and 398 of the Companies Act.
In the present case, the transferor has agreed to exercise all his rights as a
holder of shares in question at the behest of the transferee and has in fact
given a power of attorney for this purpose to the transferee. We may, however,
point out that basically a constructive trustee is required to carry out all
just and reasonable requests of the beneficiary. In so far as the rights
pertaining to the property in the shares are concerned, there can be no doubt
that all demands pertaining to the exercise of these rights would ordinarily be
considered as just demands, though there may be special circumstances in a
given case which may make the demand made by a beneficiary unreasonable, e.g.,
if a trustee is required to spend a large amount of money out of his own pocket
in order to carry out the directions of the beneficiary. Broadly speaking,
however, all the rights which are given to a member under the Companies Act are
rights given to him in his capacity as a shareholder of the company. These
rights enable him to participate in the working of the company as its
shareholder. It is possible to say that the trustee can be asked by the
beneficiary to exercise on his behalf not merely all rights and privileges
attached to the shares but also conferred on the trustee by virtue of his being
a shareholder so long as a trustee is not thereby asked to assume additional
obligations or burdens, to spend any money from his own pocket or is put to any
hardship. In the present case, the constructive trustee has not been put to any
loss or hardship in filling the present petition because everything in
connection with the filling of the petition has been done by the transferees
who hold a power of attorney from the transferors. Anyway, in view of the facts
in the present case, we are not required to consider for the purpose of this
present petition whether a transferee can compel a transferor to file a
petition under ss. 397 and 398 of the Companies Act.
It is open to the company to object to a number filing a petition under ss. 397 and 398 of the Companies Act on the ground that the member is acting not in his own right but at the behest of an outsider, namely, the transferee? Mr. Chagla, learned counsel for the company, has submitted that it is open to the company to so object. He has submitted that under ss. 397 and 398 of the Company is being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company. This grievance must be a personal grievance of a member who comes before the court. It cannot be a vicarious grievance, a grievance of his beneficiary. In support of his submission, he also relies upon the provisions of s 399 of the Companies Act. Under s. 399 of the Companies Act. Certain qualifications have to be met before a member can file a petition under s. 397 or s. 398 of the Companies Act. In view of these provisions, a member who holds less than 1/10th of the issued share capital of the company, cannot file such a petition. Nor can a stray member file such a petitions. In the submission of Mr. Chagla, this would indicate the grievance which a member has, must be a substantial grievance and it must be a personal grievance. The argument does not, however, bear scrutiny. Under ss. 397 and 398, any personal grievance of the member himself is not contemplated. The cause of action under s. 397 is the conduct of the affairs of a company in a manner prejudicial to public interest or in a manner oppressive to any member or members of the company. Now, prejudice to public interest may not necessarily amount of a prejudice to the complaining member personally. Even in the latter category, the oppression need not be of the members who file a petition. Oppression of other members can also be a grievance for filling a petition under s. 397. The same is true of s. 398, which requires examination, not of any personal prejudice to the petitioning members but of prejudice caused to the public interest or to the interest of the company. Section 399 cannot throw any further light on this aspect. It merely stipulates qualifications of members who are entitled to come under ss. 397 and 398. It prescribes certain minimum qualifications which members should possess such as their numerical strength or the extent of their share capital. Under these provisions, therefore, any personal prejudice to the members for coming before the court is not required. Looked at from a slightly different point of view, even assuming that some personal prejudice is required and even assuming that only these persons will come before the court under these provisions as are personally prejudiced, it is possible to say that a transferor who is in the position of a constructive trustee qua the transferee is the only person who represents the interest of the transferee under the Companies Act. The only way in which a transferee can redress his grievance against the company is by acting through the transferor who holds the shares for the benefit of the transferee. The transferor, therefore, when he applies under ss. 397 and 398 of the Companies Act, is acting in the interest of his beneficiary and he is seeking to redress the grievance of his beneficiary. Since he is bound by law to act in this manner, it cannot be said that such an action on his part is an action not to redress nay grievance of his own because the interest of a beneficiary is in law the interest of the trustee.
If the term "member" under ss. 397 and 298
is construed to exclude all persons who have parted with the beneficial
interest in the shares, there will be a large number of members who would be
deprived of remedies provided in ss. 397 and 398 of the Companies Act. In most
companies, there are a large number of shares which are held by trustees under
express trusts for the benefit of others. These trustees are the members of the
company who would ordinarily be entitled to act on behalf of the beneficiaries
and seek and remedy if so required, under ss. 397 and 398 of the Company Act.
If persons who do not possess both a legal and a beneficial interest in the
shares are to be excluded from the category of members for the purposes of
these sections, then such express trustees will also have to be excluded. The
result will be that in such cases neither the beneficiary nor the trustee can
seek a remedy provided under ss. 397 and 398 of the Companies Act. The trustee
cannot come before the court, because although he is a member, he does not have
any beneficial interest in the shares; while the beneficiary also cannot come
because although he has a beneficial interest in the shares, he is not a member
of the company. A similar situation will also arise in the case of the
executors of a deceased member who holds the shares for the legatees. Such a
situation is not contemplated under the companies Act. We cannot interpret the
re two sections in a manner which will deprive a large number of members who
represent the interests of their beneficiaries from seeking a remedy under ss.
397 and 398 of the Companies Act. Such an interpretation is sought to be
justified on the ground that only persons who have a "real" interest
in the company are entitled to resort to ss. 397 and 398. But in that case we
would have to hold that the transferees of shares should be construed as
members for the purpose of ss. 397 and 398 of the Companies Act because they
are the persons who have this "real" interest in the shares.
Similarly, the legal representatives of deceased members whose names might not
have been brought on the register of members but to whom the shares have been
transmitted on the death of a member would also be person who have a
"real" interest in the shares and who would be similarly entitled to
apply under ss. 397 and 398 of the Companies Act. In fact, some privileges of
membership have been extended to the legal representatives of a deceased
member. Thus, in the cases of Llewellyn V. Kasintoe Rubber Estates Ltd. [1914]
2 Ch 670, it was held that the executors of a deceased members who did not get
the shares registered in their own names had the same right to dissent from a
reconstruction scheme as the deceased members would have had. A reference may
also be made to the case of Bayswater Trading Co. Ltd., In re [1970] 1 WLR 343
(Ch D) in this connection. In the case of Stadmed Pvt. Ltd. v. Kshetra Mohan
Shah [1969] 39 Comp Cas 741 (Cal), a member whose name was wrongly removed from
the register and who had obtained an order from the court for rectification of
the register by reinstating his name, was held entitled to present a petition
under ss. 397 and 398.
These are cases where persons whose names were not on
the register of members were allowed to exercise membership right. Except for
one decision which will be discussed a little later, we have not been shown any
case where a member has been prevented from exercising his rights on the ground
that he has parted with his interest in the shares. On the contrary, such
members have been considered as entitled to all rights and privileges of
membership. Thus, in the case of Pulbrook v. Richmond Consolidated Mining Co.
[1878] 9 Ch D 610, the articles of association of the company provided that no
person should be eligible as a director unless he held "as registerd member
in his own right capital of the nominal value of £500 at least". It was
held that beneficial ownership was not necessary for a qualification. A
registered holder of the required capital, though he had transferred his shares
to another, was eligible to be a director.
The trend of judicial decisions appears to be to
enlarge the category of membership rather than to restrict it. It is
interesting to note the course of the English company law in this connection.
Section 210 of the English Companies Act, 1948, was comparable to our s. 397.
In the case of Jermyn Street Turkish Baths Ltd. In re [1970] 3 All ER 57 (Ch
D), the court held that the petition under s. 210 and held further that even
though the petitioners were not registered as members of the company, the personal
representatives of the deceased member must be regarded as members of the
company for the purpose of 2. 210. Thus, instead of curtailing the term
"member" in a provision similar to s. 397, the English court extended
the term "member" to cover the administrators of a deceased member
also. The decision was reversed in appeal but not on this point (cf Jermyn
Street Turkish Baths Ltd., In re. [1971] 2 WLR 1042 (CA)). And though some
authorities have doubted the correctness of the judgment, the position in England
is now governed by the new s. 75(9) of the Companies Act, 1980, under which
this right of the administrators is expressly recognized. The English Companies
Act, 1980, has altered its provisions in this respect and under s. 75, which
deals with the powers of the court to grant relief against company in
circumstances comparable to our s. 397, a new sub-s. (9) is inserted. As a
result, the section is made applicable to "a person who is not a member of
a company but to whom shares in the company have been transferred or
transmitted by operation of law" in the same manner that the section is
made applicable to a member of a company; and reference to a member or required
to be construed accordingly in that section. In the absence of any such amendment
in our Companies Act, it is not possible for us to construe ss. 397 and 398 of
the Companies Act so as to include within its scope persons to whom shares have
been transferred but who are not on the register of members of the company. If
this cannot be done in order to give a right to persons having a
"real" interest in the shares of the company, it cannot also be done
by eliminating from the category of members, trustees, whether express or
constructive, who are said not to have any real interest in the shares. In
fact, it is conceded by Mr. Chagla, learned counsel for the company, that
express trustees are entitled to file a petition under ss. 397 and 398 of the
Companies Act. He sought to distinguish the position of a constructive trustee
from that of an express trustee by saying that a constructive trustee was in
the same position as a bare trustee and, therefore, he could not be said to
have any real interest at all in the shares; while in the case of an express
trustee, it is possible that such a trustee may be obliged to carry out certain
duties under the deed of trust, he would have more rights than a bare trustee.
In our view, this distinction does not in any way help the company. Both
express and construction trustees basically represent the interest of their
beneficiaries. If persons who represent interests of others are to be excluded,
then both express and constructive trustees would have to be excluded from the
term "member". For the same reason, if an express trustee who
represents the interest of a beneficiary is a member or can be construed as a
member for the purpose of ss. 397 and 398, then there is no reason why a
constructive trustee should also not be so held as such a member
It is a basic rule of construction that a section in
a statute must be construed on the basis of the plain language used in the
section. It is only in the case of any ambiguity that it is necessary to
examine either the intention of the Legislature or the surrounding
circumstances in order to remove such ambiguity. Maxwell on the Interpretation
of Statutes, 12 edn., p. 29, has stated that:
"Where
the language is plain and admits of but one meaning, the task of interpretation
can hardly be said to arise…Where, by the use of clear and unequivocal language
capable of only one meaning, anything is enacted by the Legislature, it must be
enforced, however, harsh or absurd or contrary to common sense the result may
be. The interpretation of a statute is not to be collected from any notions
which may be entertained by the court as to what is just and expedient; words
are not to be construed, contrary to their meaning, as embracing or excluding
cases merely because no good reason appears why they should not be embraced or
excluded. The duty of the court is to expound the law as it stands, and to
leave the remedy (if one be resolved upon) to others."
The Privy Council has observed in the case of Pakala
Narayana Swami v. Emperor, AIR 1939 PC 47 at p. 51, that:
"When the meaning of words is plain, it is not the
duty of the courts to busy themselves with supposed intentions."
This principle is reiterated by the Supreme Court in
the case of CIT v. Sodra Devi [1957] 32 ITR 615 (SC). It has observed that
unless there is any ambiguity in the words used in a statute, it would not be
open to the court to depart from the normal rule of construction which is that
the intention of the Legislature should be primarily gathered from the worlds
which are used. In our view, there is no ambiguity about the provisions of ss.
397 and 398 of the Companies a\Act and there is no need to go into the
"question of any supposed intention behind the enactment of ss. 397 and
398 for the purpose of construing the term 'member'."
The argument advanced by Mr. Chagla that a person who
does not hold any beneficial interest in the shares should not be considered as
a member for the purpose of ss. 397 and 398 of the Act finds support in a
decision of the Calcutta High Court in the case of Hunger ford Investment Trust
Ltd. v. Turner Morrison & Co. Ltd. [1972] ILR 1 cal 286, 298. In that case,
the petitioners who were a company in winding up and who had filed a petition
under ss. 397 and 398 claimed that they held 51% shares in the respondent
company through their liquidator whose name appeared on the register of members
of the respondent company. These shares were subject to an agreement for sale.
This agreement of sale was itself in dispute. We need not go into the various
contentions which had been raised between the purchaser, Mundhra, and the liquidator.
Pending these disputes relating to the sale of these shares, the liquidator
also mortgaged these shares to a third party and had recovered an amount
equivalent to the purchase price of the shares. When the official liquidator
filed a petition against the respondents under ss. 397 and 398 of the Companies
Act, on e of the issues which was framed for determination was whether the
petitioner was entitled to maintain this application. The Calcutta High Court
held that a member who seeks relief in cases of oppression must be a kind of
member who has not lost his voice in the management of the company from whose
oppression he wants relief from the court without winding up the company. It
also held that it would be unrealistic to hold that a member who has lost by
reason of a decree for specific performance his whole right in the voice of
management could still apply under s. 397 for relief from oppression or
prejudice. Having lost all rights as a shareholder or a member, there is no
legal prejudice or oppression any more lift for him to complain of within the
meaning of s. 397 of the Companies Act. The court was also impressed by the
fact that the liquidator had already realized the money value of the shares by
mortgaging the shares with Bank Hoffman. Bank Hoffman had obtained a decree of
foreclosure in respect of these shares. In view of these facts, the court held
that the petitioning company in liquidation or its liquidator could not be
considered as members of the company. Two facts which weighed with the court in
coming the conclusion that the petitioner or the liquidator could not be
considered as members were: (1) that there was decree of specific performance
of an agreement of sale in respect of these shares, and (2) there was a
foreclosure decree in respect of the mortgage created by the liquidator in
respect of these very shares. In view of these facts, the Calcutta High Court
appears to have come to the conclusion that the member who had filed a petition
did not have any interest either in his own right or on behalf of anybody else
in the shares of the company. The decision has turned upon those special facts.
However, to the extent that the language of the decision suggests that a member
who himself does not have any interest in the shares cannot file a petition
under s. 397 of the Companies Act, we feel that the some is not acceptable. To
hold thus would result in a large body of members being deprived of any
recourse to s. 397 or s. 398. there can be a number of cases where a member,
though he may not have any interest in the shareholding, may still be required
to resort to these sections on behalf of other persons who have an interest in
the shareholding and on whose behalf or at whose instance the member may be
required to act.
The next submission made on behalf of the company was
that the petitioner who comes before the court must come in respect of his
entire shareholding. In the present case, the Bank of India has filed the
petition as a holder of 16,706 shares. It holds other shares also in the
company. The Union Bank of India has filed the petition as holder of 5,000
shares. It also holds other shares also in the company. The submission was that
such a petitioner cannot file the petition. He must file the petition in
respect of all his shares. It was submitted that membership in a company is one
and indivisible and it would not be open to a member to file a petition under
s. 397 or s. 398 in respect of only a part of his shareholding. Support was
sought for this proposition from the provisions of s. 399. It was urged that
under s. 399 a member or members holding not less than 1/10th of issued share
capital can file such a petition provided that the applicants have paid all
calls and other sums due on their shares. It was, therefore, submitted that
calls must be paid in respect of the entire shareholding of a member. Under r.
88 of the Companies (Court) Rules, 1959, a petition under s. 397 is required to
be in Form No. 43 Form No. 43 requires a schedule to be filed showing , inter
alia, the names of members, the number of shares held and whether all calls and
other sums due on the shares have been paid. It was, therefore, submitted that
the scheme of s. 397, 398 and 399 contemplates that a member of the company
must come to the court in respect of his entire shareholding. Let us examine
this argument. In the first place a petition under s. 397 is not required to be
filed in respect of any shareholding. The petition is required to be filed by a
member in his capacity as a member. A reference to shareholding is is made in
s. 399 only for the purpose of prescribing a minimum qualification. The
requisite shareholding enables a member to file a petitions under ss. 397 and
398. But the complaint that the makes is as a member of the company. Section
399 merely prescribes that in order to apply under ss. 397 and 398, the number
of members who comes before the court should be either not less that 100
members or not less than 1/10th of the total number of members of the company,
whichever is less. This part of the qualification does not make any reference
to shareholding at all. It relates to the number of members in a company. The
second half of the qualification prescribes that in the alternative any member
or members can come by way of a petition under s. 397 provided they hold
between them no less than 1/10th of the issued share capital of the company
(provided, of course, they have paid all calls and other sums due on their
shares). Section 399 does not state that a member is required to come in
respect of his entire shareholding and it is not possible to read this
condition into s. 399. It was submitted that there will be serious difficulties
if a member were to be permitted to petition only in respect of a portion of
his shareholding. It has been suggested that a member might have sold some of
his shares to another person and he might have sold some other of his shares to
somebody else or he might have retained only some of the shares for himself and
sold some of the shares to somebody else. In these cases, it is possible that
one of the purchasers whose name is not registered in the register of members
may be desirous of coming by way of a petition under s. 397 and the seller may
be required to file such a petition on his behalf, while at the same time his own
interest or the interest of the other purchaser from him may require him to
defend such a petition. In such a situation it would be necessary for a member
to be both a petitioner as well as a respondent. Now, it is true that
ordinarily it is not permissible for a person to be on two sides of the record
even in different capacities. If a situation arises when a member may have such
a conflict of interests, there would certainly be difficulties. While an
express trustee may resign from one of the trusts in such a predicament, a
constructive trustee does not have this facility. Perhaps one way of resolving
such a difficulty would be by resorting to the exception which has been carved
out to the rule that a person cannot be on two sides of the record even in
different capacities. It is permissible for the same party to be both a
petitioner and a respondent in cases where it is possible for the court to work
out equities between the various parties who may be before the court whether in
support or against the matter at issue. Such a situation normally arises when
suits are filed in a representative capacity. In the case of Satyavari
Sidhanlalankar v. Arya Samaj, Bombay [1947] 17 Comp Cas (Bom), it has been
observed as under (p. 50):
"In proper cases, the courts would, in spite of
that elementary rule of procedure, have the power to deal out justice between
the parties even disregarding the elementary rule of procedure which requires
that the same individual even in different capacities cannot be both a plaintiff
and a defendant."
In that case, the plaintiffs had come in a
representative capacity as members of a society called "the Arya
Samaj". The respondents were the members of the managing committee of Arya
Samaj. A difficulty arose because the members of the managing committee who
were the defendants would also be included in the category of members of the
society and hence be the plaintiffs. The court thereupon made the above
observations. Whether such an exception can be carved out in the case of a
petition under s. 397 or not would be a matter for the court to decide as and
when such a situation arises. But it should be borne in mind that there would
be difficulties even if we hold that a member would be required to come in
respect of his entire shareholding and that, as a necessary corollary, a member
who could not come in respect of his entire shareholding would be debarred from
making an application under ss. 397 and 398 of the Companies Act, e.g., some of
the shares of a member may be blocked by appointment of a receiver. If he still
has the requisite shareholding without including those shares, he could have
filed a petition under s. 397, which he would not be allowed to do because he
would not be filing the petition in respect of his entire shareholding. Similarly,
a shareholder who has sold only a small portion of his shareholding will not be
able t petition if for some reason, the purchaser has not got his name entered
in the register of members. Thus, there are anomalies either way. In such a
situation we can only adopt the language of Chagla C.J., in Walchandnagar
Industries Ltd. v. Ratanchand Khimchand Motishaw [1953] 23 Comp Cas 343 (Bom)
that:
"It is never a safe guide for a construction of
section merely to look at certain anomalies that may result from a particular
interpretation being put upon the section. It is true that a court must, if it
can possibly do so, give an interpretation to a section which would not result
in difficulties in the working of that section. But, on the other hand, many legislations,
and specially modern legislations, have been so framed and so drafted that some
anomaly or other is inevitable, and when such anomalies present themselves to
the court, the duty of the court is to draw the attention of the Legislature to
the removal of these anomalies and not to remove them itself by giving a
construction contrary to the intention of the Legislature."
It is interesting to note that there is no provision
corresponding to s. 399 of the Companies Act in the English Companies Act. Under
the English Act, it is open to any member to complain about oppression and
mismanagement. We have, however, chosen to impose a qualification on that
right. By reason of such a qualification it is not, however, possible to hold
that a member cannot rely upon only the requisite shareholding as makes him
eligible for petitioning. In fact, by virtue of the provisions of s. 399, there
may be a number of cases where there might be difficulties; for example, it is
argued before us that if a person were to purchase one share each from 100
members of the company, he could compel 100 members to file a petition under s.
399 while if the purchaser had been registered by the company, he would not be
able to do so. These are the difficulties which arise by reason of the fact
that legal interest and beneficial interest in the shares are held by different
persons. We cannot deal with hypothetical difficulties of this type. They will
have to be resolved as and when occasion arises depending upon the facts and
circumstances of the case. What is more important—all likely difficulties are
not resolved by holding that a member must petition in respect of his entire
shareholding.
It was next submitted that a right to apply under ss.
397 and 398 of the Companies Act is a right which is personal to the member. He
is required to exercise his own discretion. He cannot delegate his right under
ss. 397 and 398 to anybody else. Since in the present case the Bank of India
and the Union Bank of India as well as the consenting members have delegated
their rights to petitioners Nos. 4 and 5 who have filed the petition on the
basis of such delegation of authority, the petition is bad in law and not
maintainable. This submission, however, cannot be accepted. One of the cardinal
principles o flaw is that an agency can be created for all lawful purposes and
all rights can ordinarily be delegated. In Bowstead on Agency, 14th edn., p.
23, it is stated as follows:
"Article 7. An agent may be appointed for the
purpose of executing any deed or doing any other act on behalf of the
principal, which the principal might himself execute, make or do; except for
the purpose of executing a right, privilege or power conferred, or of
performing a duty imposed, on the principal personally, the exercise or performance
of which requires discretion or skill, or for the purpose of doing an act which
the principal is required, by or pursuant to any stature, to do in
person."
Our court in the case of K.K. Khadilkar v. Indian
Hume Pipe Co. Ltd., air 1967 Bom 521, 526, has upheld this principle and stated
that:
"The true position is that subject to certain
well-known exceptions, every person who is sui juris has a right to appoint an
agent for any purpose whatever, and he can do so when he is exercising a
statutory right no less than when he is exercising any other right."
This was a case under the Industrial Disputes Act.
The court came to the conclusion that the representation of an employer company
by a duly authorized agent was not excluded by s. 36, sub-s. (2) of the
Industrial Disputes Act, 1947. Exceptions to this rule are basically two-fold;
firstly, delegation is not permissible when such delegation is prohibited by
the statute or by the instrument conferring such a right. Secondly, delegation
is not permissible when the power which is required to be exercised is
inherently such that it cannot be delegated, e.g., when a person on whom power
is conferred possesses some personal knowledge or personal skill or judgment
and the power is conferred on him relying on this special personal quality or
skill or judgment. In such a situation, the person on whom the power is
conferred cannot delegate it to anybody else, e.g., when parties appoint a
valuer, he is required to exercise his own judgment. On the same principle, judicial
authority cannot be delegated. Same would apply to cases, where, for example,
the consent of the Advocate General or of the Charity Commissioner is required.
In the present case there is nothing in s. 397 or s. 398 to indicate that any
special personal skill, judgment or quality of a member is required to be used
when a member exercises his right under s. 397 or s. 398. In a broad sense
every person who is required to exercise any right or privilege is required to
apply his mind. But this does not disable him from appointing an agent to
exercise that right or privilege. In fact, there may be a number of case where
a person concerned may be unable to apply his mind, e.g., an illiterate person
who is not aware of the facts or a person who is too ill or infirm to exercise
the power. Such persons are entitled to appoint an agent to look after their
affairs. It is the agent who will apply his mind to the affairs of his
principal and use his own judgment. Members who are given a right to file a
petition under ss. 397 and 398 can. Therefore, delegate their right to an agent
who can exercise that right on their behalf. It was argued that under the
Companies Act, whenever delegation is permissible, it is expressly provided.
Our attention was drawn to some of the sections of the Companies Act where
delegation is expressly permitted, e.g., under s. 60, it has been provided that
prospectus may be signed by an agent of the director or proposed director.
This, however, cannot imply that the rights and privileges which are given to
members under the Companies Act are incapable of delegation unless expressly so
provided. There is nothing in the Companies Act to suggest that it prohibits
the application of the normal law of agency to the acts and obligations
required to be performed under the Act.
The same would be true in respect of the power to
give consent under s. 399 of the Companies Act Under sub-s. (3) of s. 399 where
any member of a company is entitled to make an application by virtue of sub-s.
(1), any one or more of them having obtained the consent in writing of the
rest, may make the application on behalf and for the benefit of all of them. It
has been submitted that the consent which is required to be given by members
under sub-s. (3) of s. 399 for the purpose of filing a petition under ss. 397
and 398 must be given by the members themselves. The power to give consent
cannot be delegated. This submission also cannot be accepted for the same
reasons as the previous submission. It is true that the person who gives consent
is required to apply his mind. But a person who appoints an agent thereby
authorizes the agent to apply his mind and then give his consent. It is,
therefore, the application of mind by the agent when he gives his consent that
becomes relevant in such cases. Our attention was drawn to the decision in the
case of Makhan Lal Jain v. Amrit Banaspati Co. Ltd. [1953] 23 Comp Cas 100
(All). In that case, the members who were said to have given their consent in
writing to an application under s. 153C(3) of the Indian Companies Act, 1913,
were held not to have given their consent because the only document that was
presented to court for showing such consent was a document containing their
signatures and the court held that obtaining signatures of shareholders on a
blank piece of paper cannot be considered as their consent in writing. It is
difficult to see how this decision helps the company. Similarly in the case of
Bengal Luxmi Cotton Mills Ltd., In re [1965] 35 Comp Cas 187 (Cal) the Calcutta
High Court upheld the contention that s. 399 does not require that the
consenting members should have the petition in front of them before they give
their consent and for that purpose, the petition should be prepared well in
advance of the consent in writing given by the members. This decision also does
not throw any light on the question whether the right to give consent can be
delegated or not. The decision of the Madras High Court in the case of M.C.
Duraiswami v. Sakthi Sugars Ltd. [1980] 50 Comp Cas 154 also does not advance
the argument of the company. In that case, the Madras High Court held that from
the very nature of the case, "consent in writing" contemplated in s.
399(3) of the Act is a consent to the filing of a particular petition with a
particular allegation for a particular relief under s. 397 or s. 398 or under
both. They upheld the decision of the Calcutta High Court, namely, that is was
not necessary to prepare in advance the actual petition and show it to the
consenting members, but it was necessary that the members, before they give
their consent, ought to know about the nature of the particular petition and
the nature of the allegation which would be made as well as the nature of
relief which would be claimed. The Madras High Court said that there could not
be blanket consent. This decision also does not deal with the right of a member
to delegate his power to give consent. All these decisions deal with cases
where the members themselves had given their consent and the court was required
to consider whether the consent was given by the members after applying their
mind to the nature of the petition which was being filed, to the allegations
contained in it and the reliefs which were sought. In fact there can be no
quarrel with the proposition that consent cannot be given in vacuo. Consent
must be given after applying the mind to the act for which consent is required
and it has been so held by our High Court also in the case of Walchandnagar
Industries Ltd. v. Ratanchand Khimchand Motishaw [1953] 23 Comp Cas 343. But a
person can delegate his authority to give consent. In that case, the agent may
apply his mind and give consent on behalf of his principal, except in such
cases where the authority of the principal is not capable of delegation.
Consent under s. 399 is not such an exceptional case.
We have next to examine whether under the powers of
attorney which have been given in the present case, the power of attorney
holder has in fact any authority to file a petition under ss. 397 and 398 of
the Companies Act. In the present case, the Bank of India has given a power of
attorney in respect of 16,706 shares in favour of the fourth and fifth
petitioners and two others. It has also given a power of attorney in respect of
481 shares to the fourth and fifth petitioners and two others. The Union Bank
of India has given a power of attorney in respect of 5,000 shares to the fifth
petitioner and two others. The consenting shareholders have given powers of
attorney in favour of the fourth and fifth petitioner and two others. Apart
from the power of attorney given by the Bank of India in respect of 16,706
shares, all the other powers of attorney are in identical terms and it will
suffice to reproduce the relevant clauses from the power of attorney dated
March 27, 1981, from the Union Bank of India to the fifth petitioner and two
other:
"Whereas 5,000 equity shares in the capital of
Killick Nixon Ltd. (a company having its registered office at Killick House,
Charanjit Rai Marg, Bombay, 400 001 and hereinafter called 'the company'
bearing distinctive numbers whereof are contained in annexure 'A' hereto
(hereinafter referred to as 'the said shares') stand in our name in the records
of the said company but the beneficial interest whereof belongs to Dhanraj
Mills P. Ltd., the said Dhanraj Mills P. Ltd. Having purchased the said shares
for valuable consideration…….
Now Know Ye and These Presents withnesseth we the
said Union Bank of India do hereby Nominate Constitute and Appoint.
(1) Balkrishna Ramgopal Ruia
(2) Tejkumar Balkrishna Ruia and
(3) Hirendrakumar
Balkrishna Ruia jointly and severally to be our true and lawful attorneys in
our name and on our behalf to do or cause to be done the following acts, deeds,
matters and things, that is to say:
1. To exercise for us and in our name all rights and privileges and
perform all duties which now or hereafter may appertain to us as holders of the
said shares of the said company standing in our name and also in respect of any
new shares which may be allotted or issued to us by the said company either as
right shares (hereinafter called 'the said bonus shares') as a result of our
being holders of the said shares……
5. To file such suit or suits or to file such appeals to take such
proceedings in respect of the said shares, the said right shares and the said
bonus shares against the company or against any other person for such reliefs
as our attorneys or attorney shall think fit and to defend all suits, appeals
and other proceedings which may be filed or taken by any person, company or
party against us in respect of the said shares, the said right shares and the
said bonus shares or any of them.
6. To represent us before any court, the Company Law Board, any other
authority or officer in respect of any matter or proceedings relating to the
said shares, the said right shares and the said bones shares or in any matter
or proceedings concerning the said company……
13. Generally to act in
relation to the premises as fully and effectually all respects as we ourselves could
if personally present."
Under cl. 1 of the power of attorney, the power of attorney holder is authorised to exercise on behalf of the Union Bank of India all rights and Privileges and to perform all duties which pertain to the Union Bank of India in its capacity as shareholder of 5,000 equity shares of the company. Thus, under clause 1, the power of attorney-holder is entitled to exercise all rights and privileges and to perform all duties which the Union Bank of India would have exercised as a shareholder of 5,000 shares. This would necessarily include a right to file a petition under ss. 397 and 398 of the Companies Act which right was possessed by the Union Bank of India as a shareholder of 5,000 equity shares. The other powers which are given in the power attorney are specific powers which spell out some of the rights, privileges and duties which have been so delegated under cl. 1 of the power of attorney. Thus, under cl. 5, a specific power is given to file suits, appeals and to take such proceedings in respect of these shares, against the company of against any other person for such reliefs as the attorney may think fit. Under cl. 6, the holder of the power of attorney has been given an authority to represent the bank before any court, the Company Law Board or any other authority. Clause 1, however, is in general terms and it confers on the agent all rights and privileges of the principal as a holder of 5,000 equity shares. The clause that follow specify some of these rights and privileges. In cases where a general power is given followed by specific powers, the specific powers so given do not curtail the generality of the powers conferred by the earlier clauses. However, where a specific powers is given followed by the conferring of general powers, the rule of ejusdem generis would apply and the general powers must be read as being in furtherance of the specific power and not as enlarging the specific power so given. Thus, in the case of Timblo Irmaos Ltd. v. Jorge Anibal Matos Swqueira, AIR 1977 SC 734, the Supreme Court sets out the rule of construction to the effect that general words following words conferring specifically enumerated powers cannot be construed so as to enlarge the restricted powers there mentioned. It goes on to observe that (at p.739):
"in fact, in a case like the one before us,
where a general power of representation in various business transactions is
mentioned first and then specific instances of it are given, the converse rule,
which is often specifically sated in statutory provisions (the rules of
construction of statutes and documents being largely common) applies. That rule
is that specific instances do not derogate from the width of the general power
initially conferred. To such a case the ejusdem generis rule cannot be applied."
Our attention was drawn to art. 24 at p. of Bowstead
on Agency, 14th edition, where the rules of construction for power of attorney
have been laid down as follows:
"Powers of attorney must be strictly construed,
and are interpreted as giving only such authority as they confer expressly or
by necessary implication. The following are the most important rules of
construction:
(a) the operative part of a deed is controlled
by the recitals where there is ambiguity.
(b) Where authority is given to do particular acts, followed by general words, the general words are restricted to what is necessary for the proper performance of the particular acts.
(c) General
words do not confer general powers, but are limited to the purpose for which
the authority is given, and are construed as enlarging the special powers only
when necessary for that purpose.
(d) The deed
must be construed so as to include all incidental powers necessary for its
effective execution."
In the present case, there is no ambiguity about cl.1
of the power of attorney. Even if we construe cl.1 with reference to the
recital, the recital clearly mentions that power of attorney is in respect of
5,000 equity shares which are held by the Union Bank of India and which stand
in the name of the Union Bank of India in the records of the company but in
respect of which the beneficial interest belongs to the third petitioners who
have purchased these shares for valuable consideration. The power of attorney
is thus given to the beneficiaries so that they may exercise all rights,
privileges and perform all duties in respect of 5,000 shares as agents of the
Union Bank of India. There is, therefore, no sub-stances in the contention that
the powers of attorney do not authorise the holders on powers of attorney to file
petition under ss. 397 and 398 of the Companies Act. There is a similar clause
in the powers of attorney given by the consenting members also. The right to
give content under s. 399, sub-s. (3), is a right which belongs to the members
of the company and under cl.1, this right is also delegated to the power of
attorney- holder.
The power of attorney given by the Bank of India in respect of 16,706 shares, however, is said to stand on a slightly different footing because in the power of attorney which is given by the Bank of India in respect of 16,706 shares, the cls. 5,6,8,13 and 14, which were originally there were deleted and the power of attorney at it stands does not contain these clauses. For the present purpose, the relevant clauses are cls.5, 6 and 13. under cl. 5, power is given to file suits, appeals and take proceedings in respect of shares; cl. 6 authorises the power of attorney holder to represent the shareholder before any court, the Company Law Board or any other court, while cl.13 is a general clause enabling the power of attorney holder to act in relation to the premises at the premises as fully and effectually in all respects as the shareholder could do if personally present. It is submitted that because of the deletion to these clauses form the power of attorney given on behalf of the Bank of India, it would not be open to the petitioners to file the petition on behalf of the Bank of India in respect of16,706 shares. There are other circumstances also, which, according to the company, are relevant for the purpose of construing the power of attorney given by the Bank of India in respect of 16,706 shares. Those circumstances relate to the filing of the present petition. It has been submitted that the power of attorney given by the Bank of India in respect of 16,706 shares was not shown by the petitioners at the time when they filed the petition though other powers of attorney were disclosed nor was a xerox copy of the power of attorney filed. The suggestion is that the power of attorney in question was suppressed from the court at the time when the petition was filed. It was only subsequently that the power of attorney was shown to the court. At the time when petition was being heard by the learned single judge, Mr. Cooper, learned counsel for the petitioners, stated that he had been asked by the Bank of India to state to the court that the petitioners had no authority from the Bank of India to file the petition. Now, can all these circumstances affect in any way the construction of the power of attorney given by the Bank of India in respect of 16,706 shares? The power of attorney has to be construed as it stands. Clause 1 of the power of attorney which in terms is identical with cl.1 of all other powers of attorney confers very wide powers on the holder of the power of attorney including the power to file a petition under s. 397 or s. 398. omission of certain specific powers set out after general powers given in cl.1 cannot in any way curtail the provisions of clause 1. The so-called surrounding circumstances which incidentally are not the surrounding circumstances relating to the execution of the power of attorney, but which refer events that transpired later on, cannot in any way throw any light on the construction of the power of attorney. Nor can the statement made in court in any way affect the provisions of the power of attorney. The documents has to be construed as it stands. It is only in the case of ambiguity in document that it is possible to look at the circumstances surrounding the execution of the power of attorney, as well as antecedent correspondence, or the conduct of the parties. Such a situation has not arisen in the present case. In the case of Bomanji Ardeshir Wadia v. Secretary of State for India [1929] 31 Bom LR 256; AIR 1929 PC 34, the Privy Council observed that (p. 36 of AIR 1929 PC):
"...this way of approaching the true construction of the deed is quite illegitimate.... Nothing is better settled than that when parties have entered into a formal contract, that contract must be construed according to its own terms and not be explained or interpreted by the antecedent communings which led up to it."
The same position has been reiterated in the case of
Sunitabala Debi v. Manindra Chandra Roy Chaudhury, AIR 1930 PC 217; 32 BLR
1553, where the deed was considered as it stood even if the result was that the
document was found to embody a bargain intended by neither of the parties to
it. In view of these settled principles, the power of attorney given by the
Bank of India as the holder of 16,706 shares must be construed as it stands.
Under cl. 1 of this power of attorney, the holder can exercise all rights and
privileges that the holder of 16,706 shares could have exercised. This would
include the right to file a petition under ss. 397 and 398.
In any case; for the purpose of the present appeal,
it is not necessary to take into account 16,706 shares which are the
subject-matter of the disputed power of attorney. The shareholding necessary
for maintaining the present petition is 12,495 shares which constitutes 1/10th
of the share capital of the company. Even if 16,706 shares of the Bank of India
are excluded, the other petitioners between them hold 16,303 shares; these
consist of 5,000 shares of the Union Bank of India, 20 shares each of
petitioner Nos. 3 and 4, 10 shares of petitioner No. 5 and 11,253 shares of the
consenting members. These shares constitute more than 1/10th of the share
capital of the company. Even if the power of attorney given by the Bank of
India is ignored, the petition will be maintainable.
In the premises, in our view, the petitioners have
the requisite locus standi to maintain the petition in question. The learned
single judge has rightly dismissed the judge's summons.
The appeal is, therefore, dismissed with costs. Costs
to be on a long cause scale in view of the issues involved and are quantified
at Rs. 15,000.
Mr. Chagla makes a statement that the general body meeting of the company will not be held before March 31, 1982.