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Jayanthilal Purshottamdas Patel Vs. Gordhandas Desai Private Ltd. and anr. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai High Court
Decided On
Case NumberCompany Petition No. 14 of 1963
Judge
Reported in[1968]38CompCas405(Bom)
ActsCompanies Act, 1956 - Sections 108 and 155
AppellantJayanthilal Purshottamdas Patel
RespondentGordhandas Desai Private Ltd. and anr.
Appellant AdvocateM.P. Amin, Adv.
Respondent AdvocateF.S. Nariman, Adv.
Excerpt:
.....sections 108 and 155 of companies act, 1956 - petitioner's name as share-holder in respect of two shares transferred to name of second respondent without any authority - petition to rectify register of members of company in respect of these fully paid equity shares - company cannot register a transfer of share unless a proper instrument of transfer duly stamped and executed on behalf of transferor and transferee is submitted to company - petitioner had not submitted any transfer forms for purpose of transfer of shares - transfer of shares was contrary to section 108 and articles relating to transfer of shares. - indian succession act (39 of 1925), section 63: [s.b. sinha & cyriac joseph, jj] will validity - deceased, was a very wealthy person - he floated several companies - he left..........certificate shall be the only persons recognised by the company as having any title to the shares registered in the name of deceased member. '62. every instrument of transfer shall be presented to the company duly stamped for registration accompanied by such evidence as the board of directors may require to prove the title of the transferor, his right to transfer the shares and generally under and subject to such conditions and regulations as the board of directors shall from time to time prescribe, and every registered instrument of transfer shall remain in the custody of the company until destroyed by order of the board of directors. 63. previous to the registration of a transfer, the certificate or certificates of the share or shares to be transferred must be delivered to the.....
Judgment:
ORDER

1. This is a petition under section 155 of the Companies Act for an order against the 1st respondent-company hereinafter referred to as 'the company' to rectify the register of members of the company in respect of two fully paid up equity shares Nos. 4999 and 5000 by inserting the name of the petitioner therein as the holder of the shares and for consequential orders.

* * * *

2. The petitioner's case under section 155 is that his name as a shareholder in respect of the above two shares have been without any authority and illegally transferred from his name to the name of the second respondent. The register of members of the company is accordingly liable to be rectified as prayed for .......

* * * *

3. The respondents contend ..... that the petitioner has filed this petition after great delay.

4. They further contend that it was unnecessary to have any transfer forms signed by the petitioner lodged with the company in connection with the transfer of shares ..... 'No application or authority on the part of the petitioner was required for transfer of the said two shares in my favour.'

5. At the hearing of the petition, Mr. Amin for the petitioner has strongly relied upon the fact that the allotment of the shares is stated to have been cancelled. He has emphasised that shares once allotted to a member cannot be cancelled except in accordance with the provisions contained in that respect of the Companies Act. In my view, the question of cancellation of allotment does not arise in this case. The only questions which arises is as to whether the company has without sufficient cause transferred the shares from the name of the petitioner to the name of the 2nd respondent. In that connection, Mr. Amin has strongly relied upon the provision in section 108 of the Act and articles 49 to 65 in the memorandum of association of the company relating to transfer and transmission of shares. The relevant articles provide as follows :

'53. The company shall keep a book to be called the 'Register of Transfers' .....

54. The instrument of transfer of any share shall be in writing in the usual common form or in the following form, as near thereto as circumstances will admit.

* * * * 55. Every such instrument of transfer shall be executed both by the transferor and the transferee and attested, and the transferor shall be deemed to remain the holder of such share until the name of the transferee shall have been entered in the register of members in respect thereof.'

6. Article 58 deals with the question of death of one of the joint holders of share and provides that 'the survivor or survivors shall be the only persons recognised by the company as having any title to or interest in such share .....'

7. Under article 59, it is provided that the executors or administrators or holders of a succession certificate shall be the only persons recognised by the company as having any title to the shares registered in the name of deceased member.

'62. Every instrument of transfer shall be presented to the company duly stamped for registration accompanied by such evidence as the board of directors may require to prove the title of the transferor, his right to transfer the shares and generally under and subject to such conditions and regulations as the board of directors shall from time to time prescribe, and every registered instrument of transfer shall remain in the custody of the company until destroyed by order of the board of directors.

63. Previous to the registration of a transfer, the certificate or certificates of the share or shares to be transferred must be delivered to the company along with ...... a properly stamped and executed instrument of transfer.'

* * * *

8. The relevant part of section 108 of the Act provides :

'108. (1) A company shall not register a transfer of shares in ....., 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 the certificate relating to the shares ....

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 ..... :

Provided further that nothing in this section shall prejudice any power of the company to register as shareholder ...... the company has been transmitted by operation by law.'

9. Section 110 deals with parties who can lodge an application for transfer and the notice that the company would have to give upon an application for transfer submitted to the company.

10. Mr. Amin has, having regard to the contents of the section 108 and the above articles relating to the transfer of shares, with some emphasis contended that everything that has been alleged on behalf of the company does not disclose any sufficient cause for transfer of the above two shares from the name of the petitioner and removal of the name of the petitioner from the register of the company in respect of these two shares. He is right in his submission that under the articles and section 108, for a transfer inter vivos and/or a private transfer, the company shall not register a transfer of shares unless a proper instrument of transfer duly stamped and executed on behalf of the transferor and transferee is submitted to the company. Admittedly, in this case, the petitioner who was a registered member of the company in respect of these two shares had not submitted any transfer forms for the purpose of transfer of the shares in favour of the 2nd respondent, nor did he submit the certificates in respect of these two shares to the company along with his application for transfer. Prima facie, therefore, the act of the company through the resolution of the directors passed on 1st April, 1960, for transferring these two shares to the name of the 2nd respondent was contrary to the scheme in section 108 and the articles relating to transfer of shares.

11. In this connection, Mr. Amin relied upon the observations of the Supreme Court in the case of Public Passenger Service Ltd. v. M. A. Khadar [1966] 36 Com. Cas 1 where the Supreme Court observed that 'the issue under section 155(1)(a)(ii) is not whether the shareholder has sufficient cause but whether his name has been omitted from the register without sufficient cause.' He submitted that it is clear from the observation that the burden is on the company to show sufficient cause. The burden is not on the petitioner in respect of the questions raised in this petition. He also relied upon the observation of the High Court of Punjab in the case of Associated Clothiers v. Union of India where the court observed :

'If the applicant fails to comply with the terms of the contract, it would be open to the company to bring an action against them for specific performance or for recovery of damages. It has no power to recall the shares which have been allotted by them or to divest the applicant of the right of ownership which has come to vest in him.'

12. He also relied upon a decision of this court In re Jagdish Mills Ltd. : AIR1955Bom79 , where the court observed :

'If a company registers an instrument of transfer of shares which is not duly stamped, it would be doing something which is not lawful.'

13. In connection with the question as to whether the contentions raised on behalf of the respondents should be disposed of in summary proceedings of a petition under section 155, Mr. Amin relied upon the observations of the Supreme Court in the case of Indian Chemical Products Ltd. v. State of Orissa : AIR1967SC253 , wherein, in connection with section 38 of the 1913 Act corresponding to section 155 of the present Act, the court observed :

'The court's jurisdiction under section 38 is, therefore, attracted. The High Court rightly ordered the rectification in the exercise of its summary powers under section 38. The jurisdiction created by section 38 is very beneficial and should be liberally exercised. We see no reason why the court should deny the applicant relief under section 38. The directors of the appellant-company on the most frivolous of objections have prevented the State of Orissa from becoming a member for the last 16 years.'

14. Ordinarily, where complicated questions of title or facts arise on a matter of an application for rectification of the register of shareholders, parties are directed to file a suit, as that is more appropriate proceeding for recording evidence and considering complicated questions of facts and law. If I was of the view that the questions raised on behalf of the respondents necessitated deep investigation of questions of facts or law, I would have directed the petitioner to file an appropriate suit for the reliefs claimed in this petition. In this connection, it is rightly pointed out that at this date the petitioner has lost right of a suit by reason of the law of limitation. Mr. Nariman has also pointed out that in fact the 2nd respondent has filed a suit, being Suit No. 91 of 1966, in this court against the petitioner in respect of the above referred to shares for a declaration that the petitioner and his son, Pankaj, have no right, title or interest in the shares. Mr. Nariman has further stated that the company would be prepared to deal with the register of members in respect of these shares exactly in accordance with the final decision of the question arrived at in the above Suit No. 91 of 1966. He has further submitted that the questions raised by the company and the respondents in this case are complicated questions of title which should be directed to be tried in a suit. It has appeared to me that the case as made out by the petitioner does not raise any complicated questions of title or facts and it is unnecessary to refer the petitioner to a suit in connection with the reliefs claimed in this petition.

15. Mr. Nariman on behalf of the respondents contended as follows : (1) Transfer of shares without an instrument of transfer is not per se illegal or void. (2) The change in registration of the two shares from the name of the petitioner to the name of the 2nd respondent even without an instrument of transfer was justified by reason of the articles of the company. (3) The petitioner had never applied to take shares of the company. There was no completed contract between the company and the petitioner to give him the two shares.

16. In support of the above first proposition, Mr. Nariman relied upon a decision of the High Court of Allahabad in the case of Maheswari Khetan Sugar Mills v. Iswari Khetan Sugar Mills : AIR1965All135 . In that case, the court came to consider the question of true construction of section 108 of the Act. The court observed that :

'If sub-section (1) of section 108 is read in isolation, it can be said that the provision is mandatory and the company has no power to register transfer of a share unless compliance thereof is made. It shall, however, be found that no penalty has been imposed for non-compliance of section 108. It has not been provided in section 155, nor in any other section, what the consequences shall be for the disregard of this provision. It could be provided in section 155 that in case of non-compliance of section 108 the court shall order rectification of the register of members unless, for reasons to be recorded, rectification was not necessary or proper. Similarly, non-compliance of section 108 would be declared an offence. When the law does not prescribe the consequences or does not lay down penalty for non-compliance of section 108, the provision can be considered to be directory and not mandatory.'

17. In deciding this petition, it is not necessary for me to discuss the above observations. I must, however, observe that it is my clear impression that this court has always been of the view that for transfer inter vivos of shares, a duly stamped transfer deed is an absolute necessity. It is clear to me that it was not permissible for the company in this case having regard to the facts which had come to its knowledge from the letters addressed by Gordhanbhai Patel himself to transfer the shares registered in the name of the petitioner to the name of the 2nd respondent without an application made in that connection by the petitioner himself. The facts which had come to the knowledge of the company are all mentioned in the minutes of the meeting held on 1st April, 1960. Gordhanbhai had informed the company that the two shares belonging to the petitioner and in respect whereof the petitioner was member of the company had been given by Gordhanbhai to the petitioner on certain terms and conditions. The terms and conditions had not been performed and/or carried out by the petitioner. Those statements, however, were entirely insufficient for the company to decide that Gordhanbhai had lawfully become entitled to and/or had become owner of the shares belonging to the petitioner. It should have been clear to the directors who passed the resolution transferring the shares from the petitioner to the 2nd respondent that under the articles and the Companies Act the two shares were of the ownership of the petitioner. Arrangements made between the petitioner and Gordhanbhai in respect of these shares could not in any manner alter or affect the provisions in respect of transfer of shares as contained in section 108 of the Act and the articles. Gordhanbhai had not produced before the directors of the company the share certificates or blank transfer forms signed by the petitioner in respect of the shares so as to show beneficial title of Gordhanbhai in the shares. The correspondence, copy whereof is annexed as exhibit 1 to the affidavit in reply, goes to show that Gordhanbhai was not in possession of the certificates relating to these two shares and/or any blank transfer forms. He had made a demand against the petitioner for delivery of these documents in the office of his attorneys. Now, under section 153 of the Act :

'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.'

18. It is well settled that a company does not take notice of rights of third parties in respect of shares registered in the names of members. Apparently, the company without any sufficient cause appears to have accepted Gordhanbhai's case that the petitioner had been given shares on certain terms and conditions and has committed such breach of those conditions that Gordhanbhai had become entitled to the shares. I have found it difficult to appreciate how the company was entitled to accept such a position and proceed to decide the matter without a transfer instrument having been submitted to the company in the usual manner for transfer of shares. The only correct attitude that the company could take was that it was not concerned with dealings in respect of those shares between Gordhanbhai on the one hand and the petitioner on the other. The company was not bound to investigate into these dealings and make findings on the footing of statements made ex parte by Gordhanbhai. It is quite clear that the company without any sufficient cause accepted all that Gordhanbhai stated as correct and proceeded to transfer the shares from the name of the petitioner to the name of the 2nd respondent in breach of the provisions in section 108 and the articles relating to transfer of shares.

19. In this connection, it is necessary to refer to article 61, which runs as follows :

'Subject to the provisions of Articles 58 and 59 any person becoming entitled to shares in consequence of the death, lunacy, bankruptcy or insolvency of any member, or the marriage of any female member or by any lawful means other than by a transfer in accordance with these presents, may with consent of the board of directors (which it shall not be under any obligation to give), upon producing such evidence that he sustains the character in respect of which he proposes to act under the article or of his title, as the board of directors think sufficient, either be registered himself as the holder of the shares or elect to have some person nominated by him and approved by the board of directors, registered as such holder.'

20. Relying upon this article, Mr. Nariman for the respondents submitted that Gordhanbhai had become entitled to these two shares by lawful means and the board of directors was, therefore, entitled, upon Gordhanbhai having produced evidence of his title to the shares, to accept his request that the shares be transferred to the name of the 2nd respondent. I do not deem it necessary to discuss in detail the effect of this article. It is sufficient to state that the article does not deal with title of any person who has not acquired title by transmission and/or by process of law. It is clear on the facts which are disclosed in the minutes of the meeting held on 1st April, 1960, that Gordhanbhai had never acquired any title whatsoever in respect of these shares.

21. Under the circumstances, I hold that the company has transferred the two shares in favour of the 2nd respondent and omitted the petitioner's name from its register of members in respect of these shares without any sufficient cause. The petitioner is accordingly entitled to the reliefs claimed in prayers (a) and (b) of the petition. There will be an order in terms of prayers (a) and (b) of the petition. Respondents to pay costs fixed at Rs. 500.


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