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New Citizen Bank of India Vs. Asian Assurance Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai
Decided On
Case NumberO.C.J. Appeal No. 44 of 1943 and I.C. No. 27 of 1941
Judge
Reported inAIR1945Bom149; (1944)46BOMLR782
AppellantNew Citizen Bank of India
RespondentAsian Assurance Co. Ltd.
DispositionPetition dismissed
Excerpt:
.....the share scrip accompanied by a transfer form executed by the transferor and transferee and 'duly stamped' as required by section 38(3) of the indian companies act, 1913. - - that the petitioners (respondents) failed to comply with the requirements of section 34, sub-section (3), of the indian companies act, which is as follows :it shall not be lawful for the company to register a transfer of shares in or debentures of a company unless a proper instrument of transfer duly stamped and executed by the transferor and the transferee has been delivered to the company along with the share scrip. 5a it appears that the appellants failed in their contention. 191. in that case when the applicant desired to have the shares transferred to his name in the correspondence the secretary of the..........that no proper instrument of transfer was presented, in that the document presented was not duly stamped. in the court below it appears that it was the second point which was particularly agitated. but the third point is in my opinion the short point in the case, which is vital i.e. that the petitioners (respondents) failed to comply with the requirements of section 34, sub-section (3), of the indian companies act, which is as follows :it shall not be lawful for the company to register a transfer of shares in or debentures of a company unless a proper instrument of transfer duly stamped and executed by the transferor and the transferee has been delivered to the company along with the share scrip.then follows a proviso which is not relevant in this case. it is not suggested that a.....
Judgment:

Leonard Stone, Kt., C.J.

1. This is an appeal from the judgment of Mr. Justice Chagla dated August 31, 1943, under Section 38 of the Indian Companies Act, 1913, ordering rectification of the appellant company's register. The facts are adequately stated in the judgment of the learned trial Judge. In this Court the appellant company has taken three points : first, that the directors had an absolute power to refuse a transfer ; secondly, that the appellant company had a lien on shares which were sought to be transferred and therefore they need not register any transfer ; thirdly, that no proper instrument of transfer was presented, in that the document presented was not duly stamped. In the Court below it appears that it was the second point which was particularly agitated. But the third point is in my opinion the short point in the case, which is vital i.e. that the petitioners (respondents) failed to comply with the requirements of Section 34, Sub-section (3), of the Indian Companies Act, which is as follows :

It shall not be lawful for the company to register a transfer of shares in or debentures of a company unless a proper instrument of transfer duly stamped and executed by the transferor and the transferee has been delivered to the company along with the share scrip.

Then follows a proviso which is not relevant in this case. It is not suggested that a stamped instrument of transfer was in fact ever presented to the company. The learned Judge in Court below deals with this part of the case as follows :

The only other question that remains to be considered is the contention raised by the 1st respondent bank that inasmuch as the transfer forms sent by the petitioners along with their shares were not stamped, the petitioners are not entitled to maintain the petition. This is an entirely unmeritorious defence. Fortunately there is no reason why it should prevail, as it is not supported either by authority or principle. It is not disputed that the transfer forms which were sent by the petitioners to the respondent bank were not stamped. Under Section 34 of the Indian Companies Act it is provided that it shall not be lawful for the company to register a transfer of shares 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 shares scrip. Mr. Daphtary contends that in asking for an order of rectification of the register pursuant to unstamped transfer forms the petitioners are asking the 1st respondent bank to do something which is unlawful; and he further argues that before the petitioners could maintain this petition, it was incumbent upon them to have got the transfer forms properly stamped. Now it has) to be remembered that right up to the time the petition was filed there never was any dispute between the petitioners and the first respondent bank on the question of stamps. The 1st respondent bank resisted the application of the petitioners to transfer the shares to its name only on the ground that it has a lien on these shares. It was never suggested by the bank that the transfer forms should be stamped nor did it ever call upon the petitioners to stamp them with the proper stamps. Nor is there any suggestion that the petitioners ever refused to stamp their transfer forms with the proper stamps. It is only after the petition was filed that this ingenuous defence is raised. The fact that it could not be raised earlier is clear from the relationship of the parties and the course of business between them.

After discussing whether the petitioners had or had not a current account with the company at the material date and considering the English case of Conybear v. British Briquettes,Ltd. [1937] 4 All E. R. 191 the learned Judge continued as follows :

The question of stamps was never in issue between the petitioners and the 1st respondent bank till after the petition was filed; and even at the hearing of the petition it has not been directly in issue except for the purpose of deciding the maintainability of the petition.

I, therefore, hold that the petitioners are entitled to have the share register of the first respondent bank rectified by having the 300 shares referred to in the petition transferred to their name.

2. A belated attempt was made in the Court below to cite an unreported case, Vinayak Balvant Gokhale v. Commonwealth Assurance Co., Ltd. (1942) F. A. No. 46 of 1942, decided by Beaumont C. J. and Wassoodew J., on July 17, 1942 (Unrep.). The matter is thus put in the memorandum of appeal :

22, The appellants counsel having applied to the learned judge after judgment was reserved but before the day on which it was delivered, to be allowed to call his attention to a judgment of the appellate Court on the same points as were in issue in this suit, but the learned judge erred in declining to allow him to do so.

It seems that unfortunately the learned Judge did not avail himself of the opportunity of considering that case. If he had done so, he would have found that this very point had been decided by the Appeal Court in that case. Beaumont C. J. in his judgment stated as follows :

But the difficulty in the applicant's' way is that undoubtedly he did not deliver to the company a duly stamped instrument of transfer. As I have said, what he did was to send an instrument of transfer together with a cheque sufficient to cover the amount of the stamp. Now his case is that the company's practice had been in the past to accept instruments of transfer together with moneys sufficient to pay the stamp duty, the object of that practice being that if the company decided to register the transfer they would buy the stamp and affix it to the instrument of transfer, but if they decide not to transfer then no money having been expended in buying the stamp the money would be returned to the shareholder, as was done in this case.

Later on the learned Chief Justice observes as follows :

But the difficulty in this case is that in point of fact no duly stamped instrument of transfer has ever been delivered. Putting it at the highest, and assuming that the company agreed with the applicant that they would apply the proceeds of his cheque towards buying the necessary stamp, and would affix such stamp on the instrument of transfer as soon as the company decided to register the transfer, and assuming that the company ought to have decided to register the transfer, even so the position is that the agreement by the company has not been carried out, and we have no jurisdiction in a summary application under Section 38 to direct the company to carry out its agreement. All that we can do is to order rectification of the register, and to order rectification of the register, when in fact there has been no duly stamped instrument of transfer delivered to the company, although that omission may be due to company's own default, would be for us to order the company to act in contravention of the statute.

That case in my opinion is undistinguishable from the one we have before us. Of the merits of the matter we have no concern, when the statute is mandatory in its terms, and admittedly has not been complied with. That being so how can it be said that the transferees' name was omitted from the register without any sufficient cause. The petitioners did not comply with Section 34, Sub-section (3), and did not deliver a proper instrument of, transfer duly stamped. The company would have been breaking the law if they had registered the transfer. I think, if I may say so with the greatest respect to the learned trial Judge, that he was led away by the controversy on the question of lien and has not given sufficient weight to this condition precedent. In my opinion this appeal must be allowed and the order of the Court below must be discharged.

3. As to costs we have had the opportunity of hearing counsel on both sides on this question, and I think justice will be done if the respondents pay to the appellants costs of this appeal and also two-thirds of the appellants' costs of the petition to be taxed on a long cause scale with two counsel.

Kania, J.

4. I agree. This is a petition for rectification of register under Section 38 of the Indian Companies Act. In order to establish a right to get an order under that section the petitioners had to establish that the name of a person was fraudulently or without sufficient cause entered or omitted from the register of the members of the company. The respondents filed the petition under Section 38. The reply of the appellant bank was three-fold one that the directors had absolute power to refuse registration in a particular name under Article 36 of the articles of association. Issue 8 covered that point. The second defence was that the appellant company had a lien on the shares held in the name of the registered holder and therefore the bank was not bound 'to transfer the shares as required. That controversy is covered by issues Nos. 4 to 7. The third ground was that no proper transfer form was submitted to the bank and the transfer form was never stamped. This is covered by issues Nos. 2 and 3. As regards the question of lien, the petitioners contended that there was no debt at all in respect of which any lien could be claimed, and in the alternative alleged that the debt was unlawful and it was ultra vires the company. To agitate that contention at the hearing counsel for the petitioners raised issue No. 5A. A third alternative contention on this question was that the lien, if any, was waived. The learned Judge appears to have gone at great length into the question whether there was a lawful debt. Numerous documents were tendered before him to establish that fact. From the judgment and the answer given to issue No. 5A it appears that the appellants failed in their contention. The learned Judge upheld the petitioners' contention that there was no debt and the lien if any was waived. He further held in favour of the petitioners in respect of issue No. 8 also. It appears to me that in this controversy sufficient importance was not given to the third objection raised by the appellants on the question of there being no proper instrument of transfer. It must be recognised that before a shareholder claims that his name should be entered on the register of the company as a shareholder he has to submit the share scrip and a properly executed and duly stamped transfer form. Articles 34 and 35 of the articles of association provide for that. When this question was urged after the main discussion ended, counsel for the petitioners tendered an affidavit of Dr. Kajiji on August 26 in which it was stated that the bank had sufficient funds of the petitioners deposited with them and by reason of the fact that in respect of the previous transfers the bank had affixed the stamp there were implied instructions to the bank to do so in this case also. It must be noticed that the deponent did not suggest that there was an agreement to that effect. The basis of this affidavit however falls to the ground because, firstly, when the matter was adjourned into Court evidence as to facts cannot be led, except by consent, by affidavits ; it has to be led by examining witnesses in Court so that the opposing party can have an opportunity to cross-examine them. The second ground is that there is affirmative evidence on record to show that the petitioners had no account with the bank after February 10. I do not think any reliance can be placed on previous transfers. It by mutual understanding or negotiation, parties have acted in a particular way in respect of one transaction, unless there is a clear binding agreement or statutory obligation there is no reason toassume that the parties must be bound to act on the footing of the previous transaction. It is not even suggested that the petitioners were led to believe that the stamp will be so affixed. .

5. It seems to me that the presentation of a duly stamped transfer form is a condition precedent. Section 34(3) of the Indian Companies Act makes that step on the part of the applicant imperative. Indeed it says in terms that no company shall transfer shares unless a transfer duly stamped was properly delivered. There is therefore no doubt that the tender of such properly executed and stamped transfer is a condition precedent to the right of the applicant to get any relief under Section 38. It is. not even suggested in the proceedings that steps were taken by the petitioners to do so. Indeed, when the point was specifically raised, in reply, in the affidavit, it was not alleged that the petitioners were in a position straightaway to produce such a transfer or had offered such a transfer previously. A belated and feeble attempt to explain the omission is contained in the affidavit, which I have summarised above. In my opinion that affidavit does not comply with the requirements of the Indian Companies-Act. The result is that when the petition was filed there was no cause of action.

6. When this argument was pressed before the learned trial Judge it appears that he did not fully appreciate the imperative nature of the words used in Section 34(3) of the Indian Companies Act. His attention was drawn to Conybear v. British Briquetters,Ltd. [1937] 4 All E. R. 191. In that case when the applicant desired to have the shares transferred to his name in the correspondence the secretary of the company stated as follows :

I am further instructed to inform you that even if the Board were to meet before the extraordinary general meeting it clearly would not be prepared to pass transfers which would have the effect of rendering impossible a proposition for the consideration of which a general meeting of the company has been convened for a few days hence.

After that correspondence the suit was filed. It was contended that the transfer form was duly stamped. The company denied that it was properly stamped. The Court upheld the company's contention and the suit was dismissed with costs. The unreported judgment of our Court in Vinayak Balvant Gokhale v. Commonwealth also emphasizes the same position. That was a petition for rectification of the register under Section 38 by entering the name of the petitioners in the register. The defence of the company was that they had absolute discretion and that no transfer form duly stamped was tendered. The reply of the petitioners was that the exercise of the discretion of the directors was mala fide and for the stamp they had sent a cheque to the company from the proceeds of which the company should have affixed the stamp on the transfer deed. The learned trial Judge held that the company's right to refuse the transfer absolutely was disproved, because their action was not bona fide. The petition however was dismissed on the second ground because no duly stamped transfer form was tendered. The contention that a cheque was sent was-rejected because it was pointed out that even if the fact of the transfer form remaining unstamped was due to the default of the company, it was no answer, so far as the petition was concerned, because it was the petitioners' obligation to send the transfer duly stamped. If the petitioners had been wronged they might have their remedy otherwise, but the remedy did not lie in an order for rectification of the register. In the judgment of Beaumont C. J. this point is made particularly clear. It seems tome therefore that the petition must fail on this ground.

7. Having regard to the fact that considerable time was spent in the attempt to prove the illegality of the debt, for which the lien was claimed, I agree that the order for costs should be as stated in the judgment of the learned Chief Justice.


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