1994 (7) TMI 238 - HC - Companies Law

Free transferability and registration of transfers of listed securities of companies - Respondent companies lodged shares of appellant company for registration, transferors of securities were necessary parties to proceedings, Transfer not to be registered except on production of instrument of transfer, Transfer of shares

Issues Involved:
1. Effect of Section 22A of the Securities Contracts (Regulation) Act (SCRA) on Section 108 of the Companies Act.
2. Discretionary power of the company under Section 22A(3) of the SCRA.
3. Meaning of 'duly stamped' in Section 108 of the Companies Act and Section 22A of the SCRA.
4. Entitlement to rectification based on non-cancellation of stamps.
5. Allegations of mala fides.
6. Non-joinder of transferors as a ground for unsustainability.
7. Entitlement to any relief.

Issue-wise Detailed Analysis:

Issue A: Effect of Section 22A of the SCRA on Section 108 of the Companies Act
The court analyzed the statutory provisions and the legislative intent behind Section 22A of the SCRA, introduced by the Securities Contracts (Regulation) Amendment Act, 1985. The court noted that Section 22A was intended to ensure free transferability of securities of public limited companies listed on stock exchanges, restricting the company's power to refuse registration to four specific grounds. The court held that Section 22A of the SCRA would prevail over Section 108 of the Companies Act in relation to listed securities to the extent of inconsistency, invoking the doctrine of implied repeal.

Issue B: Discretionary Power of the Company under Section 22A(3) of the SCRA
The court examined whether the term 'may' in Section 22A(3) should be interpreted as 'shall'. It concluded that the power to refuse registration under Section 22A(3) is directory and not mandatory. The court emphasized that the company must form an opinion in good faith within two months as per Section 22A(4), and if it decides to refuse registration, it must follow the procedures outlined in the section.

Issue C: Meaning of 'Duly Stamped' in Section 108 of the Companies Act and Section 22A of the SCRA
The court held that the term 'duly stamped' in both Section 108 of the Companies Act and Section 22A of the SCRA should be interpreted in accordance with the Indian Stamp Act. This includes the requirement that adhesive stamps on instruments must be cancelled as per Section 12 of the Indian Stamp Act. Failure to cancel the stamps renders the instrument unstamped and not duly stamped.

Issue D: Entitlement to Rectification Based on Non-Cancellation of Stamps
The court considered whether the appellant was entitled to rectification of the register due to non-cancellation of stamps on the instruments of transfer. The court held that the application for rectification could not be granted on this ground alone. The court emphasized the equitable nature of the jurisdiction to rectify the register, considering factors such as delay, laches, and the conduct of the parties. The court found that the appellant had acted in good faith when registering the transfers, and it would be inequitable to grant rectification at this stage.

Issue E: Allegations of Mala Fides
The court noted the allegations of mala fides made by the respondent companies, particularly that the appellant had ulterior motives related to the rights issue of partly convertible debentures. However, the court found that there was no specific pleading of mala fides with proper particulars, and the CLB had refrained from expressing an opinion on this matter. The court held that in the absence of a factual finding by the CLB, it was inappropriate for the learned Single Judge to make a finding on mala fides.

Issue F: Non-Joinder of Transferors as a Ground for Unsustainability
The court disagreed with the learned Single Judge's view that the transferors were necessary parties to the application for rectification. The court held that the transferors were not necessary parties since the only ground for rectification was the non-cancellation of stamps, and the transferors' involvement was irrelevant to this issue.

Issue G: Entitlement to Any Relief
The court concluded that the appellant was not entitled to any relief in the applications for rectification. The court emphasized the equitable considerations and the requirements of Section 22A(3) and (4) of the SCRA, holding that it would be unjust and inequitable to grant rectification.

Conclusion:
The appeals were dismissed, and the appellant was not entitled to any relief. The court granted a certificate of fitness for appeal to the Supreme Court, recognizing the substantial question of law of general public importance involved in the case.

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