1997 (2) TMI 404 - SC - Companies Law

Whether the transfer of the shares held by Mr. B.K. Malhan is valid in law? Held that - Appeal dismissed. The concept of previous sanction of the directors connotes that there should be a written resolution accepting the transfer from Mr. Malhan in favour of Bhagat and such previous sanction should precede the handing over of the shares. In this case, such an action was not done and, therefore, even the transfer of the shares held by Mr. Malhan in favour of the appellant is not valid in law. The Division Bench of the High Court, therefore, was right in granting the decree as prayed for.

Summary

Issues:
1. Validity of transfer of shares by Mrs. Surjeet Malhan to the appellant.
2. Validity of transfer of shares by Mr. B.K. Malhan to the appellant.

Analysis:

Issue 1:
The case involved appeals arising from a Division Bench judgment of the High Court of Himachal Pradesh regarding the transfer of shares by Mrs. Surjeet Malhan and Mr. B.K. Malhan to the appellant. The Division Bench had decreed the suits filed by the respondents, leading to the appeals. The appellant contended that there was implied consent for the transfer of shares by Mrs. Malhan to the appellant as she did not object to it, and that the transfer was complete even without registration. However, the Supreme Court held that for a concluded contract, there must be consensus ad idem, and a transfer without consideration is void under Section 25(1) of the Contract Act. As there was no express authorization by Mrs. Malhan for the transfer, the transfer agreement was deemed void. The Court rejected the argument that the transaction was complete upon entrusting the shares, emphasizing the lack of specific authority for the transfer, rendering it invalid in law. The judgment cited by the appellant was deemed inapplicable to the case, leading to the dismissal of the appeal.

Issue 2:
Regarding the transfer of shares by Mr. B.K. Malhan, the validity of the transfer was questioned based on the company's articles of association, specifically clause (8) which required previous sanction of the directors for any share transfer. The appellant argued that since Mr. Malhan was the only director and had entrusted the shares, the transfer was valid. However, the Court held that the concept of previous sanction necessitated a written resolution preceding the transfer, which was not done in this case. Therefore, the transfer of shares by Mr. Malhan to the appellant was also deemed invalid in law. The Division Bench's decision to grant the decree in favor of the respondents was upheld by the Supreme Court, resulting in the dismissal of the appeals without costs.