2006 (2) TMI 287 - SC - Companies Law

Permanent injunction restraining the respondent No. 1 and the appellant from effecting the transfer of the equity shares in favour of respondent No. 1. - Held that - Appeal dismissed. The only objection was with regard to the value thereof. It is also not in dispute that they, in fact, registered 2,99,800 pledged shares, although they were also presented after a period of two months without any demur whatsoever. The appellants, therefore, must be held to have waived their right. The pledge of shares is not in dispute. The fact that the appellant had taken a loan of ₹ 4.5 crores is also not in dispute. Furthermore, we are of the opinion that by reason of the impugned judgment no injustice as such has been done to the appellants and in that view of the matter this Court in exercise of its jurisdiction under Article 136 of the Constitution of India may not interfere with the impugned order, even if it may be lawful to do so.

Issues Involved:
1. Compliance with Section 108 of the Companies Act, 1956 regarding the transfer of shares.
2. The mandatory or directory nature of the time limit specified in Section 108 for registering the transfer of shares.
3. The principle of waiver and its applicability to the registration of shares.
4. The jurisdiction and discretion of the Company Law Board and the High Court in directing the registration of shares.
5. The relevance and impact of previous judicial decisions on the interpretation of Section 108.

Detailed Analysis:

1. Compliance with Section 108 of the Companies Act, 1956:
The appellant took a loan of Rs. 4.5 crores from respondent No. 1 in 1996, with respondent Nos. 2 to 4 pledging 25,92,800 shares as security. Respondent No. 1 lodged the share certificates and transfer forms with the appellant on 2-1-2001, claiming delay in loan repayment. A winding-up petition was filed by respondent No. 1 under Sections 434(1)(a) and 439(1)(b) of the Companies Act, 1956. Respondent Nos. 2 to 4 also filed suits for permanent injunctions against the transfer of shares. The Company Law Board directed the appellant to register the transfer of 22,93,000 shares within 30 days, which was upheld by the High Court.

2. The Mandatory or Directory Nature of the Time Limit Specified in Section 108:
The appellant argued that the time specified in Section 108 is mandatory and that the Company Law Board and the High Court erred in their jurisdiction. The appellant cited the decision in Mannalal Khetan v. Kedar Nath Khetan to support their claim. However, the respondents contended that Sections 108(1A) and 108(1C) do not provide for penalties or consequences for non-compliance and should be considered directory. The court examined whether procedural provisions are mandatory or directory, noting that substantial compliance is essential even if a statute is directory.

3. The Principle of Waiver and Its Applicability:
The appellant registered 2,99,800 shares previously, which were also presented after the stipulated period, without objection. This act was considered a waiver of their right to object to the registration of the remaining shares. The court held that the appellants had no objection to registering the shares, as stated in their plaint, and their only concern was the value of the shares.

4. The Jurisdiction and Discretion of the Company Law Board and the High Court:
The court noted that the Company Law Board and the High Court exercised their jurisdiction correctly in directing the registration of shares. The court emphasized that substantial justice was being done and that no prejudice was caused to the appellants by the delayed application for registration. The court also highlighted that it would not interfere with the impugned order under Article 136 of the Constitution of India if substantial justice was achieved.

5. The Relevance and Impact of Previous Judicial Decisions:
The court referred to several precedents, including P.T. Rajan v. T.P.M. Sahir, Chandrakant Uttam Chodankar v. Dayanand Rayu Mandrakar, and Kailash v. Nanhku, to determine whether a statute is mandatory or directory. The court concluded that even if a statute is directory, substantial compliance is required. The court also cited Taherakhatoon v. Salambin Mohammad and Chandra Singh v. State of Rajasthan to emphasize that it may not interfere with an order if substantial justice is being done.

Conclusion:
The Supreme Court dismissed the appeals, holding that no case was made out for exercising jurisdiction under Article 136 of the Constitution of India. The court affirmed the decisions of the Company Law Board and the High Court, emphasizing that substantial justice was achieved and no prejudice was caused to the appellants.

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