1991 (1) TMI 450 - Board - Companies Law

Issues Involved:
1. Refusal to register the transfer of shares
2. Validity of the pledge and transfer of shares
3. Compliance with Section 176 of the Indian Contract Act
4. Applicability of the Securities Contracts (Regulation) Act, 1956
5. Authority of the company's chairman to issue consent for share transfer

Issue-wise Detailed Analysis:

1. Refusal to Register the Transfer of Shares:
The appellant sought the registration of 16,440 shares transferred by respondents Nos. 2 to 4, which the company refused. The appellant argued that the company's prior consent, given through a letter dated April 28, 1986, waived its rights to reject the transfer. The company cited disputes between the transferee and the chairman, and among family members, as reasons for refusal. The board also claimed the transfer forms were blank when handed over and that the consideration mentioned was not received. The refusal was deemed prejudicial to the company's interest, labeling the transferee as undesirable.

2. Validity of the Pledge and Transfer of Shares:
The appellant advanced a loan to respondent No. 2, who deposited the shares as security. The appellant claimed the shares were sold to him upon default in repayment. The company argued that the shares were given merely as security and that the transfer forms were blank. The court held that the physical delivery of shares along with blank transfer forms constituted a valid pledge, and the appellant had the authority to fill in the blanks and complete the transfer.

3. Compliance with Section 176 of the Indian Contract Act:
The company contended that the appellant did not give notice of default as required under Section 176, making the sale void. The appellant countered that the respondents had signed the transfer forms, indicating their awareness. The court found that the signing of transfer forms indicated compliance with the notice requirement.

4. Applicability of the Securities Contracts (Regulation) Act, 1956:
The company argued that the sale violated Sections 13 and 18 of the Securities Contracts (Regulation) Act, as the shares were not delivered on the same day as the contract. The court noted that the Act primarily regulates stock exchange transactions and does not apply to shares of a company not listed on any stock exchange. It ruled that the transfer of pledged shares, completed by filling in blank transfer forms, did not violate the Act.

5. Authority of the Company's Chairman to Issue Consent for Share Transfer:
The company challenged the authority of Shri F.M. Pochkhanwala, the chairman, to issue the consent letter. The court found that the letter was issued on behalf of the company, and no evidence was provided to dispute its validity. The company had the opportunity to challenge the letter but failed to do so effectively.

Conclusion:
The court concluded that the board of directors acted on extraneous considerations and not in the company's interest when refusing the transfer. The transfer of shares was deemed valid, and the company was directed to register the transfer within ten days. The appeals were allowed, and no costs were ordered.

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