1957 (4) TMI 33 - HC - Companies Law

Shares warrants and entries in register of members, Transfer of Shares Power to to refuse registration on and appeal refusal, Powers of Court to rectify register of members

Issues Involved:
1. Whether the plaintiffs' names should be removed from the register of shareholders regarding the 1,668 shares.
2. Whether the second defendant should be registered as the holder of the said shares.
3. Whether the company had the discretion to refuse the transfer of shares without giving any reason.
4. Whether the plaintiffs were estopped from contending that their names should remain in the register of shareholders.
5. Whether the petition for rectification of the register was maintainable after the winding-up petition was filed but before the winding-up order was passed.

Detailed Analysis:

1. Removal of Plaintiffs' Names from the Register of Shareholders:
The plaintiffs sought a declaration that their names should be removed from the register of shareholders regarding 1,668 shares. The court examined whether the plaintiffs had complied with the necessary formalities for the transfer of shares, including the execution and presentation of duly stamped transfer forms signed by both the transferor and transferee. It was found that no such completed transfer forms were presented to the bank, and the necessary formalities under Section 34 of the Companies Act and Article 35 of the Articles of Association were not complied with. Consequently, the court held that the plaintiffs' names could not be removed from the register of shareholders.

2. Registration of Second Defendant as Holder of Shares:
The plaintiffs argued that the second defendant, who had agreed to purchase the shares, should be registered as the holder of the said shares. The court found that the second defendant had not signed the transfer forms, and no duly stamped transfer forms were presented to the bank. The court emphasized that the bank could not register the transfer of shares without the transferee's signature on the transfer deed. Therefore, the court rejected the plaintiffs' request to register the second defendant as the holder of the shares.

3. Discretion of the Company to Refuse Transfer:
The court examined whether the company had the discretion to refuse the transfer of shares without giving any reason, as provided under Section 34(7) of the Companies Act and Article 36 of the Articles of Association. The court upheld the company's discretion to refuse the transfer of shares, especially in the case of partly paid-up shares where the transferee's financial position was not sound. The court noted that the discretion was intended to prevent the company from being ruined by undesirable transferees and to protect the interests of innocent creditors.

4. Estoppel Against the Plaintiffs:
The plaintiffs contended that the bank was estopped from arguing that their names should remain in the register of shareholders due to the bank's conduct, such as not sending notices of meetings or dividend warrants after the sale of shares. The court rejected this argument, stating that there was no estoppel in law by such conduct. The court found that the plaintiffs had not presented a duly completed and stamped transfer deed to the company, and the bank's failure to send notices could not be interpreted as an acceptance of the transfer.

5. Maintainability of Petition for Rectification:
The court addressed whether a petition for rectification of the register was maintainable after the filing of a winding-up petition but before the winding-up order was passed. The court held that a petition for rectification could be maintained in such circumstances, provided the company was still a going concern and the rights of innocent third parties had not intervened. The court distinguished this case from others where the company was already in a state of bankruptcy at the time of filing the petition for rectification.

Conclusion:
The court set aside the judgment and decree of the lower court, which had directed the removal of the plaintiffs' names from the register of shareholders and the registration of the second defendant as the holder of the shares. The court directed that the plaintiffs' names be reinstated in the register of shareholders. Each party was directed to bear its own costs, with the official liquidators allowed to recover their costs from the assets of the bank.

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