9911796707
TMI Blog1981 (9) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred to as "the Company" Respondent No. 1 is a private limited company and is a shareholder of the Company; respondent No. 2, is both a shareholder as well as a director of the Company. Respondents Nos. 3 and 4 are the Controller of Estate Duty and the Regional Director of the Company Law Board respectively, whereas respondent No. 5 is the Union Bank of India from whom some of the shares in dispute were purchased by respondent No. 2 and her deceased mother, Shantaben Kapadia. Respondent No. 1 has filed the present petition, as stated earlier, under section 155 of the Act for rectifying certain entries in the appellant company's register of members. The said entries relate to five different lots of shares, made in the name of respondent No. 2. In the petition, respondent No. 1 has also prayed for the appointment of a receiver in respect of the said shares and for an injunction restraining the appellant-company from recognising respondent No. 2 as the registered shareholder in respect of the said shares pending the disposal of the petition. In the petition, respondent No. 1 took out a judge's summons for interim reliefs in terms of the above prayers. However, the only interim rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices Act, 1969 (hereinafter referred to as "the MRTP ACT"), was barred by the provisions of sections 108A to 108H of the Act, without the consent of the Central Govt. Although both in the petition as well as in the affidavits in support of the judge's summons, several other grounds were urged. It appears that at the time of the hearing of the judge's summons, the attack was confined only to the aforesaid grounds and the learned single judge has also granted interim relief to the petitioner only on the said grounds and, therefore, we need consider the validity of the said grounds only, in this appeal. The learned judge, as stated earlier, by his impugned order dated July 31, 1981, has restrained respondent No. 1 to the petition, i.e., the appellant-company from recognising respondent No. 2 as the owner of and/or from allowing respondent No. 2 to exercise voting or any other right in respect of the said shares at Exs. A, B and F and has also restrained the appellant-company from acting on the proxies that may have been filed by respondent No. 2 in respect of the said shares. It is this order which is challenged in both the appeals. Shri Chagla, the learned counsel for the appellant- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be to show the said shares in the names of dead persons, i.e., either Navin Kapadia or Shantaben and quite a different thing to submit that the relief claimed in the petition being to show the shares in the name of dead persons, the petition itself is not maintainable. The sum and substance of the contents of the petition read with the said reliefs claimed by the petitioner is that the basis on which the transfers were effected first in the name of Shantaben and, thereafter, in the name of respondent No. 2 being itself incorrect, the entries should be restored to the status quo ante. That being the gist of the petition as well as the relief claimed in prayer (a), it can hardly be contended that the petition is not maintainable on the ground suggested by Shri Chagla. The same is the case with regard to the relief claimed in prayer (c). Here again what is challenged is the basis on which the change has been effected in the register of members from the Union Bank of India to respondent No. 2. The relief claimed by prayer (c) again is to restore the status quo ante before the name of the Union Bank of India came to be deleted from the register of members. As stated earlier, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right to "the person aggrieved". The clear provisions of the section, therefore, militate against accepting the limited construction sought to be placed by Shri Chagla on the provisions of the said section. Secondly, the object of the said provisions does not support his contention. Read as a whole, it appears that one of the intentions of the Legislature is to ensure a register of members, which reflects reality at any particular point of time. That is why the Legislature has extended this right to any member of the Company without compelling him to show a particular or a special prejudice caused to him by an incorrect or a wrong register of members. Hence, to confine the right to file the application only to an aggrieved member or a member who is in a position to show some special prejudice, will go counter to the object of the section. For both these reasons, we are unable to accept the said contention. The next preliminary objection was that the petition was barred by principles analogous to the principles of res judicata or by the principle of issue estoppel. In this connection, Shri Chagla pointed out that in respect of the shares at Exs. A and B, the very petitioner, i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the preliminary objections was directed not so much against the maintainability of the petition but against the maintainability of the judge's summons for interim relief and this objection was raised also by Shri Mehta on behalf of respondent No. 2. The argument was that the proceedings under section 155 being themselves summary in nature, an application for interim relief in such a proceeding was not maintainable. In this connection, Shri Chagla submitted that the provisions of section 155 of the Act do not provide for making any such application unlike the provisions of some other sections in the Act such as sections 388C, 391(6), 403 and 443. He also further referred us to [1918] 2 Ch D 324 (CA) (Siemens Bros. & Co. Ltd. v. Burns), where it is observed that as to the question of registering a portion of the shares in the names of persons who are already on the register by transposing the order of their names, it is not a matter which ought to be dealt with on an interlocutory application and the proper course would be to discharge the order on that motion. Relying on these observations, Shri Chagla submitted that in the present case also it was no more than substituting one n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down as a rule of law that no application for interlocutory relief in proceedings under section 155 is maintainable. On the contrary, we take the view that as in all other proceedings, in proper cases, an application for interlocutory relief even under section 155 is maintainable, notwithstanding its summary nature. The fact that the proceeding is summary may be relevant while considering whether a particular relief claimed in such proceeding should or should not be granted. That, however, is a different proposition. Coming now to the merits of the case, it is necessary first to state a few facts relating to the shares in question. Respondent No. 2 is the sister of one Navin Kapadia, who died on April 19, 1979, and Shantaben Kapadia died on April 2, 1980. On the death of Navin Kapadia, Shantaben was the heir entitled to the shares, which stood in the name of Navin Kapadia, and on the death of Shantaben Kapadia, respondent No. 2, being the sole heir, was entitled to the shares which stood in the name of Shantaben Kapadia. Out of the shares in dispute in this appeal, shares at Ex. A, which numbered 11,350, originally stood in the name of Navin Kapadia. They were transferred on May ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was a certificate from respondent No. 2-the Controller of Estate Duty-read with article 56 of the company's articles of association. As regards the objection to the entry on the ground that it was made during the period of closure, the specific allegation in that respect is that when shares at Exs. A and B were transferred from the name of Shantaben to the name of respondent No. 2 on May 8, 1980, the register of members of the Company was admittedly closed under section 154 of the Act. Under the provisions of sub-section (2) of section 163 of the Act, the said register, among others, is not available for inspection to the members and, therefore, it is not permissible for the Company to make any entry in the register of members during the said period and any entry so made becomes ipso facto illegal. We are unable to accept the submission for reasons more than one. The normal rule is that the register of members and other books and documents should be available to the members, debenture holders or any other persons throughout the year. The provisions of section 154, however, empower the Company to close its register of members, for a certain period and, therefore, are enabling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... smission of shares as such, although if the Company so chooses, it may refuse to register such transfers or transmissions during the said period. In this connection, it would be interesting to note the provisions of the Model Regln. No 23 given in Table A of Sch. I to the Act That regulation states that "subject to the provisions of section 154, the registration of transfers may be suspended at such times and for such periods as the Board may from time to time determine: Provided that such registration shall not be suspended for more than thirty days at any one time or for more than forty-five days in the aggregate in any year". The provisions of this regulation again emphasise the enabling powers of the Company and also further stress the fact that it is for the Company to suspend or not, the registration of transfers, during the said period of closure. There is no obligation on the Company to do so. If, however, the Company does so, it will be protected by the provisions of section 154. Incidentally, it may also be pointed out that the Company has not adopted the said model regulations and there is no provision similar to the said Model Regln. No. 23, in the articles of associat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 980, are not illegal on that account. Apart from the above legal position, as has been stated by the appellant-Company, in para. 22 of the affidavit dated June 30, 1881, filed on its behalf by one P. J. Kapadia, the Company had also obtained legal advice in the matter and their legal advisors had advised that since the said shares were to be transmitted by operation of law to respondent No. 2 and were not to be transferred in her favour, it would be competent and legal for the Company to register her name as a shareholder in respect of the said shares even during the said period of closure. The Company, therefore, could not be said to have made the entries in question "without sufficient cause." As regards the contention that the said entries could not have been made without obtaining a certificate from the Controller of Estate Duty, the argument was that section 84 of the E.D. Act, 1953, prohibits any Company from registering the transfer of shares belonging to a deceased shareholder unless a certificate from the Controller is produced before the Company to the effect that the estate duty in respect of such shares has been paid or will be paid or that none is due, as the case may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that of the first proviso thereto deal with transfer, the second proviso thereof deals with the transmission of shares. Section 111 of the Act also emphasises this distinction. As regards the articles of association, article 55 states that the Company shall recognise only the executors or administrators of a deceased member as having any title to the share. However, the said article gives a discretion to the board of directors to dispense with the production of probate or letters of administration and register the name of any person who claims to be absolutely entitled to such shares. Article 57 then states that subject to the provisions of articles 54 and 55, any person becoming entitled to any shares in consequence of the death, lunacy, bankruptcy or insolvency of any member, or by any lawful means other than by a transfer (underlining ours) may with the consent of the board of directors, and upon producing such evidence, show that he has a title and get himself registered as a holder of shares. This article, therefore, clearly makes a distinction between a transmission by operation of law and transfer of shares by an act of parties. The same distinction is retained in articl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erpretation of the said section 84 of the E.D. Act. As stated earlier, article 56 of the articles of association does no more than incorporate bodily the provisions of the said section 84. If, therefore, they had relied on the said circular issued on June 20, 1968, i.e., long before the present controversy arose between the parties, it could hardly be said that the Company had not acted bona fide or without sufficient cause, while registering the transmission of the said shares either on May 2, 1979, or on May 8, 1980. We are, therefore, of the view that the grievance made by the petitioner in respect of the entries made either on May 2, 1979, in favour of Shri Shantaben or on May 8, 1980, in favour of respondent No. 2 in the register of members has no substance in it on either count. In any case, it can hardly be said that the said entries were made "without sufficient cause", the absence of which alone entitles the court to direct a rectification under section 155 of the Act. Coming now to the share at Ex. F, the undisputed facts in respect of the said shares as stated above are that the shares were purchased by the deceased Shantaben and respondent No. 2 jointly, as early as on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of the said share is dated April 22, 1980, and the same in turn mentions that the shares were received subject to the approval of the board of directors. Secondly, it is pointed out that although it is the contention of the appellant-company as well as respondent No. 2 that the shares were lodged on March 27, 1980, the, entry made in the relevant books show a clear interpolation and the same has not been made in the normal course of business. The contention, therefore, is that since the shares were in fact received for the first time on April 22, 1980, neither the resolution could have been passed on April 21, 1980, in anticipation of the receipt of the said shares nor a transfer in favour of a dead person could have been made on the footing that the transfer deed was lodged on March 27, 1980, i.e., prior to April 2, 1980, on which date Shantaben expired. As against this, both the appellant as well as respondent No. 2 rely upon the fact that in the relevant book showing lodgment of the shares, there is admittedly an entry dated March 27, 1980, which shows that the said shares were lodged with the company on the said date. Secondly, there is an affidavit of the secretary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since it will not affect the present entry made on June 13, 1980. The whole purpose of raising this controversy is to show that the shares were not in fact lodged with the Company prior to the death of Shantaben. The argument is that if they were not so lodged prior to the death of Shantaben, then they could not have been lodged after her death in the manner done. According to respondent No. 1, the whole purpose of showing that they were so lodged on March 27, 1980, was to make out a case that the subsequent transfer of the said shares in favour of respondent No. 2 and Shantaben were both legal and proper. Apart from that, in the first instance, the question whether the shares were lodged on March 27, 1980, or not is not capable of resolution on the basis of the affidavits in view of the allegations and counter-allegations in that behalf. In order to resolve this point conclusively, oral evidence of the parties is absolutely necessary. Therefore, at this interlocutory stage, it will not be correct to proceed on the basis that the books of the appellant-company do not reflect the correct position. As pointed out earlier in support of the said entry of lodgement on March 27, 1980, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares, when she has exercised her. said rights all along till this date including in an annual general meeting held in the last year. Proceeding on the footing that the shares were not lodged on March 27, 1980, but on April 22, 1980, the next argument advanced on behalf of respondent No. 1 was that respondent No. 2 had not applied to the company to transfer the said shares in her capacity as a joint shareholder and also in her capacity as the legal representative of Shantaben. Further, the transfer effected by the resolution dated April 21, 1980, and shown by the entry in the register on April 22, 1980, was in favour of both respondent No. 2 and Shantaben, who was admittedly a dead person on that date. Shri Parekh relying on these facts, therefore, contended that there could not be a contract with a dead person. According to him, when a transferee makes an application to the company for transferring the shares in his name, he makes an offer to the company for entering into a contract with the company and the contract with the company is complete only when the company passes a resolution approving such a transfer. In the present case, in the first instance, an application was made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on read with the relevant articles of association is in addition to the power which the company has by virtue of the provisions of sections 108, 109 and 110 of the Act, which contain statutory restrictions on transfer of shares. As far as the appellant-company is concerned, article 53 of the articles of association of the company reserves such power to its board of directors and the provisions of the said article show that the board of directors, subject to the provisions of section 111 of the Act, may, at its own absolute and uncontrolled discretion and without assigning any reason, decline to register or acknowledge any transfer of shares. Shri Parekh, therefore, submitted that unless the transfer of shares is accepted by the company, the transferee does not become a shareholder in respect of the said shares. It, therefore, necessarily implies that it is not enough that there is a contract between the transferor and the transferee for sale of the shares but there has to be a further contract between the transferee and the company in order to entitle the transferee to become a member or shareholder of the company. Unless such a contract is completed, no transfer can be recognised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon it by whatever machinery they may have been effected, and notwithstanding any contrivance by which it may have been attempted to protect them." In order to appreciate these arguments, it is in the first instance important to note that there is no instrument other than the instrument of transfer prescribed either under the Act or under the articles of association which is required to be lodged with the company when either the transferor or the transferee desires that the name of the transferee be brought on the register of members of the company. In particular, there is no separate form of application prescribed any where which has to be made to the company for the said purpose. The instrument o! transfer which has to be lodged with the company is incorporated in the articles of association under article 50. There is no dispute that six such forms of transfers were executed between the Union Bank of India, on the one hand, and respondent No. 2 and Shantaben, on the other, in respect of the shares in dispute, as early as on 21st December, 1979. There is also further no dispute that these instruments of transfers were lodged with the company, although the date on which they w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oach the court for a rectification of the register by calling upon the company to enter his name as a member. If that were not so, the provisions of the said section 155(1)(b) would be rendered nugatory. Once, therefore, it is admitted that a transferee gets this valuable- right to call upon the company to register him as a member, then, the theory of offer to and acceptance by the company and that of the non-accrual of any rights against the company, unless the contract is complete between the transferee and the company, propounded by Shri Parekh, stands exploded. On the contrary, there is much force in the contention advanced by Shri Chagla that the contract between the transferor and the transferee being complete when the transfer instrument is executed, all that is necessary is to intimate to the company the fact of the said transfer. By getting his name registered in the register of members, the transferee only perfects his title to the shares and becomes entitled in his own right to claim all the privileges which were hitherto claimed by the transferor in his name. It is, therefore, not correct to say that there is a contract between the transferee and the company when the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onths from the date of the instrument of transfer or the intimation of transfer or transmission, the fact of such refusal, and if no such intimation is sent, the company and every officer of the company makes itself or himself liable to punishment. Further, on receipt of such intimation of refusal, the transferee, the transferor or the person giving the intimation of transmission, has a right to prefer, an appeal to the Central Govt. and apply for a direction to the company to register the transferee as its member. In the present case, apart from the provisions of the said section, article 53 of the articles of association, on which reliance was placed by Shri Parekh, itself makes a provision for the intimation of a refusal to be given to the transferee and the transferor within two months from the date of the instrument of transfer. In view of the said provision of intimation, penalty and the appeal, it cannot be said that the power of refusal given to the. company is an absolute one. The company can refuse to recognise a particular transfer only for legal and valid reasons. Otherwise, it can be compelled to register the transfer. Ordinarily, the company will have to register the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal given to the aggrieved person. This right is apart from the right of the transferee to get the shares registered in his or her name under sub-section (1)(b) of the present section 155 of the Act. This being the position in law, it is not possible to subscribe to the view that no rights accrue to the transferee against a company before it enters into a contract with him. If this is so, and if there is no fresh contract required to be entered into between the transferee and the company, then it will have to be held, as stated earlier, that when the transferee intimates a transfer to the company, the company merely either recognises such transfer or refuses to recognise it. When, however, it recognises -the transfer, it recognises the transfer deed as was executed on the date it was so executed and after such recognition, the transferee perfects his title as the legal holder thereof notwithstanding the fact that he is in enjoyment of all the rights as against the transferor as the beneficial owner thereof. If this is so, then further, all that the company is required to do on the date it accepts the transfer is to recognise the transfer deed and accept the transferee under such d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transferor for executing a fresh instrument of transfer in their favour, and if, after they accept a fresh transfer from the transferor (assuming that they succeed in tracing their transferor), at that stage and before a new entry is made on the basis of such transfer deed, again one of the transferees dies, they will have to resort to the same exercise over again. This may in a given case have to be repeated a number of times. It is for this reason that the theory of relation back in the case of transfer of shares will have to be accepted both as a matter of law as well as of practical commercial reality. The reliance placed by Shri Chagla on certain decisions to support his contention in that behalf appears to be justified. In AIR 1959 SC 775 and [1959] 29 Comp. Cas. 282 (SC) (Howrah Trading Co. Ltd. v. CIT), the court in para. 9 of its judgment, after approving a passage in Nanney v. Morgan [1888] 37 Ch D 346 (CA) at page 396, stated that in India, the completion of the transaction by having the name entered in the register of members relates it back to the time when the transfer was first made. In a decision of the Kerala High Court [1972] 42 Comp. Cas. 569, ( Travancore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry to enter into a detailed discussion of the said provisions. Suffice it to say that there is no inconsistency between the provisions of the said sections and the theory of relation back. As regards the attack on the resolution of the board of directors on April 21, 1980, on the ground that the said resolution was passed in spite of the fact that the board of directors had knowledge of the death of Shantaben, we fail to appreciate the argument advanced in that behalf. Either the entry made in the name of respondent No. 2 and Shantaben in the register on April 22, 1980, was bad in law, because on the date of the entry, one of the joint shareholders, viz., Shantaben, was dead or it was not. As pointed out earlier, whether the board of directors had knowledge of the death or not will be irrelevant if the proposition advanced by Shri Parekh is to be accepted, viz., that no transfer can be accepted by the company if the transferor or any of the transferees dies between the date of the execution of the transfer and the date of acceptance by the company. The fact of the knowledge of such death is, therefore, immaterial. We will, therefore, proceed on the footing, as indeed it will have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already, since the transfer accepted by the company relates back to the date of the deed of transfer, the fact that the board of directors had knowledge of the death of Shantaben is unimportant. We will proceed on the basis that they had the knowledge and that they had yet effected the said transfer. If we are right in holding that the transfer relates back to the date of the instrument, then, according to us, the company had no option but to effect in its books such entries as were consistent with the instrument of transfer and that is exactly what the company has done. We may in this connection also point out that all that was sought to be canvassed on the basis of this limb of the argument was that on the date the company passed the resolution, viz., on April 21, 1980, the company ought to have insisted upon an application from respondent No. 2 in her capacity as the joint holder of the shares and also in her capacity as the legal representative of Shantaben. It is not disputed that if such an application was made by respondent No. 2, the transfer in the name of respondent No. 2 would have been valid. However, it appears that the company instead of following the said procedure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it did the company had acted on the legal opinion obtained by it from its legal advisers. In any case, it can hardly be contended that the other entry made on April 22, 1980, or the present entry is without a sufficient cause. The last attack against the entry in respect of the said shares at Ex. F was that the company had accepted the transfer in respect of the said shares from the Union Bank of India in favour of respondent No. 2 and Shantaben, contrary to the provisions of the MRTP Act. In support of this contention, it was pointed out on behalf of respondent No. 1, that the company was registered under the MRTP Act on November 10, 1975, and it continued to be so registered till November 27, 1980, on which day the registration was cancelled. The transfers were admittedly accepted by the company on April 21, 1980, and inasmuch as there was no permission from the Central Govt. obtained for such transfers, the said transfers were illegal and hit by the provisions of sections 108A to 108H of the Act. As against this, Shri Chagla pointed out that the company had made an application for deregistration of the company under the MRTP Act as early as in February, 1978, because its capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt cause. We are, therefore, satisfied that even this attack against the said entry is not capable of being sustained. We may further like to point out that even if a court were to accept all the contentions advanced on behalf of respondent No. 1 with regard to the entry in respect of the shares at Ex. F, all that would have become necessary was to require respondent No. 2 to make a fresh application in her capacity both as a joint shareholder and also as the legal representative of Shantaben and get the shares registered in her name alone. But that is exactly what has been done now as is reflected by the entry dated June 13, 1980. We do not think that, in the circumstances, any court would accept such invitation under section 155 of the Act for indulging in a futile exercise of the kind. The provisions of the said section are certainly not meant for correcting such procedural or formal errors. We may mention here that the position that respondent No. 2 was the sole heir of Shantaben was sought to be disputed by filing an affidavit-in-rejoinder in the present interlocutory proceeding on behalf of respondent No. 1 and the contention which was for the first time taken in the said a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which a reasonable person or body of persons would act to make the entries in question, then the court will not exercise its powers under the said section. If this is so, then can it be said that in the present case, the entries made in respect of the said shares have been made by the appellant-company without any basis or to use the language of the section "without sufficient cause" ? According to us, the answer to the said question must be in the negative. We have pointed out on scrutinising the merits of the attack against the said entries, that the company had acted on credible and legitimately acceptable material and cannot be said to have acted either unreasonably or unjustifiably while making the said entries. To repeat, the entries at Exs. A and B were attacked only on two grounds, viz., that they were made during the period the company was closed and, secondly, they were made in contravention of the provisions of section 84 of the E. D. Act read with article 56 of the company's articles of association. We have shown that there is nothing in law to prevent the entries with regard to the transmission of shares being made during the period the company is closed under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the said shares in the said meeting and has been exercising all other rights in respect thereof since that date. The present petition was filed on June 10, 1981, There is, therefore, an unexplained and inordinate delay in questioning the said entries. Thirdly, it is not disputed that respondent No. 1, who is the petitioner in the present case, has itself filed a suit in the City Civil Court, Bombay, which is pending, viz., Suit No. 2145 of 1980. The said suit was filed in April, 1980, for an injunction restraining respondent No. 2 from getting the shares at Exs. A and B transferred in her name and restraining the company from transferring the same in her name. The grounds alleged against the said transfer are the same as are alleged for the rectification of the entries in the present petition. After filing the suit, respondent No. 1 took out a notice of motion for an interim injunction on the lines of the prayers in the suit. That motion was dismissed by the city civil court on April 21, 1980, and the appeal filed therefrom also came to be summarily rejected by this court as early as on May 28, 1980. After waiting for more than a year, respondent No. 1 filed the present petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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