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TMI Blog1991 (11) TMI 196X X X X Extracts X X X X X X X X Extracts X X X X ..... which it could not have refused under the articles as they stood at the time of transfer as the transfer was prior to the alteration. Facts relevant and requisite to dispose of the disputes can briefly be stated thus: The petitions from which the appeals arise are petitions under section 155 of the Companies Act, 1956 (for short "the Act"), for rectification of the share register; some of them filed at the instance of the transferors and some at the instance of the transferees, of the equity shares of Mathrubhumi Printing and Publishing Company Ltd. (for short, "the company"), a company registered as a public company limited by shares. The transferees lodged the share transfer applications with the company for registration of transfers of 455 shares. The transferees are public limited companies, wholly owned subsidiaries of M/s. Bennet Coleman and Company Ltd. which publish the Times of India group of publications. The transferee companies, before the expiry of the statutory period of two months contemplated under the Companies Act to register the transfer, filed the above company petitions for rectification of the share register mainly on the ground of unnecessary delay in enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions seeking to include grounds that the decision to hold the extraordinary general meeting and the decision to amend the articles of association by inclusion of article 17 were illegal and mala fide, and that the decision of the board in declining to recognise the transfer was illegal and that the directors acted with ulterior motive and contrary to the interest of the company. Regarding the objection on the cancellation of the stamps, the transferees contended that the cancellation of stamps was proper and that the other objections raised by the company are frivolous. The company petitions were heard jointly and, by a common judgment, the company court passed orders directing Mathrubhumi to register the transfer of 432 out of 455 shares dealt with in the four company petitions, subject to certain conditions in respect of certain shares. Registration was disallowed only in respect of 23 shares. It is the said common judgment that is under challenge in these appeals. The questions arising for consideration are: ( i )Was the company justified in refusing to register the transfer of shares on the grounds: ( a )that the instruments of transfer are not duly stamped; and ( b ) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in India. (12) Cancellation of adhesive stamps. - (1)( a ) Whoever affixes any adhesive stamp to any instrument chargeable with duty which has been executed by any person shall, when affixing such stamp, cancel the same so that it cannot be used again; and ( b ) Whoever executes any instrument on any paper bearing an adhesive stamp shall, at the time of execution, unless such stamp has been already cancelled in manner aforesaid, cancel the same so that it cannot be used again. (2) Any instrument bearing an adhesive stamp which has not been cancelled so that it cannot be used again, shall, so far as such stamp is concerned, be deemed to be unstamped. (3) The person required by sub-section (1) to cancel an adhesive stamp may cancel it by writing on or across the stamp his name or initials or the name or initials of his firm with the true date of his so writing, or in any other effectual manner". "63. Penalty for failure to cancel adhesive stamp. -Any person required by section 12 to cancel an adhesive stamp, and failing to cancel such stamp in manner prescribed by that section, shall be punishable with fine which may extend to one hundred rupees". Learned counsel fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as duly stamped and cannot treat the same as not duly stamped on the ground that the stamps were not cancelled at the time of execution. The time of cancellation is not a mandatory requirement under section 12 of the Stamp Act. What is mandatory is only the manner of cancellation of the stamps and if the stamps are cancelled in an effectual manner so that it cannot be used again, that will amount to substantial compliance with the requirements of section 12 of the Stamp Act. The time at which the cancellation takes place is totally irrelevant if at the time of lodgment or at the time when the board takes up the instruments for consideration the stamps were duly cancelled. In support of this argument he cited the following decisions: STO v. K.I. Abraham [1967] AIR 1967 SC 1823; Acraman v. Merniman (117 ER 1164); Royal Bank of Scotland v. Tottenham [1894] 2 LR 715 (QB); Ramen Chetty v. Mahomed Ghouse [1889] ILR 16 Cal 432; Motilal v. Jagmohundas 6 BLR 699 and Surij Mull v. Hudson [1900] ILR 24 Mad 259. Before we consider the scope of the above contentions it is relevant to refer to some of the admitted facts. Some instruments of transfer were stamped , a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age employed in sub-section (1) of section 12 is in the nature of a direction and, therefore, the person executing the instrument or affixing the stamp to an instrument already executed, as the case may be, shall cancel the stamp. Failure to comply with this direction results in the levy of penalty provided for under section 63. This, in short, is the scheme of these sections contained in Part B and Part C of the Stamp Act. This scheme makes it very clear that the stamps affixed to any instrument executed in India require to be cancelled at the time of the execution of the document following the procedure prescribed in clause ( b ) of sub-section (1) of section 12. The cumulative effect of sections 17 and 12(1)( a ) and ( b ) is that, unless the person executes an instrument on a paper bearing an adhesive stamp already cancelled in the manner prescribed under clause ( a ), he is bound to cancel the adhesive stamp which he is obliged to affix to the instrument at the time he executes the instrument in India. That this is how the adhesive stamps affixed to instruments executed in India shall be cancelled is made further clear by sections 18 and 19 read with section 12(1)( a ). It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to be achieved by the sections contained in Chapter IV of the Stamp Act. The caption given to this Chapter indicates that the sections included in this Chapter are intended to deal with instruments not duly stamped. The scheme of the sections contained in this Chapter reflects the clear and unambiguous intention of the Legislature that an instrument not duly stamped cannot be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon, registered or authenticated by any such person or by any public officer. These instruments, however, can be impounded by the persons mentioned in section 33. On the payment of the duty and penalty, if any, under section 35, section 40 or section 41, the person admitting such instrument in evidence, or the Collector, as the case may be, shall certify by endorsement thereon that the proper duty, or, as the case may be, the proper duty and penalty (stating the amount of each) have been levied in respect thereof and the name and residence of the person paying them (see sub-section (1) of section 42). Section 42(2) says that every instrument so endorsed shall thereupon be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve language, is having a negative impact. The provisions contained in section 12, therefore, can be said to be absolute, explicit and pre-emptory. A reference in this connection to the well-established principle of interpretation, namely, every statute limiting anything to be in one form, although it spoke in the affirmative, yet includes in itself a negative, is relevant. In other words, if an affirmative statute which is introductive of a new law, direct a thing to be done in a certain way, that thing shall not, even if there be no negative words, be done in any other way (see Craies on Statute Law, 17th edition, pages 264 and 265). We, on account of the above principle, are emboldened to declare that the provisions contained in section 12 are mandatory and, therefore, non-compliance with the requirements prescribed thereunder make the instrument not duly stamped and, therefore, shall not be received in evidence, registered or acted upon. None the less, the respondents could have availed of the benefit of subsection (2) of section 42 if the board of directors of the company can be treated as a person within the meaning of section 33 and hence empowered to rectify the irregu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce with the requirements is only an irregularity which can be corrected by giving the applicants for registration a chance to correct them. The learned judge lost sight of the principles enunciated in the decisions of this court and the Supreme Court aforementioned when the learned judge rendered the above decision and, therefore, the said decision is unsustainable. It has come out in evidence that in some cases the proper fee within the meaning of article 22 of Table A of Schedule I to the Act has not been paid. The non-compliance with the requirements prescribed by this article is fatal, it cannot be cured by offering to file the share certificate and a demand draft for the fee in the court. The court has no jurisdiction to accept the documents and the fee ( see P.V. Chandran's case ( supra )). The learned judge in that decision has observed thus: "It is only after the instrument of transfer along with the share certificate and the registration fee are delivered or left at the office of the company duly, does the occasion for the directors to consider the matter arise". This decision of the learned single judge has been confirmed in appeal by the Division Bench and ultimat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lenge the resolution at all because at the time the resolution was passed their names had not been entered on the register and as such for all practical purposes the transferors continue to be the shareholders. The allegation that the reasons shown in the resolution rejecting the applications for registration are perverse/unreasonable, in the circumstances, cannot be sustained. Learned counsel for the respondents refuted the above argument. According to him, the question pertaining to registration of the transfer requires to be considered with reference to the articles that existed at the time when the transfers were made, that is, in January and February, 1989, or at the date of the lodgment of the applications for registration. Dilating on this aspect he contended that the articles reflect a contract between the member and the company and as such a public document containing a representation to the public as to what the contract is, so that the members of the public, who want to deal with the company or its members in regard to various matters, can act upon the articles pertaining to those matters. From the point of view of the transferor his share is freely transferable withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in like manner to alteration by special resolution". "38. Effect of alteration in memorandum or articles.-Notwithstanding anything in the memorandum or articles of a company, no member of the company shall be bound by an alteration made in the memorandum or articles after the date on which he became a member, if and so far as the alteration requires him to take or subscribe for more shares than the number held by him at the date on which the alteration is made, or in any way increases his liability as at that date, to contribute to the share capital of, or otherwise to pay money to, the company: Provided that this section shall not apply ( a )in any case where the member agrees in writing either before or after a particular alteration is made, to be bound by the alteration; or ( b )in any case where the company is a club or the company is any other association and the alteration requires the member to pay recurring or periodical subscriptions or charges at a higher rate although he does not agree in writing to be bound by the alteration". Construing these provisions a Division Bench of the Madras High Court has opined thus : (see Swaminathan ( M.V. ) v. Chairma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice in writing expressing his desire to withdraw the shares, was held binding on the member because at the time of altering the article he continued to be a member of the society. We shall in this connection reproduce relevant parts of the ruling in Pepe's case ( supra ). "It has been settled by a series of authorities that a person in such a position is still a member of the society, and it follows that, under his contract with a society which has power to alter its rules, he remains subject to the rules when duly altered". The High Court of Australia, after reviewing the decisions in ( supra ) and Sidebottom ( supra ), have held in Peters 'American Delicacy Company Ltd. v. Heath 61 CLR 457 thus: "(1)Section 20 (corresponding to section 31 of the Act) empowers-a company to alter its articles only subject to the conditions contained in the memorandum of association. (2)An alteration in a particular case may constitute a breach of contract with a shareholder, but such a breach of contract does not invalidate the resolution to alter the articles (see Deri's case [1900] 1 Ch 656, 672). (3)The fact that an alteration prejudices or diminishes some of the rights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person could believe that it was for the benefit of the company, it should be held to be invalid". The Scottish decision relied on by counsel for the respondents for the following reasons, has no application here. (1) Even, according to the learned judges, there was no evidence that the alteration of the company articles in that case was required in the general interest of the company. A reference in this connection to the following excerpt from the judgment is profitable: "The alteration come into force at its own date, and, if so, section 50 is no authority for Mr. Sandeman's proposition. There is also this further element that the alteration was made, not so much because the directors deemed it to be an alteration required in the general interests of the company, but simply in order to meet the particular case of the petitioner's transfer". (2) There was no dispute as regards the valid lodgment of the application for registration. A reference in this connection to the following findings is profitable: "It is admitted that at the time when he presented the transfer for registration he was, according to the existing regulations of the company, entitled to have it registere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the articles of the company was valid. Sidebottom s case ( supra ) provides an example of an expropriation case. Here, the company, which carried on the business of cotton spinners, passed a special resolution introducing a clause in the articles whereby a person carrying on "any business which is in direct competition with the business of the company" could be required to sell out his shares to nominees of the directors upon payment of the fair value of the shares at a price to be certified by the auditors. The resolution was plainly against the plaintiffs, but the Court of Appeal held that it was in the interest of the company as a whole to be protected against competition, and upheld the resolution. To appreciate the above principle one should refer to the decision of Astbury J. in Brown v. British Abrasive Wheel Co. Ltd. [1919] 1 Ch 290 where the learned judge held that the alteration was not for the benefit of the company but for the benefit of the majority who got the resolution passed. This view the learned judge formed at a time when the true meaning of the test "that the alteration must be 'bona fide for the benefit of the company as whole' " was not yet ascertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad been delivered to the company along with the certificate relating to the. shares, it should be said that the alteration was effected with a view to defeat their rights to get their names entered on the register. This argument both in law and in fact, counsel for the company submits, is not sustainable because pending registration the transferees have only an equitable right to the shares transferred to them. There is no substance in this counter-argument, counsel for the transferees submits, because when once the transfer is completed and recognised by the company it relates back to the time when the transfer was first made. In support of this argument he pressed into service the following rulings including a ruling of this court. Killick Nixon Ltd. v. Dhanraj Mills ( P. ) Ltd. [1983] 54 Comp. Cas. 432 (Bom), Travancore Electro Chemical Industries Ltd. v. Alagappa Textiles ( Cochin ) Ltd. [1972] 42 Comp. Cas. 569 (Ker) and two decisions of the Supreme Court in Escorts Ltd s case ( supra ) and Vasudev Ramchandra Shelat s case ( supra ). The question, therefore, is: when would the transfer become effectual as between the company and the transferees ? The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that delay in the registration involves danger to the transferee if some already existing prior equity may come to light, as in the case in Ireland v. Hart [1902] 1 Ch 522, where a husband mortgaged shares of which he was trustee for his wife and, before the mortgagee had become the registered holder of the shares, the wife took proceedings claiming that her equitable title prevailed over that of the mortgagee, a claim which the court upheld; or a second transfer may be passed and registered and thus the first transfer may be defeated (see para 39.07 of Palmer, 23rd edition). The position has been illustrated by Palmer thus: "The rule on this point is that, as between two persons claiming title to shares in a company like this, which are registered in the name of a third party, priority of title ( i.e. , equitable title) prevails, unless the claimant second in point of time can show that as between himself and the company, before the company received notice of the claim of the first claimant, he, the second claimant, has acquired the full status of a shareholder; or at any rate that all formalities have been complied with, and that nothing more than some purely ministeria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as section 31 of the Act. The transferee, therefore, cannot have a better right than the transferor and, therefore, his right as a transferee until the transfer becomes effective as against the company will again be subject to the provisions in the articles of association and the relevant provisions of the Act. The alterations effected to the articles of association in exercise of the said power cannot, therefore, be challenged by the transferee on the ground of mala fide . The transferees in other words have no manner of right to challenge the resolution. Now, we shall consider the question as to whether the transferors have any right other than the one recognised under sections 397 and 398 read with section 399 to challenge the resolution amending the articles in a proceeding under section 155. As answer to this question it can be conceded that they have certain rights which can be called as "individual shareholder's right". Such individual shareholder's right pressed into service in this case by the transferors have been dealt with by the learned single judge in paragraphs 28, 29 and 30 of the judgment. They can be formulated thus: The questions that were considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oposed by Sri Kumaranunni was rejected after putting it to vote. The amendment proposed by Dr. Krishna Warrier was approved by the general body. The proposed clause ( b ) in article 17 was accordingly not approved. There was also some variation in the wording of clause ( a ) by which the board was given absolute discretion to decline to register the transfer without assigning any reasons. This was an amendment which was duly moved in the extraordinary general meeting in which the petitioners also participated. They cannot now be heard to say that the resolution as passed was different from the resolution as proposed in the original notice, even though the power given to the board to decline to register transfer without assigning any reasons in its absolute discretion was not envisaged in the original proposal". On seeing the evidence dealt with by the learned single judge we are of the view that there is little scope to interfere with the said finding. We accordingly concur with the said findings. Learned counsel for the transferors, Mr. Pathrose Mathai, has then submitted that even if the amendment of the articles is held to be valid, article 17 in so far as it confers absolut ..... X X X X Extracts X X X X X X X X Extracts X X X X
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