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TMI Blog2001 (3) TMI 960X X X X Extracts X X X X X X X X Extracts X X X X ..... ertificate was issued completing the transfer. Later they applied to the defendant-company for transferring the share of Bheemappa Naik to their name and accordingly register in the company registers. Since respondents/defendants refused to do so relying on article 7 of their articles of association, they filed the present suit. 3. The suit was contested. The respondent/defendant contended that by clause 7 of the articles of association, there is a prohibition on transfer of shares from shareholders to non-shareholders. Since the plaintiffs were not shareholders of the defendant-company, the share of Bheemappa Naik cannot be transferred, therefore it prayed for dismissal of the suit. 4. The learned trial judge after trial decreed the suit. By relying on the decision of the Calcutta High Court in Mahadeo Lal Agarwala v. New Darjeeling Union Tea Co. Ltd. AIR 1952 Cal. 58, be held that restrictions in the articles of association regarding transfer of shares have no application to court auction sales and the company therefore was bound to transfer. Aggrieved by the said judgment and decree, the respondents/defendant appealed to the Civil Judge, Chitradurga. The learned a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tified in writing to all the members of the company and shall call for a tender for the same, giving a month s time. And on receipts of the tenders the board shall meet and decide and notify the name of the highest bidder who shall be the transferor of this said shares. And on completion of the formalities of such transfer the transfer will be entered in the books of the company. The transfer notices shall not be revocable except with the sanction of the directors. The directors may suspend the registration of transfers during the fourteen days immediately preceding the ordinary general meeting in each year. The directors may decline to recognise any instrument of transfer unless the same is accompanied by the certificate of the shares to which it relates, and such other evidence as the directors may reasonably require to show the right of the transferor to make the transfer. If the directors refuse to register the transfer of any shares, they shall, within two months from the date of which the transfer was lodged with the company, send to the transferee and the transferor a notice of the refusal." By a reading of article 7(1) extracted above, it is manifest that the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereof shall be made by a written order of the court prohibiting the creditor from receiving the debt or any interest thereon, and the debtor from making payment thereof to any person except the purchaser, or prohibiting the person in whose name the share may be standing from making any transfer of the share to any person except the purchaser, or receiving payment of any dividend or interest thereon, and the manager, secretary or other proper officer of the corporation from permitting any such transfer or making any such payment to any person except the purchaser. Rule 80. Transfer of negotiable instruments and shares. (1) Where the execution of a document or the endorsement of the party in whose name a negotiable instrument or a share in a corporation is standing is required to transfer such negotiable instrument or share, the judge or such officer as he may appoint in this behalf may execute such document or make such endorsement as may be necessary, and such execution or endorsement shall have the same effect as an execution or endorsement by the party. (2) Such execution or endorsement may be in the following form, namely: A.B. by C.D.; Judge of the court of (or as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt, the thing sold and transferred from the seller to the buyer is merely the property in the share plus a limited and not an absolute right to have the transfer registered." Shah J. held : "That an auction purchaser of a share purchases the property subject to the same limitation to which the original owner would sell privately. The intervention of the court and the compulsory character of sale cannot prejudice the rights of the company and cannot alter the position of the purchaser in any way on this point. There is nothing in the provisions of the Indian Companies Act and the Code of Civil Procedure to support the argument that the company is deprived of its usual powers and relieved of its corresponding obligations to deal with a transfer application when the transfer is sought in virtue of a court sale." 11. In Balwant Transport Co. Ltd. v. Y.H. Deshpande AIR 1956 Nag. 20, also a similar question had come up. The facts being the share of one of the shareholders of the appellant s/BTC Co. was sold in court auction in execution of a money decree and it was purchased by the respondent/Deshpande. Deshpande applied to the company for entering his name in the register ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quirement of its registration for purposes of Companies Act and that as between the transferor and the transferee, the transfer would be valid even though the transferee may not be able to have the shares transferred registered in his name......" (p. 387) On the nature of right passing in a court sale under order 21, rule 79, it was held that "...what passes to the purchaser of shares at a court sale is the beneficial interest in the shares sold, and that interest passes even though the company has discretion to recognised the purchaser as a shareholder or not....." (p. 387) but the court never held that the judgment-debtor s right gets enlarged in a court auction and the company is bound to transfer and register the name of the auction purchaser even though there is a restriction of transfer of share. The court recognised the power of the company in this regard. 15. In Mahadeo Lal Agarwala s case ( supra ) that was a case where one of the articles of association of a company, viz. , article 25 provided that "it is only where the transferor and transferee by a letter jointly signed addressed to the company to mutuate the name of transferee in the company s register, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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