9911796707
TMI Blog2000 (7) TMI 913X X X X Extracts X X X X X X X X Extracts X X X X ..... imited company, sought a declaration that defendant No. 1, ceased to be member of the plaintiff-company in respect of 1,31,930 shares but continued to be a member only to the extent of 43,976 shares and consequent injunction from exercising any such rights of membership in respect of the said shares of the plaintiff-company. As per the plaint, the plaintiff had paid up share capital of Rs. 88,26,670. Defendant No. 1 is a private limited company. The shares of a company being movable property, there has been a concluded sale by defendant No. 1 to defendants Nos. 2 and 3 (who are father and son) on March 29, 1997, in respect of 1,31,930 shares, out of total shares of 1,75,906 held under a valid instrument of transfer and lodged with the plaintiff-company for transfer, but not entered in the register. Thus, defendant No. 1 ceased to be the member of the company to the extent of the sold shares except to the extent of being deemed holder. However, in spite of such sale, defendant No. 1 was doing acts which are detrimental to the interests of the company and earlier filed a false suit in O.S. No. 59 of 1998 on the file of the same court and managed to postpone the regular convening of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls. In these appeals, learned counsel appearing for the appellant contends that shares being movable property, there is a completed and concluded contract with the signing of the transfer documents. The formalities as required under the law, viz., registration of the transfer in the books of the company, etc., are only incidental and do not affect the transfer. Therefore, defendant No. 1 no longer can claim to be the holder to the extent of the shares which were already sold and it cannot act on the basis of any such shares to participate in the affairs of the company. Sri C. Kodandaram and Sri M.S. Ramachander Rao, counsel appearing for the defendants-respondents, contended that as per the provisions of the Companies Act and article 54 of the articles of association, unless the transfer is registered with the company, it cannot constitute a valid transfer and, therefore, it cannot be said that defendants Nos. 2 and 3 can act as transferees. Even otherwise, in the alternative, there being no dispute between defendants Nos. 1, 2 and 3, it does not matter whoever is allowed to act to the extent of the transferred shares. It was pointed out that there is absolutely no bona fide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in between themselves there is no dispute nor any clash of interest. The plaintiff having not registered the transfer, cannot take advantage of its own lapse and insist that there is a concluded contract of transfer. Further, by making payment of dividends and showing defendant No. 1 as holder of all shares, it does not lie in the mouth of the plaintiff to seek indulgence. For appreciation of the questions involved, it is relevant to note the provisions of the Companies Act. Section 82 of the Companies Act contemplates that the share or other interests of any member in a company, as a movable property, are transferable in the manner provided by the articles of the company. Under section 108, the format and procedure for registration of the shares and their transfer are detailed along with other restrictions. Section 113 prescribes the period for registration of allotment or transfer of shares by the company within a period of three months after the application for registration of the transfer is delivered and the said period may be extended further by the Company Law Board. Any default therein is made an offence punishable with fine. And it also provides a remedy by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transferor must comply with all reasonable directions that the transferee may give. In this situation, if he becomes a trustee of dividends he is also a trustee of the right to vote because the right to vote is a right to property annexed to the shares and as such the beneficiary has a right to control the exercise by the trustee of the right to vote. The relationship arises by reason of the circumstance that till the name of the transferee is brought on the register of shareholders in order to bring about a fair dealing between the transferor and the transferee, equity clothes the transferor with the status of a constructive trustee and this obliges him to transfer all the benefits of property rights annexed to the sold shares of the cestui que trust. That principle of equity cannot be extended to cases where the transferee has not taken active steps to get his name registered as a member on the register of the company with due diligence and in the meantime certain other privileges or opportunities arise for purchase of new shares in consequence of the ownership of the shares already acquired." R. Mathalone v. Bombay Life Assurance Co. Ltd. [1954] 24 Comp Cas 1 (SC); AIR 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er under the Companies Act or Transfer of Property Act, the shares are transferable like any other movable property. The only restriction on the transfer of the shares of a company is as laid down in its articles, if any". V.B. Rangaraj v. V.B. Gopalakrishnan [1992] 73 Comp Cas 201 (SC); AIR 1992 SC 453 (headnote of AIR) : "In the first place, there is the contract of sale followed by the execution of an instrument of transfer containing an agreement by the purchaser to accept the shares subject to the several conditions on which the vendor held the same immediately prior to the execution of the transfer that is to say, subject, amongst other things, to the conditions imposing restrictions on the vendor's right to transfer to that particular purchaser. Up to this point, all that has been done is to pass an equitable interest in the shares to the transferee. There has been no legal assignment completed ; indeed, the most crucial point in the transaction has not been reached the acceptance of the transfer by the board of directors and the passing of it for registration ; and even then the matter is not completed, because until the actual entry of the name of the transferee on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, balance of convenience and sufferance of any injury constitute the base. In Gujarat Bottling Co. Ltd. v. Coca Cola Co. [1995] 84 Comp. Cas. 618 , 652 (SC); [1995] 4 Scale 635, it is reiterated : "The object of the interlocutory injunction is to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial. The need for such protection has, however, to be weighed against the corresponding need of the defendant to be protected against injury resulting from his having been prevented from exercising his own legal rights for which he could not be adequately compensated. The court must weigh one need against another and determine where the balance of convenience lies." It is now well established that the plaintiff who approaches the court for the relief of injunction has to come with clean hands and show its bona fides before complaining. In Hyderabad Stock Exchange Ltd. v. Rangnath Rathi and Co., AIR 1958 AP 43 (DB), it was held (headnote) : "As the relief by way of a perpetual injunction is purely of equitable character, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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