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TMI Blog2004 (12) TMI 398X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 under section 10F of the Companies Act, 1956. Questioning the very same order, M/s. Sterling Holiday Resorts, first respondent therein filed C.M.A. No. 3223/2004. Since both the appeals arise against the very same order of the Company Law Board, the same are being disposed of by the following common order : Brief facts "For convenience, we shall refer the parties as arrayed before the Company Law Board. M/s. Gujarat Industrial Investment Corporation Limited/petitioner is a Government of Gujarat Undertaking, filed Company Petition No. 13/111A/SRB of 2003 under section 11A of the Companies Act, 1956 (hereinafter referred to as the Act ) against M/s. Sterling Holiday Resorts (India) Limited ( Company in short) and three others, namely, M/s. Dove Investments Private Limited, M/s. Maxworth Investments Private Ltd., and P.N. Mohan before the Company Law Board, Southern Region Bench, Chennai to register the transfer of 22,93,000 shares of the company pledged by respondents 2 to 4 in favour of the petitioner. It is seen that the Gujarat Industrial Investments Corporation Ltd., a wholly owned Government of Gujarat financial institution advanced a loan of Rs. 5 Crores in 1996 to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ister the transfer of shares until a proper instrument of transfer duly stamped and executed has been delivered to the Company. By virtue of the deed of pledge executed by the respondents 2 to 4, the petitioner could dispose of the pledged shares either by public auction or private contract and appropriate the sale proceed towards the dues of the Company. Therefore, the petitioner does not have the right to get the shares transferred in its name without a corresponding reduction in loan obligations. 3. The petitioner filed a rejoinder stating that the plea of non-compliance with the requirements of section 108(1C) has neither been raised before the Civil Court nor in the present proceedings. The Company has already given effect to the transfer of 2,99,800 shares. Further, the Company by letter dated 23-7-2001 admitted that it is in the process of transferring and converting the balance of 22,93,000 shares into marketable lots. Their only grievance in the Civil Suit is that the petitioner is attempting to transfer the pledged shares in its favour at a value far below the market value. The Company has, therefore, waived its rights to enforce the requirements of sub-section (1C) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies Act, 1956 are only directory and not mandatory in nature ? ( ii )Whether the Company Law Board was right in arriving a conclusion that the share transfer has to be registered by the appellant in spite of the fact that certain provision of law has not been duly complied with by M/s. Gujarat Industrial Investment Corporation Limited/petitioner before the Company Law Board ?" 7. On the other hand, Mr. P. Arvind Datar, learned Senior Counsel appearing for the Gujarat Industrial Investment Corporation/petitioner, would submit that section 108(1C) of the Act is directory and not mandatory. Even otherwise, according to him, in view of the conduct of the company and also of the fact that transfers would complete only if procedural formalities were complied with, the conclusion and ultimate direction of the Company Law Board cannot be faulted with. 8. We have carefully considered the claim of both parties with reference to the materials placed and the statutory provisions applicable to them. 9. Before considering the rival contentions, it would be useful to refer the relevant provisions of the Companies Act, 1956 applicable to the case on hand : "108. Transfer not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esentation. (1B)****** (1C)Nothing contained in sub-sections (1A) and (1B) shall apply to (A)any share ( i ) which is held by a company in any other body corporate in the name of a director or nominee in pursuance of sub-section (2), or as the case may be, sub-section (3) of section 49, or ( ii ) which is held by a corporation, owned or controlled by the Central Government or a State Government, in any other body corporate in the name of a director or nominee, or ( iii )in respect of which a declaration has been made to the public trustee under section 153B, if (1) the company or corporation, as the case may be, stamps or otherwise endorses, on the form of transfer in respect of such share, the date on which it decides that such share shall not be held in the name of the said director or nominee or, as the case may be, in the case of any share in respect of which any such declaration has been made to the public trustee, the public trustee stamps or otherwise endorses, on the form of transfer in respect of such share under his seal, the date on which the form is presented to him, and (2) the instrument of transfer in such form, duly completed in all respects, is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s had pledged their respective shares in the petitioner Corporation to the extent of 25,92,800 in favour of Gujarat Industrial Investment Corporation Limited. Since the Company had failed to repay the loan, the petitioner had exercised its powers under the pledged Agreement and Power of Attorney duly executed by the respondents and requested them to transfer those shares in its name. Since there is no response from the Company even after repeated registered notices and reminders, the petitioner had filed a petition under section 111A of the Companies Act before the Company Law Board. It is the claim of the Company that the provisions contained in section 108(1C) of the Act are mandatory, and without strict compliance of which, the petitioner cannot seek for the relief of the registration of the remaining 22,93,000 shares in favour of the petitioner though it had effected transfer of 2,99,800 shares. On the other hand, it is the claim of the petitioner that the provisions of sub-section (1C) of section 108 of the Act are only directory and not mandatory, and that moreover the requirement of which is waived by the Company by way of effecting the transfer of 2,99,800 shares out of 25, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company had registered the transfer of 2,99,800 shares at the first instance, it cannot be compelled to commit a wrong action. The following statement of law made in para 14 of the said decision has been pressed into services (para 14). "14. A party cannot claim that since something wrong has been done in another case, direction should be given for doing another wrong. It would not be setting a wrong right, but would be perpetuating another wrong. In such matters there is no discrimination involved. The concept of equal treatment on the logic of Article 14 of the Constitution of India, 1950 cannot be pressed into service in such cases. What the concept of equal treatment presupposes is existence of similar legal foothold. It does not countenance repetition of a wrong action to bring both wrongs on par. Even if hypothetically it is accepted that wrong has been committed on some other cases by introducing a concept of negative equality respondents cannot strengthen their case. They have to establish strength of their case on some other basis and not by claiming negative equality." On going through the factual details in that case and considering the fact that in the present case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 928 PC 273; M. Pentiah v. Muddala Veeramallapa AIR 1961 SC 1107; Bhavnagar University v. Palitana Sugar Mill (P.) Ltd. AIR 2003 SC 511; and Rohit Pulp Paper Mills Ltd. v. Collector of Central Excise AIR 1991 SC 754. 13. It is relevant to note the decision rendered in Wang v. IRC 1995 All ER 367. The following statement is relevant for our consideration : "Having reviewed the authorities cited by the taxpayer in this appeal, not all of which are referred to in this opinion, their Lordships consider that when a question like the present one arises an alleged failure to comply with a time provision it is simpler and better to avoid these two words mandatory and directory and to ask two questions. The first is whether the Legislature intended the person making the determination to comply with the time provision, whether a fixed time or a reasonable time. Secondly, if so, did the Legislature intend that a failure to comply with such a time provision would deprive the decision-maker of jurisdiction and render any decision which he purported to make null and void ?" 14. Mr. Aravind P. Datar has also relied on the following decisions to find out whether a pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccording to them, the question as to whether the statute is mandatory or directory depends upon the intent of the Legislature and not always upon the language in which the intent is couched. The meaning and intention of the Legislature would govern design and purpose the Act seeks to achieve. While considering the language used under section 41 and section 6 of the Land Acquisition Act, 1894 in para 26 Their Lordships have held : "26. The word shall , though prima facie gives impression of being of mandatory character, it requires to be considered in the light of the intention of the Legislature by carefully attending to the scope of the statute, its nature and design and the consequences that would flow from the construction thereof one way or the other. In that behalf, the Court is required to keep in view the impact on the profession, necessity of its compliance; whether the statute, if it is avoided, provides for any contingency for non-compliance; if the word shall is construed as having mandatory character, the mischief that would ensue by such construction; whether the public convenience would be subserved or public inconvenience or the general inconvenience that may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctory, the legislative intention has to be ascertained by Court having regard to the whole scope of the statute. They further held that where a statute does not consist merely of one enactment, but contains a number of different provisions regulating the manner in which something is to be done, it often happens that some of these provisions are to be treated as being directory only, while others are to be considered absolute and essential; that is to say, some of the provisions may be disregarded without rendering invalid the thing to be done, but others not. It was further held that the mandate of law of fresh trial is mandatory, whereas the mandate that newly added accused could be tried together with the accused is directory. 18. In P.T. Rajan v. T.P.M. Sahir [2003] 8 SCC 498, while considering certain provisions in the Representation of the People Act, 1951, the Supreme Court has held that even if a statute specifies a time for publication of the electoral roll, the same by itself could not have been held to be mandatory and such a provision would be directory in nature. The Supreme Court further held that where a statutory functionary is asked to perform a statutory du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not mandatory. Against the order of the Division Bench, the appellant preferred appeal to the Supreme Court. The Supreme Court considered sub-section (1) of section 108, particularly the provisos made therein, and held that the words shall not register are mandatory in character, since the negative form of the language is used therein. Their Lordships have also held that negative words are clearly prohibitory and are ordinarily used as a legislative device to make a statutory provision imperative. Ultimately, the Supreme Court has held that "the provisions contained in section 108 of the Act are directory because non-compliance with section 108 of the Act are, for the reasons indicated earlier, mandatory. The High Court erred in holding that the provisions are directory". Since the said decision of the Supreme Court is with reference to the very same provisions namely section 108 of the Act, we considered the entire judgment dated 25-11-1976. Except sub-section (1) of section 108, Their Lordships have not considered sub-sections (1A), (1B), (1C) and (1D), which were inserted in Companies (Amendment) Act, 1965, which came into force from 1-4-1966. In other words, though on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f transfer are neither stamped nor endorsed by the petitioner, as required under sub-section (1C), however, stamped by the prescribed authority contemplated under sub-section (1A). As rightly pointed out by the Company Law Board, we have to consider whether the delivery of the instruments of transfer beyond 2 months from the date so stamped as specified in sub-section (1C) is proper, for which the learned Senior Counsel for the petitioner heavily relied on a decision of the Karnataka High Court in Mukundlal Manchanda v. Prakash Roadlines Ltd. [1991] 72 Comp. Cas. 575. Though it is a judgment of the learned Single Judge of the Karnataka High Court, he had an occasion to consider the very same provisions and similar questions. The learned Judge considered the decision of the Supreme Court in Mannalal Khetan s case ( supra ) wherein the Supreme Court has held that the provisions in section 108 are mandatory. The learned Judge was also aware that the transactions in Mannalal Khetan s case ( supra ) were prior to the amendment made in the year 1965-66 and sub-sections (1A), (1B), (1C) and (1D) were introduced for the first time by the Companies (Amendment) Act, 1965 [Act 31/1965 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le and that it is improper to act upon it, the instrument of transfer has to be held as liable to be ignored. Nowhere the Companies Act declares that a duly executed instrument of transfer ceases to be effective or becomes void after the period referred to in sub-section (1A) of section 108. In fact, under certain circumstances, those instruments can be acted upon by moving the Central Government under sub-section (1D) of section 108. The reasonable mode of understanding the scheme of section 108 will be, not to render delivery of an instrument of transfer after the period specified in sub-section (1A) as invalid, but as vesting a discretion in the company either to recognise the transfer or not to recognise it depending upon the staleness of the instrument, and even in the latter case, the affected person may move the Central Government under sub-section (1D) by explaining the circumstances under which the delay occurred and the hardship that results by the non-recognition of the transfer. While understanding the scheme of section 108, the Court has to bear in mind that trivialities would not render an act futile and technical formalities required to be complied with for a valid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances while moving Central Government under sub-section (1) of section 108. In the light of the said provision, even though the discretion lies in the company either to recognise the transfer or not to recognise it depending upon the staleness of the instrument, as rightly observed by the learned Judge, the affected person can very well move the Central Government under sub-section (1D) by explaining the circumstances under which the delay occurred and the hardship that results by the non-recognition of the transfer. We also agree with the conclusion that in the light of the scheme of section 108, particularly after the insertion of sub-sections (1A), (1B), (1C) and (1D), the Courts have to bear in mind the trivialities would not render an act futile and technical formalities required to be complied with for a valid transaction cannot outweigh the importance to be given to the substance of the transaction. As said earlier, though the matter was taken up by way of appeal before the Division Bench of the Karnataka High Court, the Division Bench had not gone into the said aspect, namely, whether mandatory or directory, however, confirmed the judgment of the Single Judge on merits. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the shares. As rightly pointed out by Mr. Datar, the only objection raised by them is with regard to the consideration of the share transfer. On perusal of all the materials, we are satisfied that non-compliance of section 108(1C) has not been raised at any stage. Further, even if the objection with regard to non-compliance of section 108(1C) had been raised, it is the claim of the petitioner that it would not immediately approach the Central Government under section 108(1D) for extension of time. 24. The conduct of the company is also not appreciable. They borrowed a sum of Rs. 5 crores and repaid only Rs. 2.5 lakhs. It is the stand of the company that the loan would never have been given, but for the pledge of the shares. It is not dispute that the petitioner is a State Government Undertaking and the amounts advanced are public fund. As rightly pointed out by Mr. Arvind Datar, the Company has raised frivolous technical objection only to prevent the petitioner from realising its dues. 25. Learned Senior Counsel for the petitioner has raised an objection that the above appeals are not maintainable under section 10F of the Act. He also contended that the appeals lie only ..... X X X X Extracts X X X X X X X X Extracts X X X X
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