9911796707
TMI Blog2010 (7) TMI 288X X X X Extracts X X X X X X X X Extracts X X X X ..... the respondents to cancel the registration of the transfer of shares belonging to respondent Nos. 2 to 10 in the names of the appellants, to declare the same as void ab initio and to rectify the registration of members by removing the names of the concerned respondents and restoring the names of the petitioners. Respondent Nos. 3 and 4 were impleaded only in their capacity as directors and they held no shares in respondent No. 1. 4. This appeal is a part of a group of 38 appeals which raise a common question of law. It is stated that the facts in all the appeals are similar. The appeal raises an important question of law as to the ambit of the second proviso to section 108(1) of Companies Act, 1956. The issue is whether an award under the Arbitration and Conciliation Act, 1996 directing the transfer of shares to a party falls within the ambit of the second proviso to section 108. I have held it does and that accordingly it was not necessary for the Board of Directors of the Company to require a transfer form to be executed by the parties before effecting the transfer in its Register of Members. Section 108 reads as under :- "108. Transfer not to be registered except on productio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the group but were managed by Harakchand N. Shah, i.e., (Respondent No. 2 herein). According to the appellants, the five brothers started managing the companies coming to them/their group and also dealt with the properties standing in the names of such companies exclusively and without any interference from the members of the other groups. 7. Certain disputes and differences arose between the five groups inter alia as to the accounts and the statement of assets and liabilities. They decided to refer the same to arbitration. A tribunal of three arbitrators was appointed by the five brothers on 20-6-2005. 8. The Arbitrators entered upon the reference and passed an interim award dated 2-7-2005, paragraphs 10 and 11 whereof read as under :- "10. As regards the question whether different Companies being run after 31-3-2003 by respective Parties were so run as Owners or Trustee, the Arbitrators were of an unanimous opinion that the respective Companies were allotted willingly to the Parties and have been run by them with the intention of Ownership and, hence, respective Parties are Owners of concerned Companies since 1-4-2003 and not Trustees. 11. Shares.-All the shares held by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant No. 1 by a letter dated 26-7-2006 furnished these particulars which indicated the shareholding prior to the impugned transfer as stated above. 13. Respondent Nos. 2 to 10, i.e., the petitioners averred in the petition that to their shock and surprise while taking a search of the documents of the first respondent Company for some other purposes on 25-6-2007, they found that the entire shareholding was transferred on 31-3-2006 in the names of respondent Nos. 5 to 8 i.e., Appellant Nos. 2, 3, 4 and 5. They stated that none of them had signed or executed transfer forms authorizing the company or its board of directors to so transfer the shares. The shares which are in physical form are in the possession of the respective petitioners who had not signed any transfer documents nor authorized any other person or party to do so. At the hearing, the learned counsel appearing on behalf of the respondent Nos. 2 to 10 challenged the transfer of the said shares on the ground that it was contrary to section 108 of the Companies Act, 1956 and Articles 15 and 16 of the Articles of Association of the Company which read as under:- "15. Notice of desire to be given.-Every Member or other pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and agree that as decided in the Hon'ble Apex Court, the shares have to be transferred only when applied as envisaged under section 108 of the Companies Act, 1956 or as envisaged by the arbitrators in their now resented order dated 2nd July, 2005 at clauses 10 & 11 which is referred in the earlier part of this order. The respondents have not submitted or proved that they followed the procedure prescribed by arbitrators at clauses 10 and 11 of arbitration award dated 2nd July 2005. If any share transfer is made by the Board of Directors of the Respondent Com-pany in violation of section 108 or in noncompliance of the procedure prescribed by the arbitrators then the said transfer is without authority and is void. Therefore, the Board of Directors are directed to reverse all the illegal and void transfers affected by them." 16. The Company Law Board has therefore, passed the order only on the basis of section 108 and Articles 15 and 16 of the Articles of Association of the Company. The arguments before me were also limited only to this extent. 17. The first question is whether the registration of the shares in the names of the appellants by the board of directors from the names ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave ascribed a different meaning to each of the terms and intended them to have a different ambit. 22. There is little doubt about the scope of the term 'transfer' as it is used in section 108 of the Companies Act. It certainly refers to a transfer between persons pursuant to a voluntary act. The term 'transmission' on the other hand, to my mind, is limited to involuntary acts such as in the case of inheritance. 23. The language of section 108(1) indicates that the term 'transfer' of shares applies to the voluntary act of both parties who are ad idem as to the agreement/transaction relating to the transfer. This is clear from the requirement of an instrument of transfer to be executed by or on behalf of the transferor and by or on behalf of the transferee. Presumably, a transferor or a transferee would execute an instrument of transfer only voluntarily. 24. On the other hand, the expression in the second proviso "transmitted by operation of law" indicates an act which is not necessarily based on or pursuant to the transferor and transferee being ad idem as to the agreement/transaction relating to the transfer. A transmission may well have the effect of transferring the share to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell refuse to register the transfer in accordance with the Articles of Association. The second proviso makes it clear that nothing in section 108 would prejudice any power of the company to register as shareholder; any person to whom the right of any share in the company has been transmitted by operation of law. It permits the company to register a transfer falling within its ambit even in the absence of an instrument of transfer required in the main section. The second proviso itself does not mandate the registration as shareholder any person to whom the right of any share in the Company has been transmitted by operation of law. In other words, the second proviso itself does not prejudice the power of the company to refuse to register as shareholder, any person to whom the right to any share in the Company has been transmitted by operation of law. 28. In the facts of the present case, it is not necessary for me to decide whether in such cases the Board of Directors has the right whether in exercise of the powers under the Articles of Association of the Company or otherwise to refuse to register the name of a person who has acquired the shares even by transmission by operation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other than by a transfer in accordance with these Articles, may with the consent of the Board (which it shall not be under any obligation to give) upon producing such evidence that sustains the character in respect of which it proposes to act under these Articles or of such title as the Board thinks sufficient, either be registered himself as the holder of the shares or elect to have same person nominated by him and approved by the Board registered as such holder, provided nevertheless that if such person shall elect to have his nominees as instrument of transfer in accordance with the provisions herein contained and until he does so he shall not be free from any liability in respect of the shares." 34. The entitlement to shares pursuant to an award made under the provisions of the Arbitration and Conciliation Act, 1996, is in consequence of lawful means other than by a transfer in accordance with the Articles of Association of the Company. Thus, the acquisition of the said shares by and pursuant to the award falls within the ambit of Article 23. The consent of the board having been accorded to the same, it cannot be said that the registration of the said shares by the board of d ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
