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TMI Blog2016 (3) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... of evidence that the claimant sustains the character in respect of which he proposes to act under Article 39 or has the requisite title. In other words, all entitlements to shares other than by virtue of transfers in pursuance of Articles 21 to 38 are covered by Article 39 and must abide by it. Even if its case be covered under the transmission clause of Article 39, it can be registered as a member in respect of the shares only with consent of the Directors. The Directors are not under any obligation to give such consent. If the Directors refuse to give such consent, the first Respondent would be free to invoke the regulations which apply to transfer of shares. Accordingly, the CLB had to give an option to the Board of Directors of the Appellant to register the first Respondent as a member or in the alternative, to purchase the shares through any purchasing member or otherwise at a fair value to be determined by the auditors of the company within the meaning of Article 25. Accordingly, whilst the findings of CLB in the impugned order are not disturbed, the operative order passed by CLB is modified by substituting Clause 'C' of para 21 of the impugned order by the following c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Articles of Association of the Appellant company and contends that all voluntary transfers come within the pre-emption clause of the Articles. Learned Counsel submits that the subject transfer was in breach of these Articles and was, thus, rightly rejected by the Appellant company. 4. Articles 21 to 43 of the Articles of Association of the Appellant provide for transfer and transmission of shares. Article 22 restricts transfers of shares except after exhaustion of rights of pre-emption provided in Articles 23 to 38 which follow. Article 39 provides for a 'transmission clause', where a person becomes entitled to shares other than by transfer in accordance with the foregoing Articles. In case of a transmission, the Articles providing for rights of pre-emption do not apply. The controversy between the parties really involves the nature of the transaction as between JHPL and the first Respondent under the sanctioned scheme of amalgamation. Does it amount to 'transfer of shares' or is it equivalent to 'transmission of shares', within the meaning of the Articles of the Appellant. For if it is 'transfer', then alone the pre-emption clause would apply and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -law, daughter-in law, father, mother, brother, sister, nephew, niece, cousin, widow or widower of such deceased member (to whom such deceased member may have specifically bequeathed the same) and shares standing in the name of the trustees of the will of a deceased member may be transferred upon any change of trustees to the trustees for the time being of such Will and restrictions in Articles 22 to 28 hereof shall not apply to any transfer authorised by this Article. (38) The executors or administrators of a deceased member or the holder of a succession certificate of deceased member (such deceased member not being one of several jointholders) shall be the only person recognised by the Company as having interest in or title to the shares registered in the name of such member, and the Company shall not be bound to recognise such executors, administrators or holder of succession certificate unless such executors, administrators or holder of succession certificate shall have first obtained Probate or Letters of Administration or a Succession Certificate, as the case may be, from a duly constituted Court in India. The relevant Article providing for transmission is quoted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sum he fixes as a fair value. Upon such notice, the Board of Directors of the company is constituted as an agent of the proposing transferor for sale of the subject shares to any member of the company or person approved by the Board of Directors, who is willing to purchase the shares at the price or at the option of the purchasing member at a fair value to be determined by the auditors of the company in accordance with Article 25. That is the purport of Article 23. If the company is served with a transfer notice, as provided in Article 24, it has to find a purchasing member and give a notice thereof to the proposing transferor within the space of 28 days. In case of any difference between the proposing transferor and purchasing member as to the fair value of the shares, the auditor of the company is, on the application of either party, required to certify in writing the sum which may be termed as fair value. The proposing transferor is then to be bound to transfer the shares at this fair value. In case the proposing transferor makes a default in transferring the shares, the company has an option to receive the purchase money, in which case the proposing transferor is deemed to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be that any transfer of shares occasioned by a scheme of amalgamation sanctioned by the court is not a transfer of shares within the meaning of Article 21 to 38 but a case of under Article 39 of transmission of shares 'by any lawful means other than by transfer in accordance with' the earlier Articles. After all the 'transmission clause' contained in Article 39 does not necessarily apply to the case of an involuntary transfer which is by operation of law. It rather provides for a case where the entitlement of any person to the shares arises on account of any lawful means other than by transfer in accordance with the foregoing Articles. Such transmission merely requires production of evidence that the claimant sustains the character in respect of which he proposes to act under Article 39 or has the requisite title. In other words, all entitlements to shares other than by virtue of transfers in pursuance of Articles 21 to 38 are covered by Article 39 and must abide by it. 8. The CLB is, accordingly, perfectly justified in coming to the conclusion that the transfer of shares occasioned in the present case is under the transmission clause of Article 39 and not transf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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