Judgment:
1. This is a petition filed under Section 113(1) of the Companies Act, 1956 (hereinafter called "the Act"), by the Hindusthan Development Corporation Limited (hereinafter called "the company") having its registered office at Mody Building, 27, Sir R.N. Mukherjee Road, Calcutta 700 001. The facts are that the company offered for subscription around December, 1991, to January, 1992, the following: (a) 61,25,174--14% Secured Redeemable Partly Convertible Debentures (Series IX) of Rs. 150 each for cash at par on right basis aggregating to Rs. 91.88 crores to the equity shareholders and the employees of the company ; (b) 1,38,86,500--Similar debentures of Rs. 150 each aggregating to Rs. 208.30 crores for cash at par to the resident Indian public and employees of the company by a public issue.
Part : A--(Convertible) Rs. 10 on application and Rs. 40 on allotment.
Part : B--(Convertible) Rs. 2.50 on application, Rs. 10 on allotment and Rs.37.50 at the time of first and final call.
Part : C--(Non-convertible) Rs. 25 on application and Rs. 25 on allotment.
3. The above issue was oversubscribed. Allotment was made in respect of the right issue on 14th March, 1992, and in respect of the public issue on April 21, 1992. The company despatched letters of allotment to the allottees of right issue and public issue on April 4, 1992, and May 22, 1992, respectively. Thereafter, the company has obtained the permission of the Company Law Board, Eastern Region Bench, under Section 113(1) of the Act for the extension of time to deliver the debenture certificates up to March 13, 1993, in respect of the right issue and April 20, 1993, in respect of the public issue.
4. The company now submits through the present petition that since the letter of allotment is itself transferable, a large number of such letters together with transfer deeds have been lodged for registration of transfer. According to the company, Section 113 of the Act requires that the debenture certificates have to be delivered to the transferees within 2 months from the date of application for registration of transfer which delivery may be considered to be applicable to letters of allotment as well. The board of directors of the company at a meeting held on September 14, 1992, decided for genuine reasons to apply to the Company Law Board, Eastern Region Bench, for extension of time to deliver the letters of allotment to the transferees after registration of transfer, for a further period of 9 months. The company states that if it is considered that section 113 of the Act, as amended, also applies to letters of allotment, then the section requires that such letters of allotment should be delivered within 2 months from the date of transfer. It further states that the proviso to Sub-section (1) provides that the Company Law Board on an application may extend the said period of 2 months to a further period of not exceeding 9 months. In the instant case, the letters of allotment were lodged for registration of transfer before September 5, 1992, and were required to be delivered within 2 months of the lodgment. However, due to genuine reasons the company will not be in a position to deliver the letters of allotment to the transferees within this 2 month period. The Board took into account all lodgments till September 5, 1992, and has made a single application praying for extension of time for delivering the letters of allotment up to a period of 9 months after the lapse of a period of 2 months from the date of lodgment.
5. Shri Rajiv Khaitan, advocate, appearing for the petitioner reiterated the contents of the petition and submitted that the provisions of Section 113(1) if applicable to letters of allotment, then the proviso permitting extension under Sub-section (1) also becomes applicable. He further stated that the company is facing genuine problems in as much as it cannot make an endorsement in favour of the transferees unless the payment of the instalments is verified from the bank's statement which is expected to take 4 months time.
6. After considering the petition in detail and after hearing the learned advocate, the following issues are framed : (b) If maintainable, whether the petitioner is entitled to the relief sought.
"Every company, unless prohibited by any provision of law or of any order of any court, tribunal or other authority, shall, within three months after the allotment of any of its shares, debentures or debenture stock, and within two months after the application for the registration of the transfer of any such shares, debentures or debenture stock, deliver, in accordance with the procedure laid down in Section 53, the certificates of all shares, debentures and certificates of debenture stocks allotted or transferred : Provided that the Company Law Board may, on an application being made to it in this behalf by the company, extend any of the periods within which the certificates of all debentures and debenture stocks allotted or transferred shall be delivered under this sub-section, to a further period not exceeding nine months, if it is satisfied that it is not possible for the company to deliver such certificates within the said periods." 7. Section 113(1) as it applies to debentures, casts an obligation on the company to deliver the debenture certificates : (a) in the case of allotment, within three months after the allotment ; and (b) in the case of transfer, within two months after the application for the registration of the transfer. The short and simple question at this stage is whether the above time limits apply only to debenture certificates or to letters of allotment as well.
8. It should be recognised at the outset that the above requirement is in the interest of the investors. The investor can deal with the securities only when he gets the certificate in his hand whether for selling/pledging or otherwise to deal with the same as he likes. The amendments made in 1988 plugs further loop-holes so that the interest of the investor is squarely protected. This has been explained so in the Notes on Clauses to the amendment. Thus it is obligatory for a company to deliver the certificates within three months of allotment.
This stipulation does not, however, apply to letters of allotment. A letter of allotment is not the same as a certificate. The Legislature appears to have consciously used the word "certificate" and not "letter of allotment" as the latter does not take three months to get issued. A certificate is statutorily recognised as a prima facie evidence. Though a letter of allotment is also transferable by endorsement and delivery, it has a shorter life span and is not recognised as estoppel against the company as a certificate is. The section specifically deals with "certificate" only and not "letter of allotment". According to recognised principles of construction "the ratio of the rule of interpretation that words of legal import occurring in a statute should be construed in their legal sense is that those words have in law acquired a definite and precise sense and that accordingly the Legislature must be taken to have intended that they should be understood in that sense. In interpreting an expression used in a legal sense, therefore, we have only to ascertain the precise connotation which it possesses in law." (State of Madras v. Cannon Dunkerly and Co.
(Madras) Ltd., AIR 1958 SC 560, 573; [1958] 9 STC 353, 377. This is in line with what Lord Macnaghten has observed: "In construing an Act of Parliament, it is a general rule that words must be taken in their legal sense unless the contrary intention appears." (Commissioner for Special Purposes of Income-tax v. John Fredrick Pemsel [1891-94] All ER Rep. 28 (HL), page 54). The company has also subscribed to this interpretation when they had already approached this Bench for extension of time for issue of the debenture certificates. Moreover, an interpretation that the term debenture certificate covers letters of allotment also will result in absurdity, for in such a case the very purpose of Section 113(1) will be defeated. "When on a construction of a statute two views are possible one which results in an anomaly and the other not, it is our duty to adopt the latter and not the former seeking consolation in the thought that the law bristles with anomalies." (N.T. Veluswami Thevar v. G. Raja Nainar, AIR 1959 SC 422, 427, 428). In view of the above, it is clear that Section 113 relates to certificates only and not to letters of allotment.
9. The rigour of Section 113(1) is, however, abated through a proviso by empowering the Company Law Board to grant extension for a period of nine months. It appears that this flexibility has been provided basically in view of certain practical difficulties in the issue of a debenture certificate since considerable time is unavoidably taken in appointing the trustees, creating charges on the assets, registering the charges and issuing the certificate carrying the particulars of the charge. These are the requirements of the guidelines for issue of debentures as promulgated by the Government of India. The question of applicability of this proviso to "letters of allotment" has also been examined in this connection. As already established the main provision under Section 113(1) does not relate to letters of allotment. As such the proviso also cannot be applicable to letters of allotment. We cannot give one interpretation to the substantive provision and a different interpretation to the proviso to the substantive provision.
The real nature of a proviso has been examined in many cases already.
"The proper function of a proviso is that it qualifies the generality of the main enactment by providing an exception and taking out as it were from the main enactment a portion which, but for the proviso would fall within the main enactment. Ordinarily it is foreign to the proper function of a proviso to read it as providing something by way of an addendum or dealing with a subject which is foreign to the main enactment." (CIT v. Indo Mercantile Bank Ltd. [1959] 36 ITR 1 ; AIR 1959 SC 713, 717) I am, therefore, convinced that the entire Section 113 applies to the certificates and not to letters of allotment. In view of the above, the petition is not maintainable under Section 113(1). Consequently, the company is not entitled to any relief under this section. I, therefore, dismiss this petition as not maintainable.
10. The miscellaneous application for enlargement of time in making the petition also stands disposed of.
11. I am conscious of the fact that the above interpretation may go against the objective of the section, viz., protection to investors.
However, since an alternative remedy of "appeal" against delay in registration of transfer is available under the Act, the investor is not totally deprived of any remedy.