1. Appeals under Section 111 of the Companies Act, 1956 (hereinafter referred to as "the Act"), were filed by Messrs. Jagatjit Industries Ltd. (hereinafter referred to as "JIL"), Messrs. Galaxy Pet Packaging P. Ltd. (hereinafter referred to as "GPPL"), Messrs. Quick Return Investment Co. Ltd. (hereinafter referred to as "QRICL"), and an application under Section 247/248 and Section 250 of the Act was filed by JIL, relating to refusal to transfer registration of shares of Messrs. Mohan Meakin Ltd. (hereinafter referred to as "MML"). Since the points of law arising in these matters are common, with the consent of the parties, all these matters were heard together and are being disposed of by this order. Originally, these matters were heard by the Full Bench of the Company Law Board (coram Shri S. P. Upasani, Chairman, Shri Y. A. Rao, Member, and Shri A. M. Chakraborti, Member).
However, due to indisposition of Shri A. M. Chakraborti, these matters were heard, after December 3, 1990, by the double Member Bench (coram Shri S. P. Upasani, Chairman and Shri Y. A. Rao, Member) with the consent of the parties.
2. The position set out in the pleadings of the parties, in brief, is as under : This is an appeal dated November 12, 1990, under Section 111(3) of the Act filed by JIL against refusal to transfer 87,320 shares of MML. The impugned shares were lodged with MML between March 2, 1990 and September 17, 1990, requesting MML to return the share certificates duly transferred at the address of JIL. MML, vide its letters dated April 28, 1990, July 14, 1990 and August 29, 1990, informed JIL to send a copy of the board's resolution authorising purchase of shares. It was also stated in the letter dated August 29, 1990, that "in case we do not hear from you within 15 days from the receipt of this letter, we shall have no alternative, but to send back the shares untransferred to you". It is alleged by JIL that the letters dated April 28, 1990, and July 14, 1990, were never received; JIL, vide letter dated September 3, 1990, forwarded a certified copy of its board's resolution dated December 4, 1989, to purchase 15,000 equity shares of MML. The board's resolution of JIL dated December 4, 1989, reads as under : "Resolved that the company may purchase up to 15,000 equity shares of Rs. 5 each of Mohan Meakin Ltd., at the prevalent market rates and Mr. B. K. Talwar, senior vice president and secretary, be and is hereby authorised to negotiate the deal, sign the transfer deeds, any other documents, and to do all other acts, deeds and things as may be required in this connection." On September 11, 1990, MML informed JIL, about the receipt of 16,400 shares (8,100, 3,300 and 5,000 shares, respectively, vide letters dated March 30, 1990, May 10, 1990, and August 4, 1990), and stated that the board's resolution dated December 4, 1989, authorised purchase of 15,000 shares only and the purchase of 16,400 shares is beyond the limit laid down in the resolution. JIL, vide letter dated September 17, 1990, forwarded another copy of the board's resolution dated March 22, 1990, for purchase up to 1.50 lakhs more shares of MML; the board's resolution reads as under : "Resolved that the company may purchase up to 1,50,000 more equity shares of Rs. 5 each of Mohan Meakin Ltd., at the prevalent market rates, and Mr. B.K. Talwar, senior vice president and secretary be and is hereby authorised to negotiate the deals, sign the transfer deeds and any other documents and to do all other acts, deeds and things as may be required for getting these shares transferred in the name of the company." Thereafter, JIL received letter dated October 17, 1990 (posted on October 27, 1990), from MML enclosing copies of 459 letters of the same date, addressed to all the transferors of the impugned shares.
The said letter dated October 17, 1990, is extracted below : "This is to advise you that pursuant to letters dated September 3, 1990, and September 17, 1990, addressed by Messrs. Jagatjit Industries Ltd., to this company, enclosing copies of resolutions alleged to have been passed by the board of directors of Messrs.
Jagatjit Industries Ltd., on December 4, 1989, and March 22, 1990, authorising delegates to make investment, the share transfer deeds and share certificates listed in the annexure hereto together with the resolution aforesaid were placed before the board of directors of Mohan Meakin Ltd., to consider and if thought fit to approve the registration of the transfer of the shares. After consideration, the board declined to register the transfer on the following grounds: (i) The investment on behalf of Jagajit Industries Ltd., forming the subject-matter of the transfers sought to be registered, has not been authorised by the board of directors of the transferee-company as required under Section 292 of the Companies Act, 1956.
(ii) The transfer deeds are not stamped in accordance with law in as much as they have been signed unstamped by the transferor and have been subsequently stamped by the transferee, and the adhesive stamps have been subsequently cancelled.
(iii) The transfer deeds in respect of the shares are not in accordance with Section 108 of the Companies Act, 1956, in as much as they do not specify the occupation of the transferee.
(iv) The transfer deeds with respect to shares specified in this behalf in the annexure, have not been signed by a witness.
(v) The transfer deeds with respect to shares specified in this behalf in the annexure, do not carry the name of the witness.
(vi) The transfer deeds with respect to the shares specified in this behalf in the annexure, have been lodged beyond the period of validity.
The board further resolved that the share certificates sent to the company be returned to the legal owners of the shares as entered in the register of members of the company, under advice to Jagatjit Industries Ltd. The share certificates listed in the annexure hereto are accordingly being returned to you as the legal owner(s) of the shares entered in the register of members of the company and Jagatjit Industries Ltd., being advised thereof by sending it a copy of this letter." On receipt of the aforesaid communication, a letter dated November 1, 1990, was sent by the solicitors of JIL informing MML that the board of directors of JIL had passed a resolution dated September 24, 1990, ratifying the transactions of purchase of 87,320 shares of the value of Rs. 16,29,561. The solicitors of JIL contested the right of MML to send back the share certificates to the transferors, who had sold and delivered the said shares for valuable consideration and have no legal right to the said share certificates. The solicitors, called upon MML to recall the shares from the transferors and return the same to JIL, duly transferred and also to pay dividend on the impugned shares to JIL and not to post any dividend warrant to the transferors, as also not to register transfer of the said shares in favour of any third party except JIL. The aforesaid appeal was accompanied by an application under Section 637B(a) of the Act seeking condonation of delay in making the appeal in respect of 11,400 shares lodged on March 2, 1990, March 14, 1990, March 30, 1990, May 10, 1990, and May 24, 1990 (in respect of 7,000, 200, 900, 700 and 2,600 shares lodged respectively), the appeal in respect of the remaining shares is within time. It is stated that MML had been holding out a promise to the appellant that the shares lodged would be registered on receipt of the necessary board's resolution. This was so even up to August 29, 1990, when for the first time, MML asked the appellant to furnish the board's resolution under Section 292 of the Act, had the appellant the slightest inkling that the respondent was going to refuse the registration, the appellant would have forthwith filed the appeal before this Board. It is further stated that MML in fact, instructed its share registrars to register 7,200 shares, presumably, being the first two lots of lodgment made with MML. As evidence, a photocopy of the relevant page of the list of shareholders bearing the appellant's Folio No. 2168 in the register of members of MML, was filed. From this, it is noticed that 39,224 shares stood registered in the name of the appellant in Folio No. 2168, while, as a matter of fact, before the lodgement of shares for registration on March 2, 1990, only 32,024 shares were held by JIL in the respondent-company. It is further stated that it would appear from the photo-copies of the endorsements made on the back of share certificates Nos. 27879 and 27880 that, as an afterthought, MML had cancelled the endorsements, to put the clock back. In the reply affidavit, dated December 27, 1990, MML confirmed the dates of lodgment of the share transfer deeds, and the correspondence exchanged. It is contended that the resolution dated December 4, 1989, and March 22, 1990, passed by the board of directors of JIL are bad in law and legitimately it should not register the shares, as the same do not comply with the mandatory requirements of sections 108 and 292 of the Act. In regard to the action of MML in returning the share certificates to the registered shareholders, it was stated that the legal ownership in such shares continued with the transferors until such transfer is registered by the company, and that the company is under no obligation to recall the said 87,320 equity shares from the respective transferors. The resolution passed by the board of directors of MML refusing transfer of impugned shares was not filed, along with the reply affidavit. The same was, however, filed when asked for at the time of hearing on January 9, 1991. Although no reply has been filed by MML on the application made under Section 637B of the Act by JIL, it is stated in the reply affidavit that JIL is responsible for laches and has unnecessarily put the blame on MML.
In the rejoinder affidavit filed by JIL, it is stated that MML has violated the provisions of Section 111(2) of the Act and Section 22A of the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as "the Securities Act"). JIL also filed a copy of its board's resolution dated November 3, 1990, authorising the filing of the present proceedings.
This is an application dated November 12, 1990, under Section 247/248 and Section 250 of the Act by JIL, relying on the facts in its appeal under Section 111 of the Act in Case No. 23 of 1990-CLB, stating that MML, instead of returning the instruments of transfer along with the share certificates lodged with it for registration, returned them to the transferors. This might encourage these transferors, to sell their shares to their nominees or benamidars.
It is further stated that there are good reasons for investigating into the ownership of the shares and the membership of the company for purposes of determining the true persons who are or have been financially interested in the success or failure of the company, and that unless the restrictions as contemplated under Section 250(2) are imposed, it would be impossible to find out the relevant facts concerning these shares and JIL will also suffer irreparable loss and injury.
In the reply affidavit filed by MML, while reiterating the submissions made in the reply affidavit in Case No. 23 of 1990-CLB, it has been further stated that there is absolutely no information unknown or wanting that needs to be investigated by the Company Law Board ; that JIL is well aware of the shareholding of MML and the names of the transferors of the shares in question. It is further stated that the application made by JIL amounts to gross abuse of the process of this Board. In the rejoinder affidavit filed by JIL, it is stated that since MML is denying the title of JIL, who is a bona fide purchaser, the application is maintainable.
This is an appeal dated November 30, 1990, under Section 111(3) of the Act made by GPPL, who lodged the instruments of transfer in respect of 5,000 shares of Rs. 5 each of MML, consisting of 50 share certificates, on August 21, 1990 (received by MML on 24 August, 1990). On August 30, 1990, GPPL made available a certified copy of its board's resolution dated June 29, 1990, authorising Shri A.K. Srivastava, to sign share transfer deeds for purchase of 5,000 to 10,000 shares of MML at market rates. As per letter dated August 25, 1990, of MML, GPPL was informed that the power of attorney of the officials of the authorised signatory of GPPL, who had signed as transferees, is not registered with MML and that MML do not have their specimen signatures. This was replied to by GPPL on September 7, 1990, again forwarding a copy of their board's resolution and the memorandum and articles of association. After some correspondence, MML, vide letter dated October 17, 1990, posted on October 26, 1990, addressed letters to the concerned transferors, under endorsement to GPPL, informing that the board of MML had declined to register the impugned transfer of shares on the following grounds : (i) The investment has not been authorised by the board of directors of the transferee company as required under Section 292 of the Act.
(ii) The transfer deeds are not stamped in accordance with law in as much as they have been signed unstamped by the transferor and have been subsequently stamped by the transferee, and the adhesive stamps have been subsequently cancelled.
(iii) The transfer deeds in respect of the shares are not in accordance with Section 108 of the Companies Act, 1956, in as much as they do not specify the occupation of the transferee.
By the said letter, the share certificates were returned to the transferors by stating that they are the legal owners of the shares as entered in the register of members of the company. A copy of the letter has also been endorsed to GPPL. It is further alleged that from the endorsement made on the back of the share certificates bearing Nos. 41953 and 13605, forming part of the appeal, it is evident that MML had, in fact, registered the shares in the name of GPPL and cancelled the same as an afterthought. The solicitors of GPPL, vide letter dated November 1, 1990, called upon MML to recall the shares from the transferors, also stating, inter alia, that its action in rejecting the transfer of shares in favour of GPPL was wholly arbitrary and mala fide. MML was also called upon to pay dividend on these shares to their clients and not to post any dividend warrants to the transferors. It is further stated that the investment in the impugned shares (5,000 equity shares of MML of the value of Rs. 1,10,000) by GPPL was validly authorised by its board of directors under Section 292. It is further stated that the transfer deeds are duly stamped in accordance with Section 108 of the Act, and that all the objections raised are capable of being rectified and MML should have given an opportunity to remove the objections. The articles of association of MML do not empower it to refuse registration of transfers except in case the shares are not fully paid up or in the case of lien on the shares. In regard to the alleged ground of rejection that the occupation of the transferee was not mentioned in the instrument of transfer, it is stated that against the said column, the word "company" has been mentioned.
In the reply affidavit filed by MML, the sequence of events indicated in the appeal has been admitted, except the allegations made therein. It is stated that the board of directors of MML, at its meeting held on September 26, 1990, took the decision to decline registration of transfer of shares, for the reasons stated in the letters addressed to the transferors and it was further resolved that the share certificates be returned to the registered holders thereof, whose names appeared in the register of members, under advice to GPPL. It is further stated that the transfer is contrary to the mandatory provisions of Section 108 of the Act and the purported resolution of the board of directors of GPPL is not in accordance with law. MML has, accordingly, sought for dismissal of the appeal. A copy of the resolution of the board of directors, stated to have been passed on September 26, 1990, was not filed by MML.
This is an appeal dated January 1, 1991, under Section 111(3) of the Act filed by QRICL, an existing shareholder of MML holding 42,900 shares stating that 111 share certificates comprising 9,500 equity shares of Rs. 5 each, along with the instruments of transfer, were sent to MML on September 6, 1990, along with a certified copy of the board's resolution, dated June 2, 1990, authorising purchase of the aforesaid shares. QRICL received a communication from MML, vide, its telegram/letter dated September 11, 1990, stating that MML had received the registered parcel No. 804, dated September 6, 1990, in torn and mutilated condition, along with only 900 shares and transfer deeds. In reply, vide its letter dated October 1, 1990, QRICL sent spare transfer deeds with photocopies of all transfer deeds and share scrips, requesting for transfer, followed by another letter dated October 8, 1990, recording the visit of their representative on October 5, 1990, when MML did not co-operate and also did not show the documents received by them in torn and mutilated condition. As per letter dated October 17, 1990, MML asked for a copy of the board's resolution authorising purchase of shares by QRICL, which was duly sent on November 3, 1990. The relevant board's resolution of QRICL dated June 2, 1990, authorises purchase of 10,000 to 15,000 shares at prevailing market rates. In the board's resolution dated September 6, 1990, the purchase of 9,500 shares of the value of Rs. 2,11,649 was approved and ratified. QRICL also submitted an affidavit and indemnity bond and made a request for issue of duplicate share certificates in respect of 8,600 shares lost in transit. However, MML refused transfer of these shares and communication to this effect was also sent by MML to the transferors returning the share certificates to them under intimation to QRICL.
3. In the reply affidavit dated February 25, 1991, MML stated that open delivery of the parcel was taken in the presence of the Sub-Post Master, Solan Brewery. Shri Radhakrishan of QRICL visited its registered office on October 5, 1990, and he was accorded liberty to inspect the envelope. In the meeting held on December 8, 1990, the board of directors of MML refused transfer of 900 shares on the ground that the same was not in accordance with the provisions of Section 292/372 of the Act and that the transfer deeds are not duly stamped as they had been signed unstamped by the transferors. MML has also stated that they had informed the procedure and formalities to be adopted by the QRICL in regard to 8,600 shares lost in transit. With respect to these 8,600 shares, in para 12 of the reply, it is also stated that the request for transfer of these shares suffered from the same defect of want of valid resolution.
4. In the rejoinder affidavit filed by QRICL, the allegations made have been denied and it is further stated that MML has failed to make a reference under Section 22A of the Securities Act and that it cannot urge any new ground for non-transfer of shares, which were not conveyed to QRICL, while rejecting the transfer.
5. Notice was issued to MML on November 14, 1990, in respect of Cases Nos. 23 of 1990-CLB and 24 of 1990-CLB and the matter came up for hearing on November 23, 1990. Shri P.P. Malhotra, senior advocate, appearing on behalf of JIL, submitted that in view of the very peculiar nature of the case, as the company had sent the share certificates to the transferors informing them that they are the real owners, a situation has arisen that there is likelihood of further re-transfers by the transferors, who are not the owners of these shares. He, therefore, pressed for an interim order for declaring that all further transfers in respect of the impugned shares shall be void ; for prohibiting further transfers ; and also for an order against the company not to pay dividend in respect of these shares. Shri H.N.Handa, Secretary, appearing on behalf of MML, submitted that MML has not received any fresh lodgment in respect of the impugned shares from any party and that the company has not posted dividend warrant to any of the transferors and also that the company has not done a single mutation in respect of the impugned shares.
6. After hearing the parties, we passed interim orders that any transfer in respect of the impugned shares lodged by JIL shall be void till the hearing of the main application, as the possibility of third party rights being created by some of the transferors, who are in possession of shares, as apprehended by Shri Malhotra, could not be ruled out.
7. Applications dated December 19, 1990, were filed by MML in Cases Nos. 23 and 24 of 1990-CLB, for production of the office copy of the original notices sent to the directors of JIL for the board meetings at which investments in the shares of MML were alleged to have been authorised or ratified, for production of minutes books pertaining to the minutes of the meetings of the board of directors of JIL at which such investments were alleged to have been authorised or ratified and for production of photocopies of the relevant notices and minutes of the meetings aforesaid for being delivered to MML. Parties filed affidavit and counter-affidavit in respect of this application. By an order dated January 9, 1991 (coram Shri Y. A. Rao, Member and Shri A.M. Chakraborti, Member) we observed that a resolution under Section 292 of the Act is necessary for a body corporate while purchasing shares of a company as in the absence of such a resolution authorising some one to execute a transfer on behalf of the company and to make investments in the shares of the company, no execution of transfer can be made. The investee company can proceed on the basis that this being a matter of internal requirement, the transferee company must have complied with the provisions of Section 292 of the Act. However, the board of directors of the investee company, while considering the registrability of the transfer can certainly ask for a copy of such a resolution. Once asked to do so, the transferee company cannot refuse to deliver a copy of the resolution to the company. We also observed that as per the mandatory requirements of Section 372(2)(5) of the Act, there has to be a specific resolution of the board of directors. It has been admitted in the affidavit filed by JIL that such a resolution has been passed.
Since copies of the minutes of the resolution passed by the board of directors of JIL duly authenticated under the Act are already on record, we further observed that the statutory presumption contained in Section 195 of the Act must be allowed to hold the ground especially, in the absence of even an iota of evidence to the contrary. In the result, the applications dated December 19, 1990, were dismissed.
8. As directed by us at the hearing held on December 13, 1990, notices were also sent to the concerned 354 shareholders--transferors on December 10, 1990, asking them to file replies to the appeal dated November 12, 1990, in Case No. 23 of 1990-CLB and inviting them for a hearing. Replies were received from 24 transferors. It was, inter alia, stated in the replies that the impugned shares were sold by them ; that they have received the consideration and that they have no objection if the impugned shares are transferred in the name of JIL. Out of 24, 8 transferors informed that they have already returned the share certificates to JIL and one transferor informed that the share certificate has been returned to MML. Shri V.P. Singh, advocate, appearing on behalf of Shri Girish Mohan Dutt, one of the transferors, wanted time to file a reply and as requested by him, this board directed Shri Dutt to file the affidavit by January 28, 1991, giving particulars of the sale of 3,800 fully paid up shares to JIL. The affidavit dated February 25, 1991, was filed by Shri Dutt on February 26, 1991, stating that on or about September 25, 1989, December 11, 1989, and February 2, 1990, he signed blank transfer deeds for sale of 3,000, 300 and 500 shares and delivered them to his brokers at New Delhi, together with the share certificates in question. He also stated that the said shares have been sold in due course and he received full consideration money (less broker's commission) but was not aware of the brokerage and the payment received with reference to the various lots of the said shares. Shri V.P. Singh, advocate, contended at the hearing on January 21, 1991 that the sale of impugned shares by his client was void ab initio in view of the reasons given for refusal by MML while returning the share scrips to him. This contention was objected to by Shri Malhotra, stating that Shri Dutt had sold the shares to Messrs.
Diwan Chand and Co., who in turn, sold them to Shri S.D. Kapoor and the latter further sold the shares to the share broker, Messrs. Bharat Bhushan and Co. The submission of Shri Malhotra was that no objection has been raised by Shri Dutt in his affidavit as to the registration of the transfer of shares transferred by him. Nobody turned up on behalf of Shri Dutt at the hearing on February 26, 1991, February 27, 1991, and March 8, 1991. Shri Dutt took no steps to contest the matter after filing his affidavit on February 26, 1991.
9. Before taking up the substantive issues involved in these appeals, the Board considered the application under Section 637B(a) of the Act seeking condonation of delay in making the appeal in respect of 11,400 shares lodged by JIL. An appeal under Section 111 of the Act is required to be preferred against the refusal to register transfer of shares within two months of the receipt of the notice of refusal by the appellant. All the appeals herein have been filed during the stipulated period, except in respect of 11,400 shares lodged on different dates in Case No. 23 of 1990-CLB. JIL has filed the application under Section 637B of the Act seeking condonation of delay on the grounds stated therein. No objection has been raised by MML on the prayer made for condonation of delay. We feel that serious prejudice will be caused to JIL if the said delay is not condoned. It appears that JIL had been pursuing the matter with MML for seeking registration of the impugned shares. We, accordingly, condone the delay.
10. On the basis of the allegations, affidavits and counter-affidavits, filed by all the parties in these four cases, the facts regarding authority, date of authority to purchase shares and various resolutions passed and lodged with the MML date-wise are as follows : On the basis of the reasons indicated in the board's resolution and the letters written by MML to transferors/transferees, the reasons for refusal to register transfer of shares and the number of shareholders involved are summarised below : (i) The investment on behalf of JIL has not been authorised by the board of directors of the transferee-company as required under section 292 of the Act.
(ii) The transfer deeds are not stamped in accordance with law inasmuch as they have been signed unstamped by the transferor and have been subsequently stamped by the transferee, and the adhesive stamps have been subsequently cancelled.
(iii) The transfer deeds are not in accordance with section 108 of the Act inasmuch as they do not specify the occupation of the transferee.In addition to (i), (ii) and (iii) above.
In addition to (i), (ii) and (iii) and (iv) above,(v) The transfer deeds have not been signed by a witness.
In addition to (i), (ii), (iii), (iv) and (v) above,(vi) The transfer deeds have been lodged beyond the period of validity.
(i) The investment on behalf of JIL has not been authorised by the board of directors of the transferee-company as required under section 292 of the Act.
(ii) The transfer deeds are not stamped in accordance with law inasmuch as they have been signed unstamped by the transferor and have been subsequently stamped by the transferee, and the adhesive stamps have been subsequently can* celled.
(iii) The transfer deeds are not in accordance with section 108 of the Act inasmuch as they do notspecify the occupation of the transferee.
(i) The investment on behalf of JIL has not been authorised by the board of directors of the transferee-company as required under sections 292 and 372 of the Act.
(ii) The transfer deeds are not stamped in accordance with law inasmuch as they have been signed unstamped by the transferor and have been subsequently stamped by the transferee, and the adhesive stamps have been subsequently cancelled, (relating to 900 shares).
11. Arguments were advanced on behalf of the appellants and respondents on different dates and final hearing was held on March 8, 1991. On behalf of the appellants while detailed arguments were made by Shri P.P. Malhotra, senior advocate, appearing on behalf of JIL, Shri S.R.Aggarwal, advocate appearing on behalf of GPPL and QRICL supported the arguments made by Shri Malhotra. It was pointed out on behalf of the appellants that out of the three transferees, JIL and QRICL are existing shareholders in MML and MML is a listed company on the Calcutta and Delhi Stock Exchanges. Shri Malhotra referred to articles 28 and 29 of the articles of association of MML and pointed out that the articles do not permit the company to refuse transfer of fully paid up shares. He further argued that in terms of provisions of Section 22A of the Securities Act, the shares of listed companies are freely transferable and the company cannot refuse registration of transfer of securities on any ground other than those specified therein. He vehemently condemned the modus operandi adopted by MML in returning the share certificates to the transferors and for retaining the instruments of transfer by MML, although as per usual practice followed by all the companies, the instruments of transfer and relative share certificates are returned either to the transferor or transferee whoever has lodged the same. According to him this action, on the part of MML, has created innumerable further difficulties in getting the shares transferred in the name of the company and his clients are finding it difficult to recover the share certificates from the various transferors and this has, therefore, affected the valuable rights as consideration has already been paid to the transferors. He further pointed out that his clients had brought this to the notice of the Delhi and Calcutta Stock Exchanges and the Calcutta Stock Exchange had suspended further trading in these shares of MML. On behalf of the respondents, MML, Shri V.N.Koura, advocate submitted that in terms of the provisions of sections 108, 292 and 372 of the Act, the board of directors of the company had come to the conclusion that the transfer of the impugned shares is not valid and, therefore, the company had returned the share certificates to the legal owners of shares, whose names appear as on that date in the register of members.
Issue No. 1 : Whether the board of directors of MML have formed, in good faith, their opinion as to whether registration of impugned shares ought to be refused on the grounds mentioned in their communication addressed to the transferors/transferee-companies Issue No. 2 : Whether MML has rightfully returned the share certificates to the transferors and retained the instruments of transfer Issue No. 3 : Whether the MML was required to make a reference to the Company Law Board under Section 22A(4)(c) of the Securities Act for the alleged contravention of sections 292 and 372 of the Act 13. Regarding issue No. 1, the board of directors of MML rejected the request for transfer of impugned shares, on the grounds that the investment was not authorised as per provisions of Section 292 and Section 372, transfer deeds were not stamped in accordance with law, transfer deeds do not specify the occupation of the transferee, or bear the name of the witness. Registration of 200 shares in favour of JIL was also rejected on the ground that transfer deeds were lodged beyond the period of validity. Similarly, the registration of 2,200 shares in favour of JIL was rejected on the ground that the transfer deeds were not signed by the witness. These objections of MML were accepted by Shri Malhotra, counsel appearing on behalf of JIL. In view of this, we hold that the rejection of registration of transfer of these 2,400 shares by MML was as per legal requirement of Section 108 of the Act.
14. Regarding the remaining shares, Shri Malhotra submitted that it is an admitted position that MML has no power to refuse transfer of shares in respect of fully paid-up shares as per the articles of association.
He further stated that the company cannot refuse transfer even in respect of fully paid-up shares except on the grounds specified in Sub-section (1) of Section 108 of the Act, or under Section 22A(3)(a) of the Securities Act, as these provisions are of mandatory nature.
Referring to the ground of non-compliance with the provisions of sections 292 and 372 of the Act, Shri Malhotra submitted that the transferee companies have passed the necessary board resolutions in the meeting of the board of directors expressly specifying the number of shares to be purchased at the prevalent market rates and the delegate has been identified authorising him to sign the share transfer deeds.
He submitted that Section 292(l)(d) read with Sub-section (3) thereof provides that the board resolution delegating the power shall specify the total amount up to which the funds may be invested and the nature of investments that may be made by the delegate. Both these stipulations have been complied with. He also submitted that although the board resolutions were duly passed before the purchases were actually made, even the board resolutions ratifying share purchase transactions subsequent to the date of purchase are valid in law, as Section 292 does not require prior approval of the board. In this context, he cited the judgment of the Calcutta High Court in Mathura Prasad Saraf v. Company Law Board [1979] 49 Comp Cas 371 and the Supreme Court judgment in Life Insurance Corporation of India v.Escorts Ltd. [1986] 59 Comp Cas 548 ; AIR 1986 SC 1370 and Parikh Engineering and Body Building Co. Ltd., In re [1975] 45 Comp Cas 157 (Patna). He also placed reliance on the case, Parmeshwari Prasad Gupta v. Vnion of India [1974] 44 Comp Cas 1, wherein the Supreme Court held that it was open to a regularly constituted meeting of the board to ratify that action which though unauthorised, was done on behalf of the company. Ratification would always relate back to the date of the act ratified.
15. On behalf of MML, Shri Koura submitted that the board's resolutions passed by the transferee-companies do not specify the total amount up to which the shares in MML could be purchased and in the absence of such mention in the board's resolutions it does not amount to a valid delegation and the investment made is without any authority of law.
Shri Koura further submitted that in view of this non-compliance with the mandatory provisions of the Act, the impugned transfers are void ab initio and the question of ratification in the case of a void contract does not arise. He relied on the cases in Bengal Coal Co. Ltd. v. Union of India, AIR 1971 Cal 219, K. Panduranga v. State of Mysore, AIR 1965 Mys 244, Rajkumari Soni (Smt.) v. State of H.P., AIR 1972 HP 1 and Mulamchand v. State of M.P., AIR 1968 SC 1218.
16. In regard to the objection of non-compliance with the provisions of Section 372(5) of the Act, by QRICL, it was submitted on behalf of the appellant that the said provisions have been duly complied with. Shri Koura pointed out that no evidence has been given by the company about the compliance with this provision.
17. By an interim order dated January 9, 1991, we had already observed that MML should have proceeded on the basis that compliance with the provisions of sections 292 and 372 of the Act, being a matter of internal management, the transferee-companies must have complied with these provisions of law specifically when there is no evidence available with MML to the contrary. We are of the view that the resolutions passed by the board of directors of the transferee-companies for making certain investments are prima facie in compliance with the provisions of Sections 292 and 372 of the Act. We, therefore, hold that the rejection of registration of transfer of shares by MML on this ground was not according to the provisions of law.
18. Regarding the ground that the transfer deeds were not stamped in accordance with the law, it was stated on behalf of MML that the share transfer forms were not stamped in accordance with the law in as much as they were stamped subsequent to the execution by the transferor and, therefore, the instruments were invalid. According to Shri Koura, the provisions regarding stamping of the instrument mentioned in Section 108 of the Act are mandatory. He further submitted that Section 2(12) of the Indian Stamp Act (hereinafter referred to as "Stamp Act") defines the expressions "executed" and "execution" to mean "sign" and "signature". It makes all documents which are chargeable with duty when executed, chargeable as soon as they are signed by the executant.
Section 29 of the Stamp Act further provides that, in the absence of an agreement to the contrary, the expense of providing proper stamps shall be borne by the person executing the instrument. He referred to the case of Nuddea Tea Co. Ltd. v. Ashok Kumar Saha [1987] Tax LR 1603 ; [1988] 64 Comp Cas 775, in which it was held that the provisions contained in Section 108 of the Act are mandatory in nature. It was held that an adhesive stamp must be cancelled at the time of affixation of the stamp and also the execution of the instrument, and such cancellation cannot be made subsequent to the execution of the instrument. He also relied on the judgment of the Supreme Court in the case of Mannalal Khetan v. Kedar Nath Khetan [1977] 47 Comp Cas 185, in which also it was held that the provisions of Section 108 are mandatory. He also relied on the Bombay High Court judgment in the case of Mrs. Rohini Chandrakant Vijayakar v. A.I. Fernandes, AIR 1956 Bom 421, in which, it was held that stamping should be done some time before the document is executed or that a stamped paper must be placed before the executant who must execute it or just before he executes it he must stamp it and execute the document.
19. On behalf of JIL, QRICL and GPPL, Shri Malhotra, submitted that blank transfers are recognised by the Companies Act and in the cases before this board, the transferors had signed the share transfer forms in blank and the entries were made thereafter by the transferee/their brokers. In this connection, he referred to the case of Howrah Trading Co. Ltd. v. CIT [1959] 29 Comp Cas 282 ; AIR 1959 SC 775, wherein it was held that the transfer of shares of a company takes place either by a fully executed document such as is contemplated by regulation 18 of Table A of the Indian Companies Act, 1913, or by what are known as "blank transfers". In such blank transfers, the name of the transferor is entered and the transfer deed signed by the transferor is handed over with the share scrip to the transferee, who if he so chooses, completes the transfer by entering his name and then applying to the company to register his name in place of the previous holder of the shares. He submitted that in Surji Mull v. Hudson [1900] ILR 24 Mad 259, where a note was signed first, the stamp having been affixed and cancelled after signature, the acts being practically simultaneous, it was held that the note was stamped at the time of execution. He also referred to commentary on page 599 of the book titled The Indian Stamp Act by K. Krishnamurthy (sixth edition 1990) in which the author has stated that "An instrument of transfer of shares executed by the registered holder, but in blank as to the date and name of the transferee an inchoate instrument and is not liable to duty (page 234 of the Indian Stamp Act by Mulla and Pratt, fourth edition). The completion of the transfer by the date and the name of the transferee being filled in by the purchaser makes the instrument a proper instrument of transfer and the practice of the stock exchange is that the transferee is liable to bear the stamp duty and registration charges". His submission was that it is not necessary that these share transfer deeds be stamped at the time of signing by the transferor as the document is stamped and finally executed only when it is signed by the transferee. He also stated that there is no allegation that stamps of adequate value had not been affixed.
20. We have carefully considered the arguments advanced by both counsel. However, we are unable to accept the contention of the respondent-company that the instrument has to be stamped at the time of signing by the transferor, for the reason that the instrument of transfer signed in blank by the transferor will be deemed to be executed only when signed by the ultimate transferee, and at this stage, the adhesive stamps have to be affixed before the same are lodged with the company for transfer. Accordingly, the objection of the respondent-company for refusing registration of transfer of shares on the ground that transfer deeds were not stamped in accordance with the law is not valid.
21. Referring to the ground for rejection, viz., that the transfer deeds do not specify the occupation of the transferee (which is common in all transfer deeds covered by Cases Nos. 23 of 1990-CLB and 26 of 1990-CLB), it was stated by MML that absence of information regarding the occupation of the transferee in the transfer deed, violates the provisions of Section 108 of the Act. Shri Malhotra, submitted that against the column "occupation" of the transferee, the word "company" has been stated along with the existing folio number of the transferee, viz. JIL. It was further pointed out that MML is well aware of the "occupation" of the transferee, being an existing shareholder. He also submitted that the "occupation" of a company is a known fact and the defect pointed out by the MML is not of a material nature and, therefore, registration of shares on this ground should not have been refused.
22. We have carefully considered the arguments advanced by both counsel. In the case of a company, its "occupation" is a matter of public knowledge as, when the memorandum and articles of association of a company are registered, they become public documents and are open to inspection by any member of the public. In so far as the provisions of the Act are concerned, Sub-section (1) of Section 108 requires the giving of the name, address and occupation, if any, of the transferee, which means that the occupation of a transferee is to be given only when it is applicable. There are similar provisions contained in the Act like Section 150 and Section 303. A combined reading of these provisions suggests that it is not necessary on the part of the company-shareholder to state its "occupation" ; however, information about "occupation" is necessary in case the shareholder is an individual. In the present case, since JIL is an existing shareholder of the company and against the column "occupation", they have stated "company" and also given their folio number, we are of the view that it is substantial compliance with the law and, therefore, rejection of transfer of shares on this ground cannot be sustained. In view of this, refusal of transfer of 80,420 shares in favour of JIL cannot be sustained and MML ought to have registered all these shares.
23. In respect of the remaining 4,500 shares, MML has raised an additional objection that the registration of transfer cannot be allowed because the transfer deeds do not bear the name of the witness.
Referring to this ground, Shri Malhotra submitted that although the concerned transfer deeds have been signed legibly by the witnesses, the name of the witness has not been stated. In this connection, he relied upon the following "guidelines" : Good or bad delivery of documents issued by the Ministry of Finance, Department of Economic Affairs, Stock Exchange Division (vide No. F.1/ 10/SE/83, dated July 21, 1983) : "27. Transferor's signature witnessed bya person but his full name not given.
24. Since the signature of the witness on the impugned transfer deeds is legible, though the name of the witness is not mentioned, the same has to be considered good delivery in accordance with the guidelines issued by the Ministry of Finance and, therefore, the company was wrong in rejecting the registration of transfer of 4,500 shares lodged by JIL.
25. A mention may be made about the loss in transit of 8,600 shares lodged by QRICL. While, according to the transferee, the shares were duly lodged, according to MML, the concerned envelope was received by them in a torn condition and the relevant transfer deeds and share scrips were missing. In the reply affidavit, MML has stated that the instruments of transfer of 8,600 shares also suffered from the same defect of non-compliance with the provisions of sections 292 and 372 of the Act. In view of our finding that the transferee-company has duly complied with the provisions of sections 292 and 372 of the Act and as QRICL have complied with the necessary formalities in regard to registration of 8,600 shares, lost in transit, as desired by MML, vide letter dated December 12, 1990, in terms of the first proviso to Sub-section (1) of Section 108 of the Act, the company should register the transfer of such shares. The transferee-company has already made available photo copies of the transfer deeds and share scrips in question and made a request for duplicate share certificates. There cannot be any objection for MML to register transfer of these impugned shares.
26. In view of the above, except for rejection to transfer of 2,400 shares, all the other rejections by MML for transfer of shares lodged by JIL, GPPL and QRICL, are held to be not in accordance with the provisions of law and, therefore, cannot be sustained.
27. A peculiar feature which has come to our notice in the present appeals is that MML has returned the share certificates to the transferors and has retained the instruments of transfer with themselves. A very serious objection has been taken, about the modus operandi adopted by the company, by learned counsel appearing on behalf of the transferee-appellants. The stand taken by the company is that it was bound to return the share scrips to the legal owners, i.e., the transferors, whose names appear in the register of members of the company. It is an admitted position in law that the transferor loses his right in the shares as soon as he executes the transfer in blank.
It is an established practice in the corporate sector that the share scrips are returned to the transferor or the transferee, who lodged the instrument of transfer. In Circular No. F/37/SE.79, dated December 29, 1970, issued by the Ministry of Finance, Department of Economic Affairs, regarding delay in registering transfers, it is stated that in the interest of investors, documents should be returned without delay.
The relevant extracts of the said circular are reproduced below : "2. As is well known, the investing public invest in shares because of liquidity and ready marketability. The ease and facility with which savings can be invested in shares and the rapidity with which shares can be converted into cash are of utmost importance from the point of view of investors. The listing regulations specifically prescribe a maximum period of one month for return of documents by listed companies. In the interest of investors, documents should be returned to them much earlier, as, for instance, is the case in the USA and the UK where it does not take more than a few days.
3. It is equally undesirable that, when documents are found to be defective or not in order on presentation to the company, they should not be returned forthwith to the parties concerned. The delay of weeks and at times of months which frequently occurs makes it difficult to rectify the documents in time and creates avoidable difficulties in the collection of dividends as well as right and bonus shares. The right of recourse of the contracting parties is prejudiced thereby and delayed receipt of valid documents is detrimental to the interests of bona fide investors.
4. Recognised stock exchanges owe a duty to the investing public and they are advised to ensure that listed companies duly comply with the listing requirements. Government, therefore, directs that recognised stock exchanges should specifically draw the attention of listed companies to the following mandatory requirements ; (b) that documents should be scrutinised by listed companies promptly on presentation, and if found to be defective or not in order, they should be returned forthwith to the parties concerned, and in any case, expeditiously within a week with a memo clearly stating the nature of the defect or objection." 28. It is clear from the above circular that the share certificates have to be returned to the parties concerned, which can only be the transferees in the present appeals before us. MML has neither complied with the letter nor the spirit behind the above circular and has chosen to return the share scrips to the transferors, apparently, with a view to harass the appellant-transferees. The action taken by MML is against all the canons of law, justice, equity and fair play, and is not in accordance with sound business principles or prudent commercial practice. We understand that all the companies return the share certificates to the persons concerned, whosoever lodge the same. The practice adopted by the company is neither in the interest of the shareholders nor the investing public, and such unhealthy practice cannot be allowed.
29. We have also noted that the MML has also written to JIL on August 29, 1990, stating that "in case we do not hear from you within 15 days from the receipt of this letter, we shall have no alternative, but to send back the shares un-transferred to you". In view of this, we are inclined to believe and agree with learned counsel of JIL that MML has returned these share certificates to the transferors only with a view to harass the company and delay registration of transfer of shares.
30. One of the important issues arising out of the appeals is whether the respondent-company, whose securities are listed in the recognised stock exchange, was right in not making a reference to the Company Law Board, as required under Section 22A(4)(c) of the Securities Act on the ground that reasons given in the resolutions passed by the board of directors of MML and in the letters sent to the transferors/transferees, rejecting the registration of transfer of shares are covered under Clause (a) of Sub-section (3) of Section 22A of the Securities Act. In this context, it is necessary to examine the difference in the grounds covered under Clause (a) and Clause (b) of Sub-section (3) of Section 22A of the Securities Act. According to Clause (a) of Sub-section (3), the registration of a transfer may be refused on the ground (i) that the instrument of transfer is not proper ; or (ii) that the instrument has not been duly stamped, or (iii) that it is not duly executed ; or (iv) that the share certificate relating to the transfer has not been delivered along with the instrument ; or (v) that any other requirement under the law relating to the registration of transfer has not been complied with. It will be clear that the Clause enables a company to refuse the registration of transfer whenever the requirements relating to registration of transfer under Section 108 of the Act or rules and regulations made thereunder or registration requirements under listing agreements are not complied with. The words "relating to" are not words which are synonymous with "relevant" and "material" nor do they have the legal significance of such latter words (National Labour Relations Board v. Goodyear Tyre and Rubber Co., DC, Ohio, 36F, Supp. 413, 415). In contrast, Clause (b) of Sub-section (3) allows refusal to register a transfer on the ground that the transfer is in contravention of any law. This provision enables a company to refuse registration of transfer whenever the transfer involves a contravention of the provision of various statutes, such as, the Monopolies and Restrictive Trade Practices Act, the Foreign Exchange Regulation Act, the Companies Act and the rules and regulations made thereunder imposing restrictions on transfer of securities. It would also be noted that the procedure in dealing with refusal under Clause (a) and Clause (b) is different in as much as if the grounds fall under Clause (b), a reference is required to be made to the Company Law Board before conveying the refusal while no such reference is required for refusal under Clause (a). It can be concluded that under Clause (a), the reference is not required to be made to the Company Law Board as violations are relating to registration of transfer, majority of which are capable of being rectified as prescribed under various related statutes. Considering the language used in Section 108(1) of the Act and Section 22A of the Securities Act, non-compliance with "requirements under the law relating to the registration of transfer" in Clause (a) and "transfer in contravention of any law" in Clause (b), we are of the view that the scope of the grounds to be included in Clause (a) is narrower than Clause (b) as it relates only to requirements of registration. Looking at the various grounds stated in the resolutions passed by the board of directors of MML and in the communications addressed by MML to the transferors/transferees rejecting the registration of transfer of shares, we have no hesitation to conclude that the reasons given in respect of violation of the provisions of Section 292/ 372 of the Act cannot be covered under Clause (a) of Sub-section (3) of Section 22A, as it does not relate to the procedure/law relating to registration of transfers and if the company wanted to use this as a ground for rejection, the company ought to have made a reference to the Company Law Board under Clause (c) of Sub-section (4) of Section 22A of the Securities Act.
31. Now, it only remains to consider issue No. 4, whether the applicants are entitled to any relief for the deliberate action on the part of the company to create complications in returning the shares to the transferors and not to the companies who have lodged the shares.
The modus operandi adopted by the MML in returning the shares to the transferors and retaining the transfer deeds with the company is unique as we have never come across any such case in respect of appeals under Section 111 of the Act or in respect of cases under Section 22A of the Securities Act, such an action is against the existing commercial practice as well as guidelines issued by the Ministry of Finance relating to registration of share transfers. This has created a number of legal complications for registration of shares in the name of rightful owners and has resulted in numerous possibilities of creating third party rights. Such action is totally against the objective and spirit behind the public policy of free transferability of shares. We have taken note of this action of MML and, therefore, in terms of the provisions of Section 111(6) of the Act, we award 11,500 (rupees eleven thousand five hundred only) as costs against MML to be paid to JIL, GPPL and QRICL.
32. In the result, we accordingly, pass this order, in the following terms: (a) In pursuance of the provisions of Sub-section (5) of Section 111 of the Companies Act, 1956, by virtue of the powers conferred on the Company Law Board, by Notification No. 443(E), dated October 18, 1972, Mohan Meakin Ltd. is hereby directed to register the impugned 84,920 shares, being the subject-matter of Appeal No. 23 of 1990-CLB in favour of Jagatjit Industries Ltd. (other than 2,400 shares, which have not been signed by witnesses and have been lodged beyond the period of validity and the instruments of transfer and share scrips be returned by MML to JIL) ; 5,000 shares in favour of Galaxy Pet Packaging P. Ltd., being the subject-matter of Case No. 26 of 1990-CLB ; and 9,500 shares in favour of Quick Return Investment Co.
Ltd. being the subject-matter of Case No. 1 of 1991-CLB and give effect to this decision within 10 days of the receipt of this order ; (b) the relative share certificates be forthwith retrieved by MML from the transferors or in the absence thereof, duplicate share certificates be issued to give effect to this order, including certificates in respect of 8,600 shares in favour of M/s. Quick Return Investment Co. Ltd. ; (c) Mohan Meakin Ltd. shall issue a public notice in at least two newspapers, within five days of the receipt of this order, cancelling the share certificates wrongly sent to the transferors and for issuing duplicate share certificates to the extent necessary ; (d) the interim order passed on November 23, 1990, in the application under Section 247/250 of the Companies Act, 1956 (in Case No. 24 of 1990-CLB) that any transfer by any of the transferors in respect of the impugned shares lodged by Jagatjit Industries Ltd. shall be void till the hearing of the main application will stand vacated, after the impugned shares are registered by Mohan Meakin Ltd. The said application under Section 247/250 of the Act is disposed of accordingly ; and (e) in the facts and circumstances of this case, Mohan Meakin Ltd. shall pay costs of these proceeding assessed at Rs. 10,000, Rs. 500 and Rs. 1,000 payable to Jagatjit Industries Ltd., Galaxy Pet Packaging P. Ltd. and Quick Return Investment Co. Ltd. respectively within 10 days from the date of receipt of this order.