Sri M.S. Kumanan and Sri M.S. Vs. S.S.M. Processing Mills Ltd., Sri - Court Judgment

Excerpt:
1. the petitioners alongwith consenting members collectively holding 47.885% of the issued capital of m/s s.s.m processing mills ltd., ("the company") and aggrieved mainly on account of certain alleged acts of oppression and mismanagement in the affairs of the company, namely, illegal (a) transfer of 11,34,000 equity shares belonging to the petitioners and their group to the respondents; (b) removal of the petitioners from the office of director of the company; (c) appointment of the fourth respondent as additional director, have invoked in the present company petition as amended in terms of c.a. no. 9 of 2006, the provisions of sections 235, 237, 397, 398, 402 & 403 of the companies act, 1956 ("the act") seeking the following among reliefs: (i) to declare that the board meeting held on 06.09.2002 and all resolutions passed therein are illegal, null and void; (ii) to declare that the annual general meeting hold on 28.09.2002 and all resolutions passed therein are illegal, null and void; (iii) to nullify and declare invalid the transfer of 11,34,000 shares belonging to the petitioners group in favour of the respondents and direct the re-transfer of those shares to the petitioners group; (iv) to declare that the petitioners continue to be directors of the company; (v) to remove the respondents 2 to 4 from the office director of the company; (vi) to amend the articles of association of the company and provide appointment of directors by proportional representation for the holding of the petitioners in the company; (vii) to appoint an administrator for the conduct and management of the affairs of the company; and 2. shri r. murari, learned counsel, appearing for the petitioners, while initiating his arguments submitted: the petitioners and second respondent are the sons of (late) s.s.m. subramaniam chettiar (ssmsc). the second respondent was given in adoption to (late) s.s.m. purushothaman, (ssmp), brother of ssmsc. the company has been incorporated in december 1996 with the main object of carrying on the business in processing of textiles, prior to which the business was carried on by a partnership started in the year 1968 by ssmsc, ssmp and other family members. while the petitioners group holds 47.885% of the issued capital of the company, the shareholding of the respondents group accounts for 49.579%. the brothers of (late) ssmsc alongwith their mother had formed a public charitable trust in the year 1968, which started a polytechnic college and matriculation school. after the death of ssmsc, certain disputes arose among his brothers leading to an arbitration and several civil suits, which are still pending in the high court of madras. in the meanwhile, differences of opinion arose between the petitioners and second respondent, which again resulted in an agreement for arbitration in april 2000. however, no effective progress could be made in the arbitration, except for the passing of an award by the arbitrators on 03.05.2001 in respect of the company and certain family trusts. when the arbitrators withdrew from the arbitration, the petitioners and second respondent along with their spouses agreed in october 2001 for a fresh reference to arbitration, wherein the award passed on 03.05.2001 was superceded and a second award came to be passed on 28.02.2002. by virtue of the award dated 28.02.2002, the land and building held in the name of the company have been allotted to the second respondent and his branch of the family, in which case the award ought to be registered. however, the award not having been registered is not enforceable, as held in lachhman dass v. ram lal and anr. o.s. no. 1402 of 2002 on the file of the court subordinate judge, coimbatore for a declaration that the awards dated 03.05.2001 and 28.02.2002 are null and void on, among other grounds, that the arbitrators had exceeded their jurisdiction and violated the provisions of the arbitration conciliation act. however, the plaint was returned for want of jurisdiction, upon which the plaint in o.s. no. 1402 of 2002 was represented with the office of the subordinate judge court, erode and thereafter with the subordinate judge court, namakkal. the subordinate judge court rejected the plaint on technical grounds, compelling the petitioners to prefer a revision petition before the high court of madras, which came to be withdrawn and thereafter preferred an appeal before the court of district judge, namakkal, which is still pending adjudication. thus, there are court proceedings in progress in relation to the arbitration awards and therefore, the respondents could not unilaterally seek to act on the basis of those awards. the award is enforceable as a decree in accordance with section 36 of the arbitration and conciliation act, 1996, in accordance with its terms, which is mandatory. order 21 of the cpc deals with the manner of enforcement of decrees, by which the respondents are bound to enforce the awards in a court of law as envisaged in order 21 rule 79(3). accordingly, the respondents have filed two execution petitions for enforcement of the first award before the court of subordinate judge, namakkal, wherein the proceedings are still pending. in any event, the respondents, can only seek to enforce the award and the enforcing court will have to consider whether the award is enforceable or not. in view of this legal position, the purported transmission of entire shareholding of the petitioners group consisting of 11,34,000 shares to the respondents in pursuance of the arbitration award at the board meeting held on 06.09.2002 is totally unwarranted and consequently the plea that the petitioners and their family members are no longer shareholders of the company is unsustainable. the respondents ought to have executed the award through a competent court to effect the transfer of impugned shares in their names in terms of the award, which could have afforded an opportunity to the petitioners to putforth their defence in the execution proceedings so as to avoid the transfer. but the respondents have exceeded their authority by effecting the transfer without intervention of the executing court, which is oppressive of the petitioners. by virtue of section 108(1) being mandatory in nature, no transfer can be registered without proper instrument of transfer, duly stamped and executed by the transferor and transferee as held in mannalal khetan v. kedar nath khetan and ors. (1977) vol.977 c.c.185. this requirement will not however apply in case of transmission of shares as contemplated in the second proviso to section 108(1). table a applies to the company while regulations 19 to 24 deal with transfer, regulations 25 to 28 contained in table a apply to transmission of shares in a company in the event of death or insolvency of a members and therefore, in the case of impugned shares the legal principles applicable to transmission will not be attracted. consequently, the mandatory requirements of section 108(1) ought to be fulfilled, before transferring the shares of the petitioners to the respondents 2 & 3. it has been held in smt. kanialabai and ors. v. vithal prasad co.(pvt) ltd. (1993) vol. 77 cc 231 that transmission by operation of law takes place where a person acquires an interest in property by operation of law such as by right of inheritance or succession, while a transfer is effected by act of parties. the award stipulates that where the whole of properties of any company are allotted, the parties shall also execute necessary share transfers in favour of the "allottee party" or his nominees, which has not been satisfied in the present case. while executing the award in terms of order 21 rule 80 cpc transfer deeds are required, which has not been complied with by the respondents 2 & 3. mere possession of the share certificates would not be adequate to effect registration of the transfer of shares. the specific charge of the petitioners is that no share certificates have been issued to the parties by the company. the respondents claim that the petitioners have vacated their office as directors at the annual general meeting held on 28.09.2002, pursuant to a family arbitration which is equally invalid. but for this statement which could be seen in the annual report of the company as at 31.03.2002, no other communication or notice was received by either of the petitioners. the respondents have not been sending notices to the petitioners either for the board meetings or general body meetings. at the alleged annual general meeting, the fourth respondent was re-appointed. therefore, the annual general meeting held on 28.09.2002 is wholly illegal and without any authority whatsoever and all the resolutions passed at the said meeting are null and void. the executing court will appoint an officer to execute the transfer forms in respect of the impugned shares and further declare that the petitioners vacated their office. the petitioners cannot automatically vacate the office of director of the company. the company is not a party to the arbitration agreement. the agreement neither speaks of the control and management of the company. the arbitration agreement on the other hand, refers to the company being one of the issues referred to arbitration. the first award considered the issue of management of trust, trust institutions and properties. but the second award deals with, inter alia, the properties belonging to the company and other properties, but does not relate to the control and management of the company. the petitioners have not taken advantage in respect of the properties allotted to them under the award, by taking control of any property in terms of the award. even otherwise, this does not give any right to the respondents to act independently in terms of the award. the company is a family company, which succeeded a partnership firm. the petitioners' rights as shareholders as well as their directorship have been unlawfully deprived by the respondents 2 & 3. the respondents have illegally assumed control over the affairs of the company by the above acts of oppression and mismanagement. the supreme court in needle industries (india) ltd. and ors. v. needle industries newey (india) holding ltd. and ors. (1981) vol. 51 cc 743 held that a series of illegal acts following upon one another can lead justifiably to the conclusion that they are a part of the same transaction, of which the object is to cause or commit oppression of persons against whom those acts are directed. with the removal of the petitioners from the office of director and with the induction of the fourth respondent as additional director and also by way of change in ownership of the company's shares, a material change has taken place in the management and control of the company, being a family company which is in nature of a quasi partnership. it is held in col. dalip singh sachar v. maa kami coal carriers (p) ltd. (2005) 62 scl 207 that in case of family companies and those which are in the nature of quasi partnership, wherein more or less equal shareholding and equal participation in the management have been agreed and acted upon or provided in the articles, the exclusion of any of the shareholders from the management could be considered an act of oppression justifying winding up of the company on just and equitable grounds. the petitioners herein are not only deprived of their shares but also removed from the office of director, which will justify making an order of winding up against the company on just and equitable grounds. however, any such order of winding up will be prejudicial to the interests of the petitioners and other shareholders. hence, the petitioners are constrained to approach this board for appropriate reliefs against the acts of oppression and mismanagement perpetuated by the respondents 2 & 3. the powers of clb as held in shoe specialities private limited and ors. v. standard distilleries and brewaries private ltd. and ors. (1977) vol.90 cc 1 under section 397 or 398 read with section 402 are wide and without any restrictions or limitation so as to make such order as it thinks fit thereby bringing to an end the matters complained of by the aggrieved shareholder.3. shri v. ramakrishnan, learned counsel representing the respondents 1 to 3 opposed the company petition on the following grounds: the second award dated 28.02.2002 came to be passed pursuant to the agreement entered on 06.10.2001 between the petitioners and second respondent for themselves and the respective branches of their family and hence they are bound by the award dated 28.02.2002. by virtue of para 2(c) of the agreement, the dispute between the petitioners and second respondent in relation to the affairs of the company was one of the subject matters of the arbitration proceedings. in clause 1 of the award, the arbitrators directed the properties set out in annexure forming part of the award, which shall also relate to the company, be allotted to the second respondent and his branch of the family. para 10.1 of the award reiterates the fact that the company was allotted to the second respondent. para 2(j) of the award envisages that all other matters necessary and incidental to give effect to the subject matters and issues referred to in the arbitration, which will include the control and management of the company. after passing of the award, the petitioners took advantage of the award and obtained possession and management of the properties and institutions allotted to them. similarly, in the case of m/s tan india mines & minerals limited, which was allotted to the petitioners, it was recorded as if the respondents 2 & 3 had resigned as directors in march 2002 and in their place the first petitioner's son and wife were appointed as directors. the petitioners have relied upon the award before the board for industrial and financial reconstruction in the pending proceedings (case no. 311/2001) in relation to m/s tan india mines & minerals limited and claimed m/s tan india mines & minerals limited for themselves. the award dated 28.02.2002 has become final and the petitioners have not initiated any proceedings under the provisions of the arbitration and conciliation act, 1996, to challenge the award. at the same time, the petitioners have filed a civil suit in o.s. no. 1402 of 2002 before the court of subordinate judge at coimbatore for a declaration that the awards dated 03.05.2001 and 28.02.2002 are null and void, but the plaint was returned for want of jurisdiction. the petitioners have instituted a similar suit before the court of subordinate judge at namakkal, but the suit has not yet been numbered. thus, the petitioners have not till date succeeded in obtaining any order staying the operation of the award. there is at present a legally valid and operative award binding on the petitioners as well as respondents. unless and until the award is set aside or stayed by the courts, no order can be passed contrary to the terms of the award. the shares of mrs. vijayalakshmi have not been illegally transferred to mrs. nirmala. however, due to a clerical error the shareholding of mrs. nirmala was apparently shown as 11,83,100 in the annual returns filed with the registrar of companies in 1997 and 1998. similarly, the shareholding of mrs. vijayalakshmi was wrongly shown as 5,81,900 instead of 5,31,900. these clerical mistakes were discovered later, upon which the correct shareholdings were furnished in the annual returns filed thereafter. the petitioners have vacated the office as directors of the company, since the entire shareholding of the petitioners, control and management of the company were allotted to the second respondent by virtue of the arbitration award dated 28.02.2002. there was neither equality of shareholding from the date of incorporation of the company nor equal participation in the management of the company. therefore, the theory of quasi partnerships does not apply to the company. despite the various litigations between the parties in many forums, no order has been passed declaring the award as null and void or staying the operation of the award in relation to the present petition before the clb. the arbitration award will amount to a decree and can be accepted and acted upon unless and until the award is set aside or stayed in the manner known to law. it is not necessary that each and every decree or award should be enforced only through execution petitions. the necessity for execution petitions will arise only when the decree or award cannot otherwise be executed. the share certificates, which were signed by the second petitioner, were issued to the shareholders, including the petitioners, in accordance with the provisions of the act. the petitioners had handed over their share certificates to the second respondent for effecting transmission in accordance with the award and the company in the absence of any order of the court staying its operations, transmitted the shares in the name of the respondents, in which case there is no need for execution of the award in accordance with order 21 rule 80 of the code of civil procedure. the provisions of section 36 provide that the award shall be enforced under the code of civil procedure, in the same manner as if it were a decree of the court. this section does not provide that the award shall be enforced only under the code of civil procedure. in this connection, reference has been made to a decision of the supreme court in bhatia international v. bulk trading s.a. and anr. 2000 (1) arb. lr 675. the supreme court while interpreting sub-section (2) of section 2 of the arbitration and conciliation act, 1996 pointed out that part-i, as envisaged therein, would apply where the place of arbitration is in india. it is not providing that part-i shall not apply where the place of arbitration is not in india. it is also not providing that part-i will "only" apply where the place of arbitration is in india. thus, the legislature has not provided that part-i is not to apply to arbitration, which takes place outside india. the wording of sub-section (2) of section 2 suggests that the intention of the legislature was to make the provisions of part-i compulsorily applicable to an arbitration including an international commercial arbitration, which takes place in india. it is, therefore, clear that section 36 provides one of the modes of enforcement of the award. the procedure prescribed under section 36 will arise only, if an award is not voluntarily acted upon by the parties. any procedural provision will not be mandatory even if the term "shall" is employed, as held in dove investments pvt. ltd. and ors. v. gujarat industrial investment corporation and anr. by virtue of the award, the petitioners' entire shareholding and management of the company came to the share of the second respondent group. accordingly, the respondents acting on the basis of the award transmitted the petitioners' shares to the second respondent and his nominees at the board meeting held on 06.09.2002 and further minuted the vacation of office as directors by the petitioners. any division of shares on the basis of an arbitration award amounts to transmission of shares by operation of law as held in muthuveeran chetty v. govindan chetty (1961) ii mlj 470. any transmission of shares by operation of law is squarely covered by the second proviso to section 108(1) of the act and therefore, will not attract the mandatory requirements of section 108(1) as held in (1928) lw 932 and vol.45 cc 686. table a regulations 25-28 applies to the company and there is no discretion with the company to refuse registration of transmission by operation of law. the supreme court held in indian chemical products limited v. state of orissa and anr. (1966) vol.36 cc 592 held that delivery of an instrument of transfer is not required in the case of transmission of shares, and therefore, the provisions of sub-section (1) of section 108 are inapplicable in such a case. it has been held in life insurance corporation of india v. bokaro and ramgur ltd. and ors. (1966) vol.36 cc 490 that section 108(1) and the first proviso thereof applied only to cases of transfer by act of parties and not to cases of transmission of by operation of law. it is held in t.a.k. mohideen pichai taraganar v. tinnevelly mills company ltd. (1928) vol.28 lw 932 that the procedure prescribed under order 21 rule 80 cpc will be followed only if the judgment debtor does not carry out the decree by the transferring the shares, himself and where the endorsement of the party in whose name the share is standing is required to transfer the share. further more, there is no need to lodge the original share certificates with the company for transmission of shares as held in jatia cotton mills ltd. v. ram prosad bajoria and anr. (1975) vol.45 cc 686. under these circumstances, the transmission of the shares in the name of the second respondent and vacation of office as directors by the petitioners will not amount to either oppression or mismanagement, but they are in accordance with law, justice and equity. the notices of board meetings and general meetings have been regularly sent to the petitioners and some of the notices of the board meetings have been sent by registered post. however, some of these notices have been returned, as unclaimed by the petitioners. notices of the general meetings were sent by ordinary post. the petitioners never cared to attend either the board or general meetings, despite sending notices to them. the petitioners have given requisition for sending the notices for general meetings by registered post only in july 2003. the petitioners never evinced interest in the affairs of the company, since the second respondent was managing the factory since its inception and after 1998, he was also managing the finances. there has been no evidence produced by the petitioners to sustain the charges of fabrication of records and squandering of income generated by the company and therefore, they are not entitled for any relief on the basis of such bare allegations. the fourth respondent appointed at the board meeting as an additional director was not appointed as director at the annual general meeting held on 28.09.2002 and therefore, he ceased to be a director of the company. further, the fourth respondent, during the pendency of the company petition, died, thereby the grievances raised in the matter of the fourth respondent ceased to exist. there has been no change in the control or management of the company. the company has been managed all along by the second respondent and continues to be managed by the second respondent. no material change has taken place in the control of the company, without the knowledge of the petitioners. the vacation of office by the petitioners as well as the transmission of the shares are in pursuance of a legal and valid arbitration award to which the petitioners group and the respondents groups were parties and are not oppressive. the supreme court held in needle industries (india) ltd. v. needle industries newey (india) holdings ltd. (1981) vol.51 cc 743 to show that every action in contravention of law may not per se be oppressive for the purpose of section 397, a resolution passed by the directors may be perfectly legal and yet oppressive and conversely a resolution which is in contravention of law may be in the interests of the shareholders and the company. the wrongful transmission and cessation of directorship will not satisfy the provisions of section 397(2)(b). the facts and circumstances do not justify any order of winding up of the company under the just and equitable clause. it is held in ruby general hospital ltd. and others v. dr. kamal kumar dutta and anr. (2006) 70 cla 186 that section 397 has to satisfy (a) that to wind up the company would unfairly prejudice the member or members; and (b) that otherwise, the facts would justify the making of a winding up order as the ground that it was just and equitable that the company should be wound up. the petitioners have not made out any case for winding up of the company under just and equitable clause in terms of section 397(2)(b) and therefore, no relief can be granted as claimed by the petitioners. the petitioners, pursuant to the award, have no beneficial interest in the shares and the ownership of the shares have passed on to the second respondent. in view of this, the petitioners are only nominal holders of the shares. the petitioners are agents and trustees of the beneficial owners namely, the second respondent and therefore, the petitioners cannot dictate to the beneficial owners. the register of members of the company presently reflects the beneficial owners' shareholdings and therefore, any rectification would be unjustified especially when it will amount to setting aside the award. the petitioners cannot achieve indirectly what they could not achieve directly namely, the setting aside of the award.4. i have considered the pleadings and elaborate arguments of learned counsel for the parties. the issues which arise before me are - i. whether the transfer of interest in 11,34,000 shares of the company held in the name of the petitioners, following the award dated 28.02.2002, in favour of the respondents must satisfy the mandatory requirements of section 108(1) of the act? ii. whether the vacation of office of director by the petitioners, by virtue of the award dated 28.02.2002 is valid and binding on the contesting parties? iii. whether the acts of oppression and mismanagement alleged in the company petition warrant the interference of this board? the issues i, ii and iii are intertwined and therefore, considered together. it is on record that the petitioners, consenting shareholders and respondents 2 & 3 representing themselves and their respective branches of the family had on 06.10.2001 entered into an agreement of reference to arbitration the disputes between them relating to, inter-alia, the company. the arbitrators after considering the statements, replies and oral submissions of the parties to the arbitration agreement passed an award on 28.02.2002, wherein the factory land and buildings belonging to the company, more fully described in annexure-a, forming part of the award, came to be allotted to the second respondent and his branch of the family, for which the arbitrators have given the following reason: in the division of assets, we have taken into consideration the value of the assets and also the fact that s.s.m. processing mills allotted to mr. p. elango is functioning whereas most of the other industrial units other than wattle division and textile division remain closed and are the subject matter of reference to bifr (para 10.1 of the award).while the petitioners are challenging the validity of the award, in respect of which the proceedings are pending before the court of district judge, namakkal, the respondents claim that the award has become final and therefore, binding on all the parties to the award.however, in view of the fact that this board has no jurisdiction to adjudicate the validity or otherwise of the award in the present proceedings, the parties before me proceeded on the premise that the award dated 28.02.2002 is final for the purpose of adjudication of the disputes raised in the company petition. similarly, it has to be borne in mind that, while effecting the division of assets, the arbitrators consciously recognised the fact that s.s.m. processing mills has been allotted to mr. p. elango, as already pointed by me. against this background, the rival claims on the contentious issues are being considered. according to the petitioners, the transfer of 11,34,000 shares of the company belonging to the petitioners group purportedly made at the board meeting held on 06.09.2002, pursuant to the award must satisfy the mandatory requirements of section 108(1), which has been vehemently opposed by the respondents on the strength of a decision in muthuveeran chetty v. govindan chetty (supra), wherein it has been held that any transfer of interest in a promissory note under an award will only be transmission and, therefore, does not attract the requirements of section 108(1) of the act. while a transfer is effected by act of parties, transmission by operation of law takes place where a person acquires an interest in the property by operation of law. in this connection, the provisions of section 108 assumes utmost relevance, the relevant portion of which reads thus: 108(1) a company shall not register a transfer of shares in, or debentures of, the company, unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee and specifying the name, address and occupation, if any, of the transferee, has been delivered to the company along with the certificate, relating to the shares or debentures, or if no such certificate is in existence, along with the letter of allotment of the shares or debentures: provided that where, on an application in writing made to the company by the transferee and bearing the stamp required for an instrument of transfer, it is proved to the satisfaction of the board of directors that the instrument of transfer signed by or on behalf of the transferor and by or on behalf of the transferee has been lost, the company may register the transfer on such terms as to indemnity as the board may think fit: provided further that nothing in this section shall prejudice any power of the company to register as shareholder or debenture-holder any person to whom the right to any shares in, or debentures of, the company has been transmitted by operation of law.it is clear from section 108(1) that for any transfer of shares or debentures an instrument of transfer in the prescribed form duly stamped, executed by the transferor and the transferee together with the certificates relating thereto or if no certificate has been issued, the letter of allotment therefore, should be submitted to the company.where the instrument of transfer signed by the transferor and the transferee has been lost, the board may register a transfer on the application by the transferee and on his executing a bond of indemnity.the board may register the name of a shareholder or debenture holder without execution of an instrument of transfer form but on an application made to that effect in case of transmission by operation of law. thus, where title to the shares has passed by operation of law, no further formalities have to be completed so that neither duly stamped instrument of transfer nor an application in writing itself bearing the requisite stamp is necessary. the act does not contain any express provisions as to transmission of shares. the second proviso to sub-section (1) of section 108 merely states that nothing contained in that section shall prejudice any power of the company to register as shareholder or debenture-holder any person to whom the right to any shares in, or debentures of, the company has been transmitted by operation of law. however, table-a schedule i to the act contains regulations 25 to 28 dealing with transmission of shares, such as on the death or insolvency of a member and not on any other account. in this background, i should necessarily be guided by the judicial precedents brought to my notice in the matter of transmission of shares. when the question whether a member of a joint family to whom a promissory note is allotted at an oral partition among the members of that family can maintain an action on the promissory note as distinct from the debt, in the absence of an endorsement of transfer made on the promissory note or of a deed of assignment executed in respect of that note, came up before the full bench of the high court of judicature at madras in muthuveeran chetty v. govindan chetty (supra), it was held that (a) allotment of a promissory note at a partition to a member of a joint family does not amount to a transfer by act of parties but by operation of law; (b) such member is entitled to sue on the note without an endorsement or deed of assignment in writing; and (c) transfer of interest in the promissory note following an award at a partition amounts to a transfer by operation of law. the division bench, before arriving at such conclusions, analysed a catena of decisions, one among of which is amir bibi v. arokiam (1917) 45 ind.cases 813, dealing with the case of an oral award under which a hypothecation bond was allotted to the holder. the maintainability of the suit by the person to whom the hypothecation bond was allotted was challenged on the ground that even if the award was true, it was not followed up by the execution of a conveyance. nevertheless it was held that an award may be oral and that an oral award is as binding on the parties as a written award. this decision emphasises the legal proposition that transfer of interest in the bond following an award amounts to a transfer by operation of law. in view of this legal position, the transfer of interest in 11,34,000 shares of the company belonging to the petitioners group, pursuant to the award, in favour of the respondents would amount to a transfer by operation of law, in which case the second respondents group acquired an interest in the impugned shares by operation of law, as held in smt. kamalabai and ors.v. vithal prasad co.(pvt.) ltd. (supra) and therefore the impugned transfer need not meet the mandatory requirements of section 108(1) as reiterated in mannalal khetan v. keddaar nath and ors. (supra) namely, lodging of an instrument of transfer in the prescribed form duly stamped, executed by the transferor and transferee alongwith the share certificates. the law is well settled that the transmission is not transfer and hence, the mandatory provisions of sub-section (1) of section 108 requiring the instrument of transfer to be delivered to the company are not applicable to the case of transmission. it is relevant to point out that the supreme court held in (a) indian chemical products limited v. state of orissa (supra) that delivery of an instrument of transfer is not required in the case of transmission of shares; and (b) life insurance corporation of india v. bokaro and ramgur ltd. (supra) that section 108(1) and the first proviso thereof do not apply to the cases of transmission by operation of law. though the petitioners stoutly denied the issue of share certificates, they never contradicted the plea of the respondents that the share certificates, under the signature of, among others, the second petitioner were issued to the shareholders, including the petitioners, who reportedly handed over the same to the second respondent for effecting transmission in the name of the second respondent group. it is on record that at the board meeting held on 06.09.2002 the impugned shares were transmitted in the name of the second respondent group and further recorded the vacation of office as directors by the petitioners, pursuant to the award, which are found to be in consonance with the principles enunciated in the decisions cited supra, namely, muthuveeran chetty v. govindan chetty and amir bibi v. arokiam.furthermore, at the annual general meeting held on 28.09.2002, the vacation of office of director by the petitioners came to be recorded in view of the fact that the petitioners ceased to have any interest in the company, consequent upon the award passed on 28.02.2002 by the arbitrators. when the entire shares of the petitioners are transmitted in the name of the second respondent group, following the award and thereby ceased to be shareholders, the former cannot raise any grievances on account of vacation of the office as directors of the company and there is no need for any declaration by the court that the petitioners vacated their office, as claimed by them. these acts can neither be illegal nor oppressive against the petitioners, to derive benefit out of the decision in needle industries (india) limited v.needle industries newey (india) holding ltd. (supra) and cannot be remedied by the clb in exercise of its vast powers as envisaged in shoe specialities private limited and ors. v. standard distilleries and brewaries private ltd. and ors. (supra) and in such an event there is no need for execution of the award in accordance with the order 21 rule 80 cpc, especially when, the petitioners were not required to carry out the award by transferring the shares to the respondents and therefore the decision in t.a.k. mohideen pichai taraganar v. tinnevelly mills company ltd. (supra) is not applicable to the facts of the present case: in this background, the stipulations made in the award that (a) wherever the whole of properties of any company are allotted, the parties shall execute necessary share transfers in favour of the "allottee party" and (b) the award is enforceable in accordance with section 36 of the act, 1996 will in no way adversely affect the transmission effected by the company in favour of the second respondent and his nominees. similarly, there is no force in the argument of the petitioners that the award not having been registered is not enforceable in view of the fact that (a) transmission of the shares already stands effected in the name of the second respondent group; and (b) petitioners claimed m/s tan india mines & minerals limited in bifr proceedings on the strength of the award and therefore, the decision in lachhman dass v. ram lal and anr. (supra) does not go in the aid of the petitioners.the grievance on account of appointment of the fourth respondent as director at the board meeting held on 06.09.2002 does not survive on account of the fact that the fourth respondent was not re-appointed at the annual general meeting held on 28.09.2002 and further that the fourth respondent reportedly died, subsequent to the filing of the company petition, putting to an end the controversy. the charges levelled in regard to non-sending of notices of the board meetings and general meetings can no longer be pressed into service, upon the transmission of impugned shares in favour of the second respondent group. the charges of fabrication of records and misappropriation of funds remain to be bare pleadings without being supported by any material. the petitioners have not justified the prayer either to appoint an administrator or order investigation into the affairs of the company. furthermore, the transmission of shares in the name of the second respondent group and the consequent vacation of the office as directors by the petitioners are already found to be pursuant to the award dated 28.02.2002 and therefore, do not constitute an act of oppression, justifying an order of winding up against the company under just and equitable clause in terms of section 397(2)(b) and in such an event, the petitioners are not entitled for any reliefs, as held in ruby general hospital ltd. and anr. v. dr. kamal kumar dutta and anr.(supra). in view of this, the resolutions passed either at the board meeting or annual general meeting are neither illegal nor oppressive, warranting the interference of this bench. all the issues are answered accordingly and the company petition as well as the connected company application stand disposed of in these lines, without, however, any order as to costs. in view of this, the interim order made on 08.09.2003 is vacated.

Judgment:
1. The petitioners alongwith consenting members collectively holding 47.885% of the issued capital of M/s S.S.M Processing Mills Ltd., ("the Company") and aggrieved mainly on account of certain alleged acts of oppression and mismanagement in the affairs of the Company, namely, illegal (a) transfer of 11,34,000 equity shares belonging to the petitioners and their group to the respondents; (b) removal of the petitioners from the office of director of the Company; (c) appointment of the fourth respondent as additional director, have invoked in the present company petition as amended in terms of C.A. No. 9 of 2006, the provisions of Sections 235, 237, 397, 398, 402 & 403 of the Companies Act, 1956 ("the Act") seeking the following among reliefs: (i) to declare that the board meeting held on 06.09.2002 and all resolutions passed therein are illegal, null and void; (ii) to declare that the annual general meeting hold on 28.09.2002 and all resolutions passed therein are illegal, null and void; (iii) to nullify and declare invalid the transfer of 11,34,000 shares belonging to the petitioners group in favour of the respondents and direct the re-transfer of those shares to the petitioners group; (iv) to declare that the petitioners continue to be directors of the Company; (v) to remove the respondents 2 to 4 from the office director of the Company; (vi) to amend the articles of association of the Company and provide appointment of directors by proportional representation for the holding of the petitioners in the Company; (vii) to appoint an Administrator for the conduct and management of the affairs of the Company; and 2. Shri R. Murari, learned Counsel, appearing for the petitioners, while initiating his arguments submitted: The petitioners and second respondent are the sons of (late) S.S.M. Subramaniam Chettiar (SSMSC). The second respondent was given in adoption to (late) S.S.M. Purushothaman, (SSMP), brother of SSMSC. The Company has been incorporated in December 1996 with the main object of carrying on the business in processing of textiles, prior to which the business was carried on by a partnership started in the year 1968 by SSMSC, SSMP and other family members. While the petitioners group holds 47.885% of the issued capital of the Company, the shareholding of the respondents group accounts for 49.579%. The brothers of (late) SSMSC alongwith their mother had formed a public charitable trust in the year 1968, which started a polytechnic college and matriculation school. After the death of SSMSC, certain disputes arose among his brothers leading to an arbitration and several civil suits, which are still pending in the High Court of Madras. In the meanwhile, differences of opinion arose between the petitioners and second respondent, which again resulted in an agreement for arbitration in April 2000. However, no effective progress could be made in the arbitration, except for the passing of an award by the arbitrators on 03.05.2001 in respect of the Company and certain family trusts. When the arbitrators withdrew from the arbitration, the petitioners and second respondent along with their spouses agreed in October 2001 for a fresh reference to arbitration, wherein the award passed on 03.05.2001 was superceded and a second award came to be passed on 28.02.2002.

By virtue of the award dated 28.02.2002, the land and building held in the name of the Company have been allotted to the second respondent and his branch of the family, in which case the award ought to be registered. However, the award not having been registered is not enforceable, as held in Lachhman Dass v. Ram Lal and Anr.

O.S. No. 1402 of 2002 on the file of the Court Subordinate Judge, Coimbatore for a declaration that the awards dated 03.05.2001 and 28.02.2002 are null and void on, among other grounds, that the arbitrators had exceeded their jurisdiction and violated the provisions of the Arbitration Conciliation Act. However, the plaint was returned for want of jurisdiction, upon which the plaint in O.S. No. 1402 of 2002 was represented with the office of the Subordinate Judge Court, Erode and thereafter with the Subordinate Judge Court, Namakkal. The Subordinate Judge Court rejected the plaint on technical grounds, compelling the petitioners to prefer a revision petition before the High Court of Madras, which came to be withdrawn and thereafter preferred an appeal before the Court of District Judge, Namakkal, which is still pending adjudication. Thus, there are court proceedings in progress in relation to the arbitration awards and therefore, the respondents could not unilaterally seek to act on the basis of those awards.

The award is enforceable as a decree in accordance with Section 36 of the Arbitration and Conciliation Act, 1996, in accordance with its terms, which is mandatory. Order 21 of the CPC deals with the manner of enforcement of decrees, by which the respondents are bound to enforce the awards in a Court of Law as envisaged in Order 21 Rule 79(3). Accordingly, the respondents have filed two execution petitions for enforcement of the first award before the Court of Subordinate Judge, Namakkal, wherein the proceedings are still pending. In any event, the respondents, can only seek to enforce the award and the enforcing Court will have to consider whether the award is enforceable or not. In view of this legal position, the purported transmission of entire shareholding of the petitioners group consisting of 11,34,000 shares to the respondents in pursuance of the arbitration award at the board meeting held on 06.09.2002 is totally unwarranted and consequently the plea that the petitioners and their family members are no longer shareholders of the Company is unsustainable. The respondents ought to have executed the award through a competent Court to effect the transfer of impugned shares in their names in terms of the award, which could have afforded an opportunity to the petitioners to putforth their defence in the execution proceedings so as to avoid the transfer. But the respondents have exceeded their authority by effecting the transfer without intervention of the executing Court, which is oppressive of the petitioners.

By virtue of Section 108(1) being mandatory in nature, no transfer can be registered without proper instrument of transfer, duly stamped and executed by the transferor and transferee as held in Mannalal Khetan v. Kedar Nath Khetan and Ors. (1977) Vol.977 C.C.185. This requirement will not however apply in case of transmission of shares as contemplated in the second proviso to Section 108(1). Table A applies to the Company while regulations 19 to 24 deal with transfer, regulations 25 to 28 contained in Table A apply to transmission of shares in a company in the event of death or insolvency of a members and therefore, in the case of impugned shares the legal principles applicable to transmission will not be attracted. Consequently, the mandatory requirements of Section 108(1) ought to be fulfilled, before transferring the shares of the petitioners to the respondents 2 & 3. It has been held in Smt.

Kanialabai and Ors. v. Vithal Prasad Co.(PVT) Ltd. (1993) Vol. 77 CC 231 that transmission by operation of law takes place where a person acquires an interest in property by operation of law such as by right of inheritance or succession, while a transfer is effected by act of parties.

The award stipulates that where the whole of properties of any company are allotted, the parties shall also execute necessary share transfers in favour of the "allottee party" or his nominees, which has not been satisfied in the present case. While executing the award in terms of order 21 Rule 80 CPC transfer deeds are required, which has not been complied with by the respondents 2 & 3. Mere possession of the share certificates would not be adequate to effect registration of the transfer of shares. The specific charge of the petitioners is that no share certificates have been issued to the parties by the Company.

The respondents claim that the petitioners have vacated their office as directors at the annual general meeting held on 28.09.2002, pursuant to a family arbitration which is equally invalid. But for this statement which could be seen in the annual report of the Company as at 31.03.2002, no other communication or notice was received by either of the petitioners. The respondents have not been sending notices to the petitioners either for the board meetings or general body meetings. At the alleged annual general meeting, the fourth respondent was re-appointed. Therefore, the annual general meeting held on 28.09.2002 is wholly illegal and without any authority whatsoever and all the resolutions passed at the said meeting are null and void. The executing Court will appoint an officer to execute the transfer forms in respect of the impugned shares and further declare that the petitioners vacated their office. The petitioners cannot automatically vacate the office of director of the Company.

The Company is not a party to the arbitration agreement. The agreement neither speaks of the control and management of the Company. The arbitration agreement on the other hand, refers to the Company being one of the issues referred to arbitration. The first award considered the issue of management of Trust, Trust Institutions and Properties. But the second award deals with, inter alia, the properties belonging to the Company and other properties, but does not relate to the control and management of the Company.

The petitioners have not taken advantage in respect of the properties allotted to them under the award, by taking control of any property in terms of the award. Even otherwise, this does not give any right to the respondents to act independently in terms of the award. The Company is a family company, which succeeded a partnership firm. The petitioners' rights as shareholders as well as their directorship have been unlawfully deprived by the respondents 2 & 3. The respondents have illegally assumed control over the affairs of the Company by the above acts of oppression and mismanagement. The Supreme Court in Needle Industries (India) Ltd. and Ors. v. Needle Industries Newey (India) Holding Ltd. and Ors.

(1981) Vol. 51 CC 743 held that a series of illegal acts following upon one another can lead justifiably to the conclusion that they are a part of the same transaction, of which the object is to cause or commit oppression of persons against whom those acts are directed. With the removal of the petitioners from the office of director and with the induction of the fourth respondent as additional director and also by way of change in ownership of the Company's shares, a material change has taken place in the management and control of the Company, being a family company which is in nature of a quasi partnership. It is held in Col. Dalip Singh Sachar v. Maa Kami Coal Carriers (P) Ltd. (2005) 62 SCL 207 that in case of family companies and those which are in the nature of quasi partnership, wherein more or less equal shareholding and equal participation in the management have been agreed and acted upon or provided in the articles, the exclusion of any of the shareholders from the management could be considered an act of oppression justifying winding up of the Company on just and equitable grounds.

The petitioners herein are not only deprived of their shares but also removed from the office of director, which will justify making an order of winding up against the Company on just and equitable grounds. However, any such order of winding up will be prejudicial to the interests of the petitioners and other shareholders. Hence, the petitioners are constrained to approach this Board for appropriate reliefs against the acts of oppression and mismanagement perpetuated by the respondents 2 & 3. The powers of CLB as held in Shoe Specialities Private Limited and Ors. v. Standard Distilleries and Brewaries Private Ltd. and Ors. (1977) Vol.90 CC 1 under Section 397 or 398 read with Section 402 are wide and without any restrictions or limitation so as to make such order as it thinks fit thereby bringing to an end the matters complained of by the aggrieved shareholder.

3. Shri V. Ramakrishnan, learned Counsel representing the respondents 1 to 3 opposed the company petition on the following grounds: The second award dated 28.02.2002 came to be passed pursuant to the agreement entered on 06.10.2001 between the petitioners and second respondent for themselves and the respective branches of their family and hence they are bound by the award dated 28.02.2002. By virtue of para 2(c) of the agreement, the dispute between the petitioners and second respondent in relation to the affairs of the Company was one of the subject matters of the arbitration proceedings. In clause 1 of the award, the arbitrators directed the properties set out in Annexure forming part of the award, which shall also relate to the Company, be allotted to the second respondent and his branch of the family. Para 10.1 of the award reiterates the fact that the Company was allotted to the second respondent. Para 2(j) of the award envisages that all other matters necessary and incidental to give effect to the subject matters and issues referred to in the arbitration, which will include the control and management of the Company. After passing of the award, the petitioners took advantage of the award and obtained possession and management of the properties and institutions allotted to them.

Similarly, in the case of M/s Tan India Mines & Minerals Limited, which was allotted to the petitioners, it was recorded as if the respondents 2 & 3 had resigned as directors in March 2002 and in their place the first petitioner's son and wife were appointed as directors. The petitioners have relied upon the award before the Board for Industrial and Financial Reconstruction in the pending proceedings (case No. 311/2001) in relation to M/s Tan India Mines & Minerals Limited and claimed M/s Tan India Mines & Minerals Limited for themselves. The award dated 28.02.2002 has become final and the petitioners have not initiated any proceedings under the provisions of the Arbitration and Conciliation Act, 1996, to challenge the award. At the same time, the petitioners have filed a civil suit in O.S. No. 1402 of 2002 before the Court of Subordinate Judge at Coimbatore for a declaration that the awards dated 03.05.2001 and 28.02.2002 are null and void, but the plaint was returned for want of jurisdiction. The petitioners have instituted a similar suit before the Court of Subordinate Judge at Namakkal, but the suit has not yet been numbered. Thus, the petitioners have not till date succeeded in obtaining any order staying the operation of the award.

There is at present a legally valid and operative award binding on the petitioners as well as respondents. Unless and until the award is set aside or stayed by the Courts, no order can be passed contrary to the terms of the award.

The shares of Mrs. Vijayalakshmi have not been illegally transferred to Mrs. Nirmala. However, due to a clerical error the shareholding of Mrs. Nirmala was apparently shown as 11,83,100 in the annual returns filed with the Registrar of Companies in 1997 and 1998.

Similarly, the shareholding of Mrs. Vijayalakshmi was wrongly shown as 5,81,900 instead of 5,31,900. These clerical mistakes were discovered later, upon which the correct shareholdings were furnished in the annual returns filed thereafter. The petitioners have vacated the office as directors of the Company, since the entire shareholding of the petitioners, control and management of the Company were allotted to the second respondent by virtue of the arbitration award dated 28.02.2002. There was neither equality of shareholding from the date of incorporation of the Company nor equal participation in the management of the Company. Therefore, the theory of quasi partnerships does not apply to the Company.

Despite the various litigations between the parties in many forums, no order has been passed declaring the award as null and void or staying the operation of the award in relation to the present petition before the CLB. The arbitration award will amount to a decree and can be accepted and acted upon unless and until the award is set aside or stayed in the manner known to law. It is not necessary that each and every decree or award should be enforced only through execution petitions. The necessity for execution petitions will arise only when the decree or award cannot otherwise be executed. The share certificates, which were signed by the second petitioner, were issued to the shareholders, including the petitioners, in accordance with the provisions of the Act. The petitioners had handed over their share certificates to the second respondent for effecting transmission in accordance with the award and the Company in the absence of any order of the Court staying its operations, transmitted the shares in the name of the respondents, in which case there is no need for execution of the award in accordance with Order 21 Rule 80 of the Code of Civil Procedure.

The provisions of Section 36 provide that the award shall be enforced under the Code of Civil Procedure, in the same manner as if it were a decree of the Court. This section does not provide that the award shall be enforced only under the Code of Civil Procedure.

In this connection, reference has been made to a decision of the Supreme Court in Bhatia International v. Bulk Trading S.A. and Anr.

2000 (1) Arb. LR 675. The Supreme Court while interpreting Sub-section (2) of Section 2 of the Arbitration and Conciliation Act, 1996 pointed out that Part-I, as envisaged therein, would apply where the place of arbitration is in India. It is not providing that Part-I shall not apply where the place of arbitration is not in India. It is also not providing that Part-I will "only" apply where the place of arbitration is in India. Thus, the Legislature has not provided that Part-I is not to apply to arbitration, which takes place outside India. The wording of Sub-section (2) of Section 2 suggests that the intention of the Legislature was to make the provisions of Part-I compulsorily applicable to an arbitration including an international commercial arbitration, which takes place in India. It is, therefore, clear that Section 36 provides one of the modes of enforcement of the award. The procedure prescribed under Section 36 will arise only, if an award is not voluntarily acted upon by the parties. Any procedural provision will not be mandatory even if the term "shall" is employed, as held in Dove Investments Pvt. Ltd. and Ors. v. Gujarat Industrial Investment Corporation and Anr.

By virtue of the award, the petitioners' entire shareholding and management of the Company came to the share of the second respondent group. Accordingly, the respondents acting on the basis of the award transmitted the petitioners' shares to the second respondent and his nominees at the board meeting held on 06.09.2002 and further minuted the vacation of office as directors by the petitioners. Any division of shares on the basis of an arbitration award amounts to transmission of shares by operation of law as held in Muthuveeran Chetty v. Govindan Chetty (1961) II MLJ 470. Any transmission of shares by operation of law is squarely covered by the second proviso to Section 108(1) of the Act and therefore, will not attract the mandatory requirements of Section 108(1) as held in (1928) LW 932 and Vol.45 CC 686. Table A regulations 25-28 applies to the Company and there is no discretion with the Company to refuse registration of transmission by operation of law. The Supreme Court held in Indian Chemical Products Limited v. State of Orissa and Anr. (1966) Vol.36 CC 592 held that delivery of an instrument of transfer is not required in the case of transmission of shares, and therefore, the provisions of Sub-section (1) of Section 108 are inapplicable in such a case. It has been held in Life Insurance Corporation of India v. Bokaro and Ramgur Ltd. and Ors. (1966) Vol.36 CC 490 that Section 108(1) and the first proviso thereof applied only to cases of transfer by act of parties and not to cases of transmission of by operation of law. It is held in T.A.K. Mohideen Pichai Taraganar v. Tinnevelly Mills Company Ltd. (1928) Vol.28 LW 932 that the procedure prescribed under Order 21 Rule 80 CPC will be followed only if the judgment debtor does not carry out the decree by the transferring the shares, himself and where the endorsement of the party in whose name the share is standing is required to transfer the share. Further more, there is no need to lodge the original share certificates with the Company for transmission of shares as held in Jatia Cotton Mills Ltd. v. Ram Prosad Bajoria and Anr.

(1975) Vol.45 CC 686. Under these circumstances, the transmission of the shares in the name of the second respondent and vacation of office as directors by the petitioners will not amount to either oppression or mismanagement, but they are in accordance with law, justice and equity.

The notices of board meetings and general meetings have been regularly sent to the petitioners and some of the notices of the board meetings have been sent by registered post. However, some of these notices have been returned, as unclaimed by the petitioners.

Notices of the general meetings were sent by ordinary post. The petitioners never cared to attend either the board or general meetings, despite sending notices to them. The petitioners have given requisition for sending the notices for general meetings by registered post only in July 2003. The petitioners never evinced interest in the affairs of the Company, since the second respondent was managing the factory since its inception and after 1998, he was also managing the finances.

There has been no evidence produced by the petitioners to sustain the charges of fabrication of records and squandering of income generated by the Company and therefore, they are not entitled for any relief on the basis of such bare allegations. The fourth respondent appointed at the board meeting as an additional director was not appointed as director at the annual general meeting held on 28.09.2002 and therefore, he ceased to be a director of the Company.

Further, the fourth respondent, during the pendency of the company petition, died, thereby the grievances raised in the matter of the fourth respondent ceased to exist.

There has been no change in the control or management of the Company. The Company has been managed all along by the second respondent and continues to be managed by the second respondent. No material change has taken place in the control of the Company, without the knowledge of the petitioners. The vacation of office by the petitioners as well as the transmission of the shares are in pursuance of a legal and valid arbitration award to which the petitioners group and the respondents groups were parties and are not oppressive. The Supreme Court held in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holdings Ltd. (1981) Vol.51 CC 743 to show that every action in contravention of law may not per se be oppressive for the purpose of Section 397, a resolution passed by the directors may be perfectly legal and yet oppressive and conversely a resolution which is in contravention of law may be in the interests of the shareholders and the Company. The wrongful transmission and cessation of directorship will not satisfy the provisions of Section 397(2)(b). The facts and circumstances do not justify any order of winding up of the Company under the just and equitable clause. It is held in Ruby General Hospital Ltd. and others v. Dr. Kamal Kumar Dutta and Anr. (2006) 70 CLA 186 that Section 397 has to satisfy (a) that to wind up the company would unfairly prejudice the member or members; and (b) that otherwise, the facts would justify the making of a winding up order as the ground that it was just and equitable that the company should be wound up. The petitioners have not made out any case for winding up of the Company under just and equitable clause in terms of Section 397(2)(b) and therefore, no relief can be granted as claimed by the petitioners.

The petitioners, pursuant to the award, have no beneficial interest in the shares and the ownership of the shares have passed on to the second respondent. In view of this, the petitioners are only nominal holders of the shares. The petitioners are agents and trustees of the beneficial owners namely, the second respondent and therefore, the petitioners cannot dictate to the beneficial owners. The register of members of the Company presently reflects the beneficial owners' shareholdings and therefore, any rectification would be unjustified especially when it will amount to setting aside the award. The petitioners cannot achieve indirectly what they could not achieve directly namely, the setting aside of the award.

4. I have considered the pleadings and elaborate arguments of learned Counsel for the parties. The issues which arise before me are - I. Whether the transfer of interest in 11,34,000 shares of the Company held in the name of the petitioners, following the award dated 28.02.2002, in favour of the respondents must satisfy the mandatory requirements of Section 108(1) of the Act? II. Whether the vacation of office of director by the petitioners, by virtue of the award dated 28.02.2002 is valid and binding on the contesting parties? III. Whether the acts of oppression and mismanagement alleged in the company petition warrant the interference of this Board? The issues I, II and III are intertwined and therefore, considered together. It is on record that the petitioners, consenting shareholders and respondents 2 & 3 representing themselves and their respective branches of the family had on 06.10.2001 entered into an agreement of reference to arbitration the disputes between them relating to, inter-alia, the Company. The arbitrators after considering the statements, replies and oral submissions of the parties to the arbitration agreement passed an award on 28.02.2002, wherein the factory land and buildings belonging to the Company, more fully described in Annexure-A, forming part of the award, came to be allotted to the second respondent and his branch of the family, for which the arbitrators have given the following reason: In the division of assets, we have taken into consideration the value of the assets and also the fact that S.S.M. Processing Mills allotted to Mr. P. Elango is functioning whereas most of the other Industrial Units other than wattle division and textile division remain closed and are the subject matter of reference to BIFR (para 10.1 of the award).

While the petitioners are challenging the validity of the award, in respect of which the proceedings are pending before the Court of District Judge, Namakkal, the respondents claim that the award has become final and therefore, binding on all the parties to the award.

However, in view of the fact that this Board has no jurisdiction to adjudicate the validity or otherwise of the award in the present proceedings, the parties before me proceeded on the premise that the award dated 28.02.2002 is final for the purpose of adjudication of the disputes raised in the company petition. Similarly, it has to be borne in mind that, while effecting the division of assets, the arbitrators consciously recognised the fact that S.S.M. Processing Mills has been allotted to Mr. P. Elango, as already pointed by me. Against this background, the rival claims on the contentious issues are being considered. According to the petitioners, the transfer of 11,34,000 shares of the Company belonging to the petitioners group purportedly made at the board meeting held on 06.09.2002, pursuant to the award must satisfy the mandatory requirements of Section 108(1), which has been vehemently opposed by the respondents on the strength of a decision in Muthuveeran Chetty v. Govindan Chetty (supra), wherein it has been held that any transfer of interest in a promissory note under an award will only be transmission and, therefore, does not attract the requirements of Section 108(1) of the Act. While a transfer is effected by act of parties, transmission by operation of law takes place where a person acquires an interest in the property by operation of law. In this connection, the provisions of Section 108 assumes utmost relevance, the relevant portion of which reads thus: 108(1) A company shall not register a transfer of shares in, or debentures of, the company, unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee and specifying the name, address and occupation, if any, of the transferee, has been delivered to the company along with the certificate, relating to the shares or debentures, or if no such certificate is in existence, along with the letter of allotment of the shares or debentures: Provided that where, on an application in writing made to the company by the transferee and bearing the stamp required for an instrument of transfer, it is proved to the satisfaction of the Board of directors that the instrument of transfer signed by or on behalf of the transferor and by or on behalf of the transferee has been lost, the company may register the transfer on such terms as to indemnity as the Board may think fit: Provided further that nothing in this section shall prejudice any power of the company to register as shareholder or debenture-holder any person to whom the right to any shares in, or debentures of, the company has been transmitted by operation of law.

It is clear from Section 108(1) that for any transfer of shares or debentures an instrument of transfer in the prescribed form duly stamped, executed by the transferor and the transferee together with the certificates relating thereto or if no certificate has been issued, the letter of allotment therefore, should be submitted to the company.

Where the instrument of transfer signed by the transferor and the transferee has been lost, the board may register a transfer on the application by the transferee and on his executing a bond of indemnity.

The board may register the name of a shareholder or debenture holder without execution of an instrument of transfer form but on an application made to that effect in case of transmission by operation of law. Thus, where title to the shares has passed by operation of law, no further formalities have to be completed so that neither duly stamped instrument of transfer nor an application in writing itself bearing the requisite stamp is necessary. The Act does not contain any express provisions as to transmission of shares. The second proviso to Sub-section (1) of Section 108 merely states that nothing contained in that section shall prejudice any power of the company to register as shareholder or debenture-holder any person to whom the right to any shares in, or debentures of, the company has been transmitted by operation of law. However, Table-A Schedule I to the Act contains regulations 25 to 28 dealing with transmission of shares, such as on the death or insolvency of a member and not on any other account. In this background, I should necessarily be guided by the judicial precedents brought to my notice in the matter of transmission of shares. When the question whether a member of a joint family to whom a promissory note is allotted at an oral partition among the members of that family can maintain an action on the promissory note as distinct from the debt, in the absence of an endorsement of transfer made on the promissory note or of a deed of assignment executed in respect of that note, came up before the full Bench of the High Court of Judicature at Madras in Muthuveeran Chetty v. Govindan Chetty (supra), it was held that (a) allotment of a promissory note at a partition to a member of a joint family does not amount to a transfer by act of parties but by operation of law; (b) such member is entitled to sue on the note without an endorsement or deed of assignment in writing; and (c) transfer of interest in the promissory note following an award at a partition amounts to a transfer by operation of law. The Division Bench, before arriving at such conclusions, analysed a catena of decisions, one among of which is Amir Bibi v. Arokiam (1917) 45 Ind.

cases 813, dealing with the case of an oral award under which a hypothecation bond was allotted to the holder. The maintainability of the suit by the person to whom the hypothecation bond was allotted was challenged on the ground that even if the award was true, it was not followed up by the execution of a conveyance. Nevertheless it was held that an award may be oral and that an oral award is as binding on the parties as a written award. This decision emphasises the legal proposition that transfer of interest in the bond following an award amounts to a transfer by operation of law. In view of this legal position, the transfer of interest in 11,34,000 shares of the Company belonging to the petitioners group, pursuant to the award, in favour of the respondents would amount to a transfer by operation of law, in which case the second respondents group acquired an interest in the impugned shares by operation of law, as held in Smt. Kamalabai and Ors.

v. Vithal Prasad Co.(Pvt.) Ltd. (Supra) and therefore the impugned transfer need not meet the mandatory requirements of Section 108(1) as reiterated in Mannalal Khetan v. Keddaar Nath and Ors. (Supra) namely, lodging of an instrument of transfer in the prescribed form duly stamped, executed by the transferor and transferee alongwith the share certificates. The law is well settled that the transmission is not transfer and hence, the mandatory provisions of Sub-section (1) of Section 108 requiring the instrument of transfer to be delivered to the Company are not applicable to the case of transmission. It is relevant to point out that the Supreme Court held in (a) Indian Chemical Products Limited v. State of Orissa (Supra) that delivery of an instrument of transfer is not required in the case of transmission of shares; and (b) Life Insurance Corporation of India v. Bokaro and Ramgur Ltd. (Supra) that Section 108(1) and the first proviso thereof do not apply to the cases of transmission by operation of law. Though the petitioners stoutly denied the issue of share certificates, they never contradicted the plea of the respondents that the share certificates, under the signature of, among others, the second petitioner were issued to the shareholders, including the petitioners, who reportedly handed over the same to the second respondent for effecting transmission in the name of the second respondent group. It is on record that at the board meeting held on 06.09.2002 the impugned shares were transmitted in the name of the second respondent group and further recorded the vacation of office as directors by the petitioners, pursuant to the award, which are found to be in consonance with the principles enunciated in the decisions cited supra, namely, Muthuveeran Chetty v. Govindan Chetty and Amir Bibi v. Arokiam.

Furthermore, at the annual general meeting held on 28.09.2002, the vacation of office of director by the petitioners came to be recorded in view of the fact that the petitioners ceased to have any interest in the Company, consequent upon the award passed on 28.02.2002 by the arbitrators. When the entire shares of the petitioners are transmitted in the name of the second respondent group, following the award and thereby ceased to be shareholders, the former cannot raise any grievances on account of vacation of the office as directors of the Company and there is no need for any declaration by the Court that the petitioners vacated their office, as claimed by them. These acts can neither be illegal nor oppressive against the petitioners, to derive benefit out of the decision in Needle Industries (India) Limited v.Needle Industries Newey (India) Holding Ltd. (Supra) and cannot be remedied by the CLB in exercise of its vast powers as envisaged in Shoe Specialities Private Limited and Ors. v. Standard Distilleries and Brewaries Private Ltd. and Ors. (Supra) and in such an event there is no need for execution of the award in accordance with the Order 21 Rule 80 CPC, especially when, the petitioners were not required to carry out the award by transferring the shares to the respondents and therefore the decision in T.A.K. Mohideen Pichai Taraganar v. Tinnevelly Mills Company Ltd. (Supra) is not applicable to the facts of the present case: In this background, the stipulations made in the award that (a) wherever the whole of properties of any company are allotted, the parties shall execute necessary share transfers in favour of the "Allottee Party" and (b) the award is enforceable in accordance with Section 36 of the Act, 1996 will in no way adversely affect the transmission effected by the Company in favour of the second respondent and his nominees. Similarly, there is no force in the argument of the petitioners that the award not having been registered is not enforceable in view of the fact that (a) transmission of the shares already stands effected in the name of the second respondent group; and (b) petitioners claimed M/s Tan India Mines & Minerals Limited in BIFR proceedings on the strength of the award and therefore, the decision in Lachhman Dass v. Ram Lal and Anr. (supra) does not go in the aid of the petitioners.

The grievance on account of appointment of the fourth respondent as director at the board meeting held on 06.09.2002 does not survive on account of the fact that the fourth respondent was not re-appointed at the annual general meeting held on 28.09.2002 and further that the fourth respondent reportedly died, subsequent to the filing of the company petition, putting to an end the controversy. The charges levelled in regard to non-sending of notices of the board meetings and general meetings can no longer be pressed into service, upon the transmission of impugned shares in favour of the second respondent group. The charges of fabrication of records and misappropriation of funds remain to be bare pleadings without being supported by any material. The petitioners have not justified the prayer either to appoint an administrator or order investigation into the affairs of the Company. Furthermore, the transmission of shares in the name of the second respondent group and the consequent vacation of the office as directors by the petitioners are already found to be pursuant to the award dated 28.02.2002 and therefore, do not constitute an act of oppression, justifying an order of winding up against the Company under just and equitable clause in terms of Section 397(2)(b) and in such an event, the petitioners are not entitled for any reliefs, as held in Ruby General Hospital Ltd. and Anr. v. Dr. Kamal Kumar Dutta and Anr.

(supra). In view of this, the resolutions passed either at the board meeting or annual general meeting are neither illegal nor oppressive, warranting the interference of this Bench. All the issues are answered accordingly and the company petition as well as the connected company application stand disposed of in these lines, without, however, any order as to costs. In view of this, the interim order made on 08.09.2003 is vacated.