TMI Blog1981 (9) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... reholder. Since both the appeals seek to challenge the same order and on the same grounds we are disposing of them by this common judgment. For the sake of convenience we will take facts from Appeal No. 344 of 1981. The appellant is a public limited company and is hereinafter referred to as "the Company" Respondent No. 1 is a private limited company and is a shareholder of the Company; respondent No. 2, is both a shareholder as well as a director of the Company. Respondents Nos. 3 and 4 are the Controller of Estate Duty and the Regional Director of the Company Law Board respectively, whereas respondent No. 5 is the Union Bank of India from whom some of the shares in dispute were purchased by respondent No. 2 and her deceased mother, Shantaben Kapadia. Respondent No. 1 has filed the present petition, as stated earlier, under section 155 of the Act for rectifying certain entries in the appellant company's register of members. The said entries relate to five different lots of shares, made in the name of respondent No. 2. In the petition, respondent No. 1 has also prayed for the appointment of a receiver in respect of the said shares and for an injunction restraining the appellant- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Kapadia, who was dead on the date the entry was so made, and, therefore, the subsequent entry in the name of respondent No. 2 and the said Shantaben had also become illegal and, secondly, on the ground that the Company being registered under the Monopolies and Restrictive Trade Practices Act, 1969 (hereinafter referred to as "the MRTP ACT"), was barred by the provisions of sections 108A to 108H of the Act, without the consent of the Central Govt. Although both in the petition as well as in the affidavits in support of the judge's summons, several other grounds were urged. It appears that at the time of the hearing of the judge's summons, the attack was confined only to the aforesaid grounds and the learned single judge has also granted interim relief to the petitioner only on the said grounds and, therefore, we need consider the validity of the said grounds only, in this appeal. The learned judge, as stated earlier, by his impugned order dated July 31, 1981, has restrained respondent No. 1 to the petition, i.e ., the appellant-company from recognising respondent No. 2 as the owner of and/or from allowing respondent No. 2 to exercise voting or any other right in respect of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id Shantaben or in any event in the name of the said Shantaben before they were transferred in favour of respondent No. 2. In other words, the substance of this prayer is to restore the status quo ante of the entries in the register. It is one thing to argue that today in effect the grant of prayer ( a ) would be to show the said shares in the names of dead persons, i.e ., either Navin Kapadia or Shantaben and quite a different thing to submit that the relief claimed in the petition being to show the shares in the name of dead persons, the petition itself is not maintainable. The sum and substance of the contents of the petition read with the said reliefs claimed by the petitioner is that the basis on which the transfers were effected first in the name of Shantaben and, thereafter, in the name of respondent No. 2 being itself incorrect, the entries should be restored to the status quo ante. That being the gist of the petition as well as the relief claimed in prayer ( a ), it can hardly be contended that the petition is not maintainable on the ground suggested by Shri Chagla. The same is the case with regard to the relief claimed in prayer ( c ). Here again what is challenged is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on aggrieved but also any member of the Company may apply to the court for a rectification of the register of members. If the intention of the Legislature was to confine the remedy only to the aggrieved persons as contended by Shri Chagla, then there was no need to add a further category of "any member of the Company" after giving such right to "the person aggrieved". The clear provisions of the section, therefore, militate against accepting the limited construction sought to be placed by Shri Chagla on the provisions of the said section. Secondly, the object of the said provisions does not support his contention. Read as a whole, it appears that one of the intentions of the Legislature is to ensure a register of members, which reflects reality at any particular point of time. That is why the Legislature has extended this right to any member of the Company without compelling him to show a particular or a special prejudice caused to him by an incorrect or a wrong register of members. Hence, to confine the right to file the application only to an aggrieved member or a member who is in a position to show some special prejudice, will go counter to the object of the section. For both th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the relief of injunction claimed in the suit. In any case, at this interlocutory stage, it is not necessary to decide the said issue. The facts pointed out by Shri Chagla are certainly relevant for considering whether the interim relief as prayed for by respondent No. 1 ought to be granted. This will be done at the proper stage. The last of the preliminary objections was directed not so much against the maintainability of the petition but against the maintainability of the judge's summons for interim relief and this objection was raised also by Shri Mehta on behalf of respondent No. 2. The argument was that the proceedings under section 155 being themselves summary in nature, an application for interim relief in such a proceeding was not maintainable. In this connection, Shri Chagla submitted that the provisions of section 155 of the Act do not provide for making any such application unlike the provisions of some other sections in the Act such as sections 388C, 391(6), 403 and 443. He also further referred us to [1918] 2 Ch D 324 (CA) (Siemens Bros. Co. Ltd. v. Burns), where it is observed that as to the question of registering a portion of the shares in the names of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the proceedings and it is while dealing with this question that the court took the view that it was not a matter which ought to be dealt with on an interlocutory application. On the other hand, these observations go to show that some interlocutory reliefs may be granted though not all reliefs. We are, therefore, of the view that it cannot be laid down as a rule of law that no application for interlocutory relief in proceedings under section 155 is maintainable. On the contrary, we take the view that as in all other proceedings, in proper cases, an application for interlocutory relief even under section 155 is maintainable, notwithstanding its summary nature. The fact that the proceeding is summary may be relevant while considering whether a particular relief claimed in such proceeding should or should not be granted. That, however, is a different proposition. Coming now to the merits of the case, it is necessary first to state a few facts relating to the shares in question. Respondent No. 2 is the sister of one Navin Kapadia, who died on April 19, 1979, and Shantaben Kapadia died on April 2, 1980. On the death of Navin Kapadia, Shantaben was the heir entitled to the shares, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner that the entires in respect of the said shares in the membership register are illegal, firstly, because the said entires were made during the period the Company's Register of Members was closed from April 24, 1980, to May 23, 1980, under section 154 of the Act and, secondly, because no such entry could have been made in the said register unless there was a certificate from respondent No. 2 the Controller of Estate Duty read with article 56 of the company's articles of association. As regards the objection to the entry on the ground that it was made during the period of closure, the specific allegation in that respect is that when shares at Exs. A and B were transferred from the name of Shantaben to the name of respondent No. 2 on May 8, 1980, the register of members of the Company was admittedly closed under section 154 of the Act. Under the provisions of sub-section (2) of section 163 of the Act, the said register, among others, is not available for inspection to the members and, therefore, it is not permissible for the Company to make any entry in the register of members during the said period and any entry so made becomes ipso facto illegal. We are unable to accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s further can be exercised at any time during the year. For example and this is relevant against the background of the allegations in the present petition the register of members and other books may be closed either prior to, during or subsequent to the annual general meeting. These powers further have nothing to do with the entries regarding the transfer or transmission of shares as such, although if the Company so chooses, it may refuse to register such transfers or transmissions during the said period. In this connection, it would be interesting to note the provisions of the Model Regln. No 23 given in Table A of Sch. I to the Act That regulation states that "subject to the provisions of section 154, the registration of transfers may be suspended at such times and for such periods as the Board may from time to time determine: Provided that such registration shall not be suspended for more than thirty days at any one time or for more than forty-five days in the aggregate in any year". The provisions of this regulation again emphasise the enabling powers of the Company and also further stress the fact that it is for the Company to suspend or not, the registration of transfers, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, of the view that there is nothing in law to prohibit the Company from making entries with regard to the transfer or transmission of shares such as the ones which have been made in respect of the shares at Exs. A and B in the present case. Therefore, we are more than satisfied that the entries in respect of shares at Exs. A and B in the register of members on May 8, 1980, are not illegal on that account. Apart from the above legal position, as has been stated by the appellant-Company, in para. 22 of the affidavit dated June 30, 1881, filed on its behalf by one P. J. Kapadia, the Company had also obtained legal advice in the matter and their legal advisors had advised that since the said shares were to be transmitted by operation of law to respondent No. 2 and were not to be transferred in her favour, it would be competent and legal for the Company to register her name as a shareholder in respect of the said shares even during the said period of closure. The Company, therefore, could not be said to have made the entries in question "without sufficient cause." As regards the contention that the said entries could not have been made without obtaining a certificate from the Cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which reliance is placed on behalf of respondent No. l also, according to us, do not prohibit the Company from registering such transmissions without the relevant certificate. In fact, we notice a clear distinction made both in the Act and in the articles of association between a transfer and transmission of shares. To illustrate, while the main provision of section 108(1) and that of the first proviso thereto deal with transfer, the second proviso thereof deals with the transmission of shares. Section 111 of the Act also emphasises this distinction. As regards the articles of association, article 55 states that the Company shall recognise only the executors or administrators of a deceased member as having any title to the share. However, the said article gives a discretion to the board of directors to dispense with the production of probate or letters of administration and register the name of any person who claims to be absolutely entitled to such shares. Article 57 then states that subject to the provisions of articles 54 and 55, any person becoming entitled to any shares in consequence of the death, lunacy, bankruptcy or insolvency of any member, or by any lawful means oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t being inconsistent with the said provisions of law, had no operative value. Assuming that we are wrong in our interpretation both of section 84 of the E.D. Act as well as of article 56 of the articles of association, we are not satisfied that in the present case the appellant as well as respondent No. 2 were not entitled to rely upon the said circular for the purpose of the interpretation of the said section 84 of the E.D. Act. As stated earlier, article 56 of the articles of association does no more than incorporate bodily the provisions of the said section 84. If, therefore, they had relied on the said circular issued on June 20, 1968, i.e ., long before the present controversy arose between the parties, it could hardly be said that the Company had not acted bona fide or without sufficient cause, while registering the transmission of the said shares either on May 2, 1979, or on May 8, 1980. We are, therefore, of the view that the grievance made by the petitioner in respect of the entries made either on May 2, 1979, in favour of Shri Shantaben or on May 8, 1980, in favour of respondent No. 2 in the register of members has no substance in it on either count. In any case, it can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Company was registered under the provisions of the MRTP Act, and stood so registered on the date the transfer of the shares was made in the name of respondent No. 2 and Shantaben on April 21, 1980. In support of the contention that the shares were not received by the Company till April 22, 1980, two things have been pointed out. Firstly, the receipt issued by the Company in respect of the said share is dated April 22, 1980, and the same in turn mentions that the shares were received subject to the approval of the board of directors. Secondly, it is pointed out that although it is the contention of the appellant-company as well as respondent No. 2 that the shares were lodged on March 27, 1980, the, entry made in the relevant books show a clear interpolation and the same has not been made in the normal course of business. The contention, therefore, is that since the shares were in fact received for the first time on April 22, 1980, neither the resolution could have been passed on April 21, 1980, in anticipation of the receipt of the said shares nor a transfer in favour of a dead person could have been made on the footing that the transfer deed was lodged on March 27, 1980 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve transpired in between, as surely as on June 13, 1980, the name of the deceased, Shantaben, was deleted and the shares have since come to stand in the name of respondent No. 2. As regards this controversy between the parties with regard to the actual date of the lodgement of the shares, according to us, the controversy for all practical purposes of the present petition is a futile one since it will not affect the present entry made on June 13, 1980. The whole purpose of raising this controversy is to show that the shares were not in fact lodged with the Company prior to the death of Shantaben. The argument is that if they were not so lodged prior to the death of Shantaben, then they could not have been lodged after her death in the manner done. According to respondent No. 1, the whole purpose of showing that they were so lodged on March 27, 1980, was to make out a case that the subsequent transfer of the said shares in favour of respondent No. 2 and Shantaben were both legal and proper. Apart from that, in the first instance, the question whether the shares were lodged on March 27, 1980, or not is not capable of resolution on the basis of the affidavits in view of the allegatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -in-rejoinder in that behalf is that they point out suspicious circumstances with regard to the said entry on March 27, 1980. There is, therefore, no reason why, in the absence of specific allegations of fraud and the details thereof and without proof of such fraud, the court should act at this interim stage to restrain respondent No. 2 from acting as the shareholder in respect of the said shares, when she has exercised her. said rights all along till this date including in an annual general meeting held in the last year. Proceeding on the footing that the shares were not lodged on March 27, 1980, but on April 22, 1980, the next argument advanced on behalf of respondent No. 1 was that respondent No. 2 had not applied to the company to transfer the said shares in her capacity as a joint shareholder and also in her capacity as the legal representative of Shantaben. Further, the transfer effected by the resolution dated April 21, 1980, and shown by the entry in the register on April 22, 1980, was in favour of both respondent No. 2 and Shantaben, who was admittedly a dead person on that date. Shri Parekh relying on these facts, therefore, contended that there could not be a contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion can be called a member of the company. Section 111 of the Act to which he next referred in support of his said contention states that a company has power to refuse registration of any transfer of shares and, therefore, to refuse admission to any person as its member, if the company has reserved such power under its articles of association. This power given to the company by the said section read with the relevant articles of association is in addition to the power which the company has by virtue of the provisions of sections 108, 109 and 110 of the Act, which contain statutory restrictions on transfer of shares. As far as the appellant-company is concerned, article 53 of the articles of association of the company reserves such power to its board of directors and the provisions of the said article show that the board of directors, subject to the provisions of section 111 of the Act, may, at its own absolute and uncontrolled discretion and without assigning any reason, decline to register or acknowledge any transfer of shares. Shri Parekh, therefore, submitted that unless the transfer of shares is accepted by the company, the transferee does not become a shareholder in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fraud. Deeds, obligations, contracts, awards, judgments, or decrees may be the instruments to which parties may resort to cover fraud, and through which they may obtain the most unrighteous advantages, but none of such devices or instruments will be permitted by a Court of Equity to obstruct the requirements of justice. If a case of fraud be established, the court will set aside all transactions founded upon it by whatever machinery they may have been effected, and notwithstanding any contrivance by which it may have been attempted to protect them." In order to appreciate these arguments, it is in the first instance important to note that there is no instrument other than the instrument of transfer prescribed either under the Act or under the articles of association which is required to be lodged with the company when either the transferor or the transferee desires that the name of the transferee be brought on the register of members of the company. In particular, there is no separate form of application prescribed any where which has to be made to the company for the said purpose. The instrument o! transfer which has to be lodged with the company is incorporated in the articles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsferee does get such a right to require the company to accept him as a member. This position in law is not disputed. In fact, the provisions of section 155(1)( b ) of the Act themselves make it clear that a transferee has a right to get his name entered in the register of members, and, if a default is made or unnecessary delay takes place in registering him as a member, the transferee has a right to approach the court for a rectification of the register by calling upon the company to enter his name as a member. If that were not so, the provisions of the said section 155(1)( b ) would be rendered nugatory. Once, therefore, it is admitted that a transferee gets this valuable- right to call upon the company to register him as a member, then, the theory of offer to and acceptance by the company and that of the non-accrual of any rights against the company, unless the contract is complete between the transferee and the company, propounded by Shri Parekh, stands exploded. On the contrary, there is much force in the contention advanced by Shri Chagla that the contract between the transferor and the transferee being complete when the transfer instrument is executed, all that is necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Some companies may reserve such powers. In that case, there is no doubt that the transferee is not entitled to become a member merely by virtue of the transfer deed. However, even where such power is reserved and, in exercise of such power, the company refuses such a transfer, the provisions of sub-section (2) of section 111 of the Act casts an obligation on the company to intimate within a period of two months from the date of the instrument of transfer or the intimation of transfer or transmission, the fact of such refusal, and if no such intimation is sent, the company and every officer of the company makes itself or himself liable to punishment. Further, on receipt of such intimation of refusal, the transferee, the transferor or the person giving the intimation of transmission, has a right to prefer, an appeal to the Central Govt. and apply for a direction to the company to register the transferee as its member. In the present case, apart from the provisions of the said section, article 53 of the articles of association, on which reliance was placed by Shri Parekh, itself makes a provision for the intimation of a refusal to be given to the transferee and the transferor within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer of shares and, apart from this, there is no hindrance to the transferability of the shares of the company. We have further pointed out that even where the company reserves an absolute power to refuse to register a transfer, it can refuse to register a transfer only in a particular case and it has no powers of refusal of transfers in general. The said power is further circumscribed by the right of appeal given to the aggrieved person. This right is apart from the right of the transferee to get the shares registered in his or her name under sub-section (1)( b ) of the present section 155 of the Act. This being the position in law, it is not possible to subscribe to the view that no rights accrue to the transferee against a company before it enters into a contract with him. If this is so, and if there is no fresh contract required to be entered into between the transferee and the company, then it will have to be held, as stated earlier, that when the transferee intimates a transfer to the company, the company merely either recognises such transfer or refuses to recognise it. When, however, it recognises -the transfer, it recognises the transfer deed as was executed on the dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat if the original entry is illegal on this account, then all the subsequent transfers and entries made in respect of the said shares would also become invalid. In fact it would necessitate cancelling all the subsequent transfers and requiring the surviving transferees either to make a fresh application for transfer jointly with the legal representative of the deceased transferee or requiring them to approach the transferor for executing a fresh instrument of transfer in their favour, and if, after they accept a fresh transfer from the transferor (assuming that they succeed in tracing their transferor), at that stage and before a new entry is made on the basis of such transfer deed, again one of the transferees dies, they will have to resort to the same exercise over again. This may in a given case have to be repeated a number of times. It is for this reason that the theory of relation back in the case of transfer of shares will have to be accepted both as a matter of law as well as of practical commercial reality. The reliance placed by Shri Chagla on certain decisions to support his contention in that behalf appears to be justified. In AIR 1959 SC 775 and [1959] 29 Comp. Cas. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consequences will follow. The said provisions are contained in sections 12, 36, 41, 42, 68A, 86, 87, 108A to 108H, 109, 110, 115, 72, read with sections 53(4) and 205(5)( b ) read with section 206. We have carefully gone through all the said provisions of the Act and we are unable to be persuaded that the theory of relation back would result in any such consequences as feared by Shri Parekh. We, therefore, do not think that it is necessary to enter into a detailed discussion of the said provisions. Suffice it to say that there is no inconsistency between the provisions of the said sections and the theory of relation back. As regards the attack on the resolution of the board of directors on April 21, 1980, on the ground that the said resolution was passed in spite of the fact that the board of directors had knowledge of the death of Shantaben, we fail to appreciate the argument advanced in that behalf. Either the entry made in the name of respondent No. 2 and Shantaben in the register on April 22, 1980, was bad in law, because on the date of the entry, one of the joint shareholders, viz. , Shantaben, was dead or it was not. As pointed out earlier, whether the board of directors h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts own knowledge. It is, however, possible to argue in the present case that what was expected of the board of directors was to forbear from making the transfer in favour of Shantaben along with respondent No. 2 once they had knowledge of the death of Shantaben. But this would be so if the action of the company in making the entries on the basis of the transfer deed is held to be unwarranted, unjustified or improper. However, as we have held already, since the transfer accepted by the company relates back to the date of the deed of transfer, the fact that the board of directors had knowledge of the death of Shantaben is unimportant. We will proceed on the basis that they had the knowledge and that they had yet effected the said transfer. If we are right in holding that the transfer relates back to the date of the instrument, then, according to us, the company had no option but to effect in its books such entries as were consistent with the instrument of transfer and that is exactly what the company has done. We may in this connection also point out that all that was sought to be canvassed on the basis of this limb of the argument was that on the date the company passed the resolu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the name of respondent No. 2 alone, which it did. That having not been done, the entry dated April 22, 1980, is illegal and, therefore, the subsequent entry dated June 13, 1980, in favour of respondent No. 2, is also irregular. We are unable to appreciate this argument. Even assuming that the procedure adopted by the company was illegal, that will not make the present entry illegal. This is apart from the fact that while adopting the course which it did the company had acted on the legal opinion obtained by it from its legal advisers. In any case, it can hardly be contended that the other entry made on April 22, 1980, or the present entry is without a sufficient cause. The last attack against the entry in respect of the said shares at Ex. F was that the company had accepted the transfer in respect of the said shares from the Union Bank of India in favour of respondent No. 2 and Shantaben, contrary to the provisions of the MRTP Act. In support of this contention, it was pointed out on behalf of respondent No. 1, that the company was registered under the MRTP Act on November 10, 1975, and it continued to be so registered till November 27, 1980, on which day the registration was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Govt. was obtained, all that was necessary after the company was deregistered in November 27, 1980, was to pass a fresh resolution transferring the shares in favour of respondent No. 2. Since the entry made on June 13, 1980, reflects the true legal and factual position, it was unnecessary to undergo the said exercise. Further, in the circumstances, it can hardly be said that the entries made on April 22, 1980, or on June 13, 1980, were without sufficient cause. We are, therefore, satisfied that even this attack against the said entry is not capable of being sustained. We may further like to point out that even if a court were to accept all the contentions advanced on behalf of respondent No. 1 with regard to the entry in respect of the shares at Ex. F, all that would have become necessary was to require respondent No. 2 to make a fresh application in her capacity both as a joint shareholder and also as the legal representative of Shantaben and get the shares registered in her name alone. But that is exactly what has been done now as is reflected by the entry dated June 13, 1980. We do not think that, in the circumstances, any court would accept such invitation under section 155 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more than one why the court should set its face against granting any such relief to respondent No. 1. In the first instance, the provisions of section 155 themselves show that they can be invoked only when the entries made in the register are "without sufficient cause". It necessarily implies that it is not each and every incorrect entry which would be corrected by the court, while exercising its power under the said section, if there is some basis, a basis on which a reasonable person or body of persons would act to make the entries in question, then the court will not exercise its powers under the said section. If this is so, then can it be said that in the present case, the entries made in respect of the said shares have been made by the appellant-company without any basis or to use the language of the section "without sufficient cause" ? According to us, the answer to the said question must be in the negative. We have pointed out on scrutinising the merits of the attack against the said entries, that the company had acted on credible and legitimately acceptable material and cannot be said to have acted either unreasonably or unjustifiably while making the said entries. To repe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factual and legal position itself is sufficient to displace the petitioner. Secondly, the entries in respect of the shares at Exs. A and B have been standing in the register of members right from May 8, 1980, whereas the entry in respect of the shares at Ex. F has been there on and from June 13, 1980. Since these entries were made, there was already an annual general meeting held on July 18, 1980, and respondent No. 2 exercised her voting rights in respect of all the said shares in the said meeting and has been exercising all other rights in respect thereof since that date. The present petition was filed on June 10, 1981, There is, therefore, an unexplained and inordinate delay in questioning the said entries. Thirdly, it is not disputed that respondent No. 1, who is the petitioner in the present case, has itself filed a suit in the City Civil Court, Bombay, which is pending, viz. , Suit No. 2145 of 1980. The said suit was filed in April, 1980, for an injunction restraining respondent No. 2 from getting the shares at Exs. A and B transferred in her name and restraining the company from transferring the same in her name. The grounds alleged against the said transfer are the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X
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