TMI Blog1986 (2) TMI 283X X X X Extracts X X X X X X X X Extracts X X X X ..... te Jadu Nath Sarkar, (2) Late Bijoy Nath Sarkar, (3) Late Anadi Nath Sarkar, (4) Late Birendra Nath Sarkar, (5) Late Akhil Nath Sarkar, (6) Late Sasi Sekhar Sarkar, (7) Sri Probodh Kumar Sarkar, (8) Sri Sukumar Sarkar, (9) Late Anil Kumar Sarkar, (10)Sri Bijon Kumar Sarkar and (11) Sri Arabinda Sarkar. It is not in dispute that seven out of the eleven joint holders of these shares were dead at the time of purchase of the shares by the respondent. On or about August 5, 1979, the respondent sent the above shares to the company together with the transfer deed as executed by the surviving shareholders as well as the heirs of the deceased joint-holders. On or about September 27, 1979, the respondent received a letter from the company signed by its secretary to the effect that all these documents forwarded by the respondent together with the said shares had been placed at the meeting of the board of directors of the company and it was the view of the board of directors that it would not be lawful for the company to register the transmission of these shares without having a clearance and/or exemption certificate from the Controller of Estate Duty in respect of the aforesaid shares. By t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r-the same in the name of the respondent and for necessary rectification in the relevant shares register by entering therein the name of the respondent in respect of the said 100 equity shares. As stated above, the said application has been allowed by the court of the first instance. Mr. P. C. Sen, learned counsel appearing for the appellant, submits that there has been no default on the part of the appellant in making the necessary rectification in the company's share register as prayed for by the respondent. Mr. Sen submits that under section 108 of the Companies Act, 1956, a company shall not register a transfer of shares unless, a proper instrument of transfer was duly stamped and such stamped instrument of transfer was delivered to the company. It is the submission of Mr. Sen that in the present case admittedly, the transfer, deeds which were submitted by the respondent to the appellant-company for effecting and recording transfer of shares in the share register of the company were not duly stamped in the sense that the (adhesive) stamps as affixed on each of the said transfer deeds were not duly cancelled by the respondent as required by section 12 of the Indian Stamp Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny other case, within two months from the date of such presentation". The relevant provisions of section 12 of the Indian Stamp Act, 1899, are as follows: "12. Cancellation of adhesive stamps. (1) ( a ) Whoever affixes any adhesive stamp to any instrument chargeable with duty which has been executed by any person shall, when affixing such stamp, cancel the same so that it cannot be used again; and ( b ) Whoever executes any instrument on any paper bearing an adhesive stamp shall, at the time of execution, unless such stamp has been already cancelled in manner aforesaid, cancel the same so that it cannot be used again. (2) Any instrument bearing an adhesive stamp which has not been cancelled so that it cannot be used again, shall, so far as such stamp is concerned, be deemed to be unstamped. (3) The person required by sub-section (1) to cancel an adhesive stamp may cancel it by writing on or across the stamp his name or initials or the name or initials of his firm with the true date of his so writing, or in any other effectual manner". Mr. Sen contends that in order to enable the company to record the transfer of shares, the transfer deed has to be duly stamped. In his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed, discloses no cause of action. Mr. Sen submits that if it is held by this court that the said transfer deed not being duly stamped nor duly cancelled within the meaning of section 108 of the Companies Act or section 12 of the Indian Stamp Act, the company cannot be directed to make rectification of the register as prayed for by the respondent, then in that case, it may not be necessary for the court to hold whether the production of the succession certificate or probate or estate duty clearance is necessary or not. Since the point has been urged in the court of first instance by the respondent-petitioner, Mr. Sen submits that article 44 of the articles of association of the company confers a discretion upon the directors whether or not to recognise the heirs of a deceased shareholder without production of the succession certificate or probate, as the case may be. He submits that, in the facts and circumstances of the case, the directors did not know personally either the deceased shareholders or their heirs. Most of the deceased jointholders died a long time ago and in that view of the matter, the directors exercised their discretion properly in asking for the succession c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l also cites decisions of various High Courts to show that even when the provisions Contained in section 108 of the Companies Act, 1956, were not complied with, the court, in the facts and circumstances of the case, directed the company to make the necessary rectification of register of transfer under section 155 of the Companies Act, 1956, or under section 111 of the Companies Act, 1956. The cages cited by the respondents are: Rangpur Tea Association Ltd: v. Makkanlal Samaddar [1973] 43 Comp-Cas 58; [1972] Tax LR 2439 (Cal), Babulal Choukhani v. Western India Theatres Ltd. [1958] 28 Comp Cas 565 ; AIR 1957 Cal 709, Bajaj Auto Ltd. v. N. K. Firodia [1971] 41 Comp Cas 1; AIR 1971 SC 321, Hoshiarpur Azad Transporters P. Ltd. [1983] 54 Comp Cas 254 (P H), Gulabrai Kalidas Naik v. Laxmidas Lallubhai Patel [1978] 48 Comp Gas 438; [1978] Tax LR (NOC) 33 (Guj), Jatia Cotton Mills Ltd. v. Ram Prosad Bajoria [1975] 45 Comp Cas 686; [1975] Tax LR 1489 (Cal). Learned counsel also relies on two English cases, one, Imperial Chemical Industries Ltd. [1936] 2 All ER 463 and another, Sussex Brick Co. [1904] 1 Gh 598. Learned counsel appearing for the respondent subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny non-compliance with the provisions contained in section 108 of the Companies Act, the company will be justified in refusing to transfer the share in the names of the respondents as stated above. In support of this contention, Mr. Sen cites a decision of the Supreme Court in the case of Mannalal Khetan v. Kedar Nath Khetan [1977] 47 Comp Cas 185 ; AIR 1977 SC 536; [1977]Tax LR 1638.. The question that arose in that case was whether the provisions of section 108 of the Companies Act, 1956, were mandatory in regard to the transfer of shares. Considering the said question, the Supreme Court observes that the words ''shall not register" are mandatory in character and such mandatory character is strengthened by the negative form of the language. It is the view of the Supreme Court in this case that the prohibition against transfer without complying with the provisions of the Act is emphasised by the negative language and such negative language is worded to emphasise the insistance of compliance with the provisions of the Act. It is further observed by the Supreme Court in this case (at page 191): "Prohibition and negative words can rarely be. directory. It has been aptly stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies Act, it is provided that it shall not be lawful for the company to register a transfer of shares unless the proper instrument of transfer duly stamped and executed by the transferor and the transferee has been delivered to the company along with the share scrips. Mr. Daphtary contends that in asking for an order of rectification of the register pursuant to unstamped transfer forms, the petitioners are asking respondent No. 1-bank to do something which is unlawful; and he further argues that before the petitioners could maintain this petition, it was incumbent upon them to have got the transfer forms properly stamped. Now, it has to be remembered that right up to the time the petition was filed, there never was any dispute between the petitioners and respondent No. 1 bank on the question of stamps. Respondent No. 1 bank resisted the application of the petitioners to transfer the shares to its name only on the ground that it has a lien on these shares. It was never suggested by the bank that the transfer forms should be stamped nor did it ever call upon the petitioners to stamp them with the proper stamps. Nor is there any suggestion that the petitioners ever refused to stamp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. [1945] 15 Comp Cas 53 ; AIR 1945 Bom 149, observed that: "Of the merits of the matter we have no concern, when the statute is mandatory in its terms, and admittedly has not been complied with. That being so, how can it be said that the transferee's name was omitted from the register without any sufficient cause. The petitioners did not comply with section 34, sub-section (3), and did not deliver a proper instrument of transfer duly stamped. The company would have been breaking the law if they had registered the transfer. 1 think, if I may say so with greatest respect to the learned trial judge, that he was led away by the controversy on the question of lien and has not given sufficient weight to this condition precedent". With this observation, the learned judges of the Bombay High Court set aside the order of the trial court. The next case cited by Mr. Sen is the case of Jagdish Mills Ltd., In re [1954] 24 Comp Cas 241; AIR 1955 Bom 79.; The Special Bench of the Bombay High Court in this case held that if a company registered an instrument of transfer of shares which was not duly stamped, it would be doing something which was not lawful, and further that there was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the law gave the company power to refuse to register in case the transfer deed was not duly stamped. In this case, what happened was that the petitioner sent a cheque for the value of stamps necessary to be affixed on the transfer deed to the company and the company failed to affix necessary stamps on the transfer deed. In this case too, the company refused the registration on other grounds but not on the ground of not putting due stamps on the transfer deed and it was contended in this case that the said objection of stamp had not been taken at the time of registration. P. B. Mukharji J. (as he then was), speaking for the Bench, answered the said contention by observing as follows: (at page 583) "Assuming that it was only under Article 52 that the company had rejected the registration of the transfer of the shares, but the law gives the company power to refuse to register in case the transfer deed is not duly stamped. That point was taken in the written statement of the defendant company. In fact, it is one of the main issues in the suit. The issue was ' Was the transfer deed duly completed?' If the law requires stamp on the transfer deed, it cannot be said to be complete wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of section 108 of the Companies Act, 1956, are mandatory in nature. Learned counsel appearing for the appellant contends that it is mandatory and that the company is not bound to effect the transfer on the basis of an instrument not duly stamped and his submission is also that the court cannot give any direction to the company to effect the transfer of shares and rectify the share register on the basis of the instrument of transfer which has not been duly stamped. Learned counsel, appearing for the respondent, contends that the company, before refusing the transfer of shares or rectifying the register of shares should give notice to the petitioner that such transfer cannot be made on the ground of non-cancellation of stamp on the back of the transfer deed. Learned counsel for the respondent, further contends that had the petitioner such notice, then the defect could be rectified by cancelling the stamp before registering the transfer. It is also the contention of learned counsel for the respondent that in any event, the company itself could have cancelled the stamp before registering the transfer. It is provided by section 12 of the Indian Stamp Act that an adhesive stamp m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect the transfer of share and rectify the register even though the adhesive stamps were not cancelled at the time of execution of the document. It is our view that it is not the obligation of the company under the law that the company should have cancelled the stamp and rectified the share register accordingly. This point has been fully considered in the Bombay decision reported in [1954] 24 Comp Cas 241 ; AIR 1955 Bom 79 ( Jagdish Mills Ltd., In re ) , and also the decision of this court in Babulal Choukhani v. Western India Theatres Ltd. AIR 1957 Cal 709, [1958] 28 Comp Cas 565. Learned counsel appearing for the respondent also contended that such non-cancellation was merely a formal defect and on the ground of such formal defect, the company could not refuse to rectify the share register. In support of his contention he relies on a decision of "this court in the case of Madanlal Patodia v. Luxminarayan Cotton Mills Ltd. [1976] 80 CWN 1070, [1978] 48 Comp Cas 747. The learned judge in this case observed that "the appeal by the petitioners before the Company Law Board under section 111 of the Companies Act was rejected solely on the formal defect that the stamps on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kedarnath Khetan [1977] 47 Comp Cas 185 ; AIR 1977 SC 536; [1977] TLR 1638. In these circumstances, if the company is asked to rectify the register by accepting such instrument not duly stamped, the company will be acting contrary to law. It has been contended by Mr. Mukherjee, learned counsel for the respondent that even if any instrument is not found to be duly stamped under the provisions of the Indian Stamp Act, 1899, such instrument, not duly stamped, may be impounded and the person executing the stamp may put in: the requisite stamps or duty upon the payment of penalty as provided in the Indian Stamp Act, 1899. We do not find any substance in this contention of Mr. Mukherjee for the reason that under section. 35 of the Indian Stamp Act, 1899, the instrument not duly stamped cannot be admitted in evidence and to make such instrument admissible in evidence, the instrument is required to be impounded in accordance with the provisions contained in Chapter IV of the Indian Stamp Act, 1899. This is not the case in this present appeal. The question in this appeal, as we have already noted is whether the company is bound in law to accept any instrument not duly stamped within th ..... 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