TMI Blog2000 (3) TMI 929X X X X Extracts X X X X X X X X Extracts X X X X ..... to the joint names of the widow, son and the daughter. This application was signed by the three legal heirs. In this application it was not mentioned that the fourth legal heir is the mother of the deceased who was still living. Application was made for the transmission of all (100 per cent) the shares of the deceased whereas they were entitled only to transmission of 75 per cent of the shares. On the necessary application being made, the respondent was granted the succession certificate on 31-1-1989 which was issued on 24-2-1989. In the application before the Civil Judge, Senior Division, Pune, the interest of the mother was not disclosed. The mother filed Misc. Application No. 526 of 1989 for revocation of the succession certificate. She, however, died during the pendency of the application on 2-9-1989. She left behind a Will under which she appointed Shri Prahlad P Chhabria, Shri Kisan P Chhabria, Shri Bhagwandas P Chhabria and Shri Narayan P Chhabria as executors and trustees. These executors were brought on the record of the proceedings on 31-10-1992. Thereafter the appeal was admitted on 9-10-1995. However, the ad interim order dated 18-8-1992 was vacated. The appeal was ul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act. However, by virtue of sub-section (14) of section 111, it applies now only to private limited companies and deemed public companies under section 43A of the Act. The remedy under section 111(2) would not be available to the respondent as the appellants are public limited companies governed by provisions of section 111A. The learned counsel submits that only remedy open to the respondent is by way of a civil suit. In support of this argument, reliance is placed on the judgment of the CLB in the case of Shashi Prakash Khemka v. NEPC Micon Ltd. [1997] 26 CLA 316 / 13 SCL 260 . In this case it is held by the CLB as follows : " Fourth issue : This issue relates to the remedy available to an investor of a public company, in view of our finding that he cannot move the CLB either through an application under section 111(2) or an appeal under section 111(4). Any right to move the CLB in respect of a public company, could only be under the provisions of section 111A. As far as transfer matters are concerned, now provision exists under the proviso to section 111A(2) as well as section 111A(3). However, the prayer for rectification in respect of non-transfer matters cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g with an appeal preferred under sub-section (2) or an application under sub-section (4) may pass certain orders. Sub-section (2) of section 111 enables a party to approach the CLB on refusal or failure of a company to register transfer or transmission of shares. Sub-section (4) of section 111 provides the remedy of an application to the CLB for rectification of the register of members. Thus, the inaction of the appellants in the present case ought to be treated as a deemed refusal and the petition would be maintainable under sub-section (2) of section 111A. The CLB has, however, not considered the argument noticed above as it has interpreted the term intimation of transfer occurring in the proviso to section 111A(2) to mean an intimation of transmission . 5. I have considered the arguments put forward by the learned counsel. The CLB has not considered the argument of the respondent to the effect that the provisions contained in sub-sections (2) and (4) of section 111 would be applicable while considering the petitions under section 111A. In such circumstances, normally the Court would remand the matter to the CLB for a fresh decision. But, from the facts narrated above, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scribed in the Act itself that the petition has to be filed within the stated time limit. 7. Whilst interpreting the various provisions the CLB purports to be guided by the principles laid down by the Supreme Court in the case of Reserve Bank of India v. Peerless General Finance Investment Co. Ltd. [1987] 61 Comp. Cas. 663. The Supreme Court has observed as follows : "Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word, if a statute is looked at in the context of its enactment, with the glasses of the statute-maker provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With thos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eaning it is always necessary to get an exact conception of the aim, scope and object of the whole Act. Thus, it is necessary to keep in mind as to what was the law before the Act was passed? What was the mischief or defect for which the law had not provided? What remedy the Parliament has appointed and the reason of the remedy? If a literal construction would not promote the object of an Act but would produce an absurd result, the Court would avoid such a result if another construction of the relevant provision was possible. This is precisely what has been laid down by the Supreme Court in Peerless General Finance Investment Co. Ltd. s case ( supra ). The CLB, therefore, ought to have analysed the text as well as the context of the various provisions of the Companies Act read with the Depositories Act. It should have found out the reasons for the enactment. For this purpose the whole statute had to be read clause by clause, phrase by phrase. Interpretation ought to have been such that every phrase has its place within the section and be in affinity with the objects which promoted the enactment. The CLB ought not to have ignored the argument based on section 111A(7). Then it wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the parties, either dismiss the appeal or reject the application, or by order ( a )direct the transfer or transmission shall be registered by the company and the company shall comply with such order within ten days of the receipt of the order; or ( b )direct rectification of the register and also direct the company to pay damages, if any, sustained by any party aggrieved." 10. A perusal of these provisions shows that section 111 was a very comprehensive section, dealing with rights, remedies and jurisdiction. It was applicable both public and private limited companies. Sub-section (1) casts a duty on the company if it refuses to register the change of any rights in shares, within two months of receipt of instrument of transfer or intimation of transmission , to send notice of refusal to the transferor, transferee or the persons sending the intimation of transmission . The notice must given reasons for refusal. Section 111(2) enabled a transferor, transferee, or person who gives intimation of transmission by operation of law to file appeal before the CLB. This is in case of refusal or failure of the company in registering the change in rights/ownership of shares o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." From a perusal of the above, it becomes apparent that there was a mandate given to the company not to register transfer of shares unless a proper instrument of transfer was delivered. In case of transmission of shares by operation of law it was necessary to deliver the intimation of transmission . This then was how the law stood, before the passing of the Depositories Act. 12. In the 1980s India as a nation had decided to modernise, liberalise and open its economy. Thus, it was necessary that there should be free transferability of stocks and shares. Paper based ownership and transfer of shares was proving to be major drawback of the Indian stock market, as it often resulted in delay in settlement and transfer of shares. It led to bad delivery, theft, loss and forgery of shares. As a result the investor was deprived of liquidity. Great deal of avoidable litigation due to forgery, theft and bad delivery was pending in the Courts. Thus, to pave the way for smooth and free transfer of share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "(14) In this section company means a private company and includes a private company which had become a public company by virtue of section 43A of this Act." This section limited the operation of section 111 to private companies including private companies which had become public companies by virtue of section 43A of the Act. Thus, this section is not applicable to public companies. By enactment of this sub-section the remedy of appeal and rectification provided to the shares held in public companies under sections 111(2) and 111(4) has been omitted. Therefore, provision for the continuance of the remedies under sections 111(2) and (4) had to be made in the Depositories Act. 14. These remedies were sought to be provided by adding section 111A. But mistakes seem to have crept in at every stage of drafting the necessary provisions. This can be seen by examining the original provisions of section 111A and the efforts made by the Legislature to correct the mistakes. The relevant provisions of section 111A as originally drafted are as under : " Rectification of register on transfer (1) In this section, unless the context otherwise requires, company means a company other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rogation thereof. This is not the intention of the Parliament as expressed in section 28 of the Depositories Act. In order to rectify the two provisions mentioned above, the Depositories Act was amended by Depositories Related Laws (Amendment) Act, 1997. By this amendment a proviso was added to section 111A(2) and section 111A(3) was substituted. The proviso and the substituted section 111A(3) are as follows : "Provided that if a company without sufficient cause refuses to register transfer of shares within two months from the date on which the instrument of transfer or the intimation of transfer, as the case may be, is delivered to the company, the transferee may appeal to the Company Law Board and it shall direct such company to register the transfer of shares. (3) The Company Law Board may, on an application made by a depository, company, participant or investor or the Securities and Exchange Board of India, if the transfer of shares or debentures is in contravention of any of the provisions of the Securities and Exchange Board of India Act, 1992 (15 of 1992), or regulations made thereunder or the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) or any ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 111A provides additional benefit to the shareholders in public companies which they already enjoyed and continue to enjoy under section 111. Only then would be proviso give effect to the intention of the Legislature. The interpretation cannot be such as to deny the right of appeal to shareholders of a public company on the basis of the mode of transfer or transmission. At the same time it should not leave the shares held in depositories without a remedy of appeal. Substitution of the term intimation of transfer with intimation of transmission would remove the right of appeal given to shares held by depositories. This is not the intention of the Parliament. 16. The CLB, in my view, has unnecessarily fallen into confusion over the term intimation of transfer . As noticed earlier all shares held in depositories are to be dematerialised and fungible. Transfers are to be effected electronically. Remedy of appeal is provided if the transfer is not registered by the company (issuer) or depository within two months of the receipt of intimation of transfer . It is in this sense that the term intimation of transfer has been used in the proviso. 17. Another justification giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e would be to interpret the provisions in such a way that the term intimation of transmission is included in the proviso by virtue of section 28 read with section 111A(7). This would harmonise the text of the proviso with the context of the whole statute, i.e. , Depositories Act. Viewed in this manner, it is to be seen that both the terms instrument of transfer and intimation of transmission are mentioned in section 111(1) and section 111(2). By virtue of section 117A(7), whilst exercising the powers under section 111A, the CLB is to decide the appeal by applying the provisions of sections 111(5), (7), (9), (10) and (12). Thus, the term intimation of transmission is deemed to be included in the proviso to section 111A(2) by necessary implication. This in my view is the only harmonious construction which can be put on proviso to section 111A(2) to give effect to the intention of the Legislature. The proviso cannot be read in isolation. It has to be read in the manner indicated above. No dichotomy or disharmony can be created in the rights and remedies of the shares held in public companies : object of the Depositories Act (section 28) is to make law in addition and not in d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4)? As noticed earlier, the provisions of the Depositories Act are in addition to and not in derogation of the existing provisions of the law. Therefore, it cannot be held that by virtue of section 111(14) the provisions of sub-sections (1), (2) and (4) of section 111 are not applicable to public companies. Sub-section (1) of section 111 makes it incumbent on the company to serve a notice of refusal of transfer within two months of the delivery of instrument of transfer or intimation of transmission. This provision is now incorporated in proviso to section 111A(2). But an additional benefit has been given to the shareholders in that no limit is provided for filing the appeal against the refusal or neglect of the company or the depository to transfer the shares. For this reason section 111(3) has not been incorporated in section 111A(7) which provides the manner in which the applications are to be decided by the CLB under section 111A. Sub-section (14) of section 111 cannot exclude the application of sub-sections (1), (2) and (4) of section 111 to shares held in a public company as it would then be in conflict with section 28 of the Depositories Act. Under this section, the law made ..... X X X X Extracts X X X X X X X X Extracts X X X X
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