TMI Blog1993 (10) TMI 362X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and they are all corporate entities. These companies, during the months of June, 1991 ; June, 1992 and September, 1992, lodged with the company, transfer instruments in respect of a large number of shares and the company registered these transfers as per the details indicated below : Sl. No. Name of the company Number of shares transferred I. Mikantra Trading P. Ltd. 61,030 2 Maxwell Dyes and Chemicals P. Ltd. 42.92 3 Swadee Chemicals P. Ltd. 61,170 4 Lazor Detergents P. Ltd. 64,430 5 Saki Agencies P. Ltd. 26,710 6 Alkelite Intermediates P. Ltd. 44,680 7 Skylab Detergents P. Ltd. 37,750 8 NavkStan Commercials Ltd. 40,700 9 Shruti Traders Ltd. 43,590 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an committee but the particulars of these shares were included in the register of share transfers placed before the committee which inadvertently and wrongly approved these transfers. Even the action of the employees of the twelfth respondent was illegal, improper and cannot make the documents proper, legal or valid. It is more so when the fact of cancellation by the twelfth respondent was not brought to the notice of the one man committee. The petitioner further states that the provisions of Section 108(1) of the Act are mandatory and no company could register transfer of shares unless a proper instrument of transfer duly stamped and executed is lodged with the company as provided in that section. Therefore, it is submitted that the respondents' names have been entered in the register of members of the company in respect of such shares as indicated earlier without sufficient cause, and, therefore, it has prayed for rectification of the register of members as provided in Sub-section (4) of Section 111 of the Act since mutation has taken place in the register of members contravening the provisions of Section 108(1) of the Act read with Section 2(11) and Section 12 of the Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r interim relief as indicated in paragraph 9 of the petition. This was strongly opposed by learned counsel for the respondents. The respondents' counsel opposed granting any interim relief on the ground that even the maintainability of the petition on account of delay was questionable. Therefore, it was argued that instead of granting the prayer of the company, the rights PCDs could be allotted to the respondents with the stipulation that no third party interests would be created nor would they exercise any rights vested in these PCDs. Alternatively, it was also suggested that they should be allotted the rights entitlement keeping in abeyance their application for additional rights or they should be allotted both rights and additional rights in respect of 38 per cent of the rights and additional rights pertaining to instruments which had been allegedly cancelled by the employees of the twelfth respondent. None of the above suggestions was acceptable to the petitioner-company. 7. Taking into consideration that a prima facie case had been made out, interim orders on the following terms were passed on February 5, 1993: The entitlement to rights issue/additional rights flow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot make the instruments void as the Indian Stamp Act provisions are only directory. All the instruments of transfer bear the correct stamp and the revenue to the State had been fully protected and accordingly, the respondents have prayed that the petitions be dismissed. 9. When the regular hearing commenced on March 23, 1993, Shri Zaiwala, learned senior counsel appearing for the petitioner-company, tried to establish a link between the respondent-companies and the Reliance group by citing the observation of the Supreme Court of India in Parthasarathy (N.) v. Controller of Capital Issues [1991] 72 Comp Cas 651 (SC), wherein four companies out of the eleven respondent-companies have been held to belong to the Reliance group. 10. He then presented a few transfer forms for perusal by the Bench to show that they have not been cancelled but learned counsel for the first respondent objected to such presentation without their being introduced in evidence. This was not acceptable to Shri Zaiwala as according to him the documents being not duly stamped were illegal and faulty in law and should not and cannot be produced in evidence. He also objected to the demand of counsel for the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent. 12. Shri K.S. Cooper, senior counsel representing the first respondent, presented a Miscellaneous Application No. 61 of 1993, on July 6, 1993, raising preliminary objections to the maintainability of the petitions and sought for either dismissing the petitions or staying the proceedings before us till the preliminary issues raised by him are decided. He elaborated the various grounds raised in the application and on our advice simultaneously argued on the main petition. 13. He contended that the petitions have been filed with mala fide intentions and with some ulterior motives. The company has fraudulently deprived the respondents of over ₹ 3.5 crores invested by them for the rights and additional rights by having obtained the interim restraint order from the Company Law Board. Having registered the shares in the names of the respondents, having paid them dividends, having registered them as members of the company and having given letters of offer for PCDs, it would be against equity now to represent that their recognition as members was based on faulty instruments of transfer. It is more so when the company could attain 90 per cent subscription to PCDs only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat where equities are not in favour of the petitioners, even if they make out a strong case for legal rights in them, the court may refuse to exercise its powers and leave it to the petitioner to approach the civil court by way of a regular suit. 16. He further pointed out to the decision in Jagatjit Industries Ltd. v. Mohan Meakin Ltd. [1991] 2 Comp LJ 288 ; [1994] 80 Comp Cas 411 (CLB) that in determining an application for rectification, the court should consider the conduct of the parties seeking reliefs. 17. He further stated that a perusal of the transfer forms shows that on some of the forms the company has impressed the rubber stamp not duly Stamped with dates but on the same dates they have been approved for registration clearly establishing that the company was aware that some of the instruments had not been cancelled but took the conscious decision to approve registration. If the company had, as it did in a few cases, returned all the instruments for rectification of defects, to the respondents, they could have lodged the instruments later after rectification. This opportunity has been denied, Shri Cooper stressed, by wilful and deliberate action of the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as such the petitioner is guilty of gross lapses and, therefore, is not entitled to seek any equitable or discretionary relief from the Company Law Board. In support of this argument, the decision in Cuddalore Construction Co. Ltd., In re : Somasundaram Pillai (T. V.) v. Official Liquidator [1967] 37 Comp Cas 440 (Mad) was cited where the court observed (at pages 443 and 444) : In considering an application for rectification, the court has always had regard to the lapse of time . . . The applicant cannot take advantage of his own laches . . . This doctrine of laches has a very great significance as otherwise such delay would be fatal to his application for rectification. Shri Cooper also contended that there is clear estoppel operating against the company in presenting these petitions as the company has already recognised the respondents as members and the respondents have also acted on such representation. The company has paid dividends to the respondents, offered rights PCDs and because of subscription by the respondents, the company could also reach the 90 per cent mandatory minimum subscription. Shri Cooper contended that the petitioner has not only by its conduct and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transfers. Therefore, there is fault on both sides and as per the above quotation, the register should remain as it is, he pleaded. 24. He raised the question as to what would be the effect if all the transferors on their own had raised the issue that the stamp had not been cancelled and as such asked for rectification of register. It would amount to the transferor's taking undue advantage after receiving full consideration. He also raised the issue as to the third party rights if any had been created. He also further contended that lapse of non-cancellation is not a great defect and by payment of penalty, if at all there is any, these documents can be made good and this lapse as such does not give a right to the company to seek removal of the name of the respondents. He cited Paradise Motor Co. Ltd., In re [1968] 2 All ER 625 (CA) that non-compliance with the provisions of the Indian Stamp Act is merely a fiscal requirement and negligence of essential matters on transfer may not be fatal to the validity of the transfer but may amount to mere irregularity. According to Shri Cooper in the present case all the due stamp duty has been paid and that non-cancellation was only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n action to rectify the mistakes, they could have also got as a matter of rights, the rights offers from the transferors themselves. Striking off the names at this point of time would affect the rights of the respondents adversely not only with reference to the existing shares but also they would be deprived of the rights issue. 26. According to him, with the payment of stamp duty, the fiscal objective has been achieved, there is no question of infringement of any provisions of the Indian Stamp Act even though some irregularity relating to non-cancellation may be there. Since it is only a procedural irregularity, it does not make the instrument illegal or void. 27. Citing CIT v. Lakshmi Talkies [1984] 145 ITR 191 (Kar) and the provisions of Sections 35 and 36 of the Indian Stamp Act, he argued that once an instrument is validated, the validity will relate back to the original date and as such they are prepared to pay any penalty so that they would be entitled to the rights PCDs. The fiction of the Indian Stamp Act cannot be transported to the provisions of the Companies Act, he urged. Shri Cooper pointed out the provisions of Sections 62B, 63 and 12(2) of the Indian Stamp A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the company and as such there was no outflow of funds from the coffers of the respondents. It is also wrong to say, he asserted, that 90 per cent subscription was achieved only through investments made by the respondents. Actually, the company reached 113 per cent subscription even after eliminating the rights applied for by the respondents. Therefore, Shri Zaiwala pointed out these two so called strong grounds on which the respondents have relied have no basis. Reiterating his allegation that all the respondent companies belong to the Reliance group and they have attempted to take over the control of the company in a surreptitious manner, he pointed out that recently also the Reliance group have lodged a large number of shares for transfer. Therefore, he claims that this alone would merit the consideration that equity lies with the petitioner and not with the respondents. He advocated that had the petitioner-company known that these companies belong to a single group, they could have initiated action earlier under Section 22A of the Securities Contracts (Regulation) Act. He stoutly refuted the allegation that the petitioner-company searched for some infirmities in the instrument ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t him nor could there be any operation of equity as decided in Venkanna Chowdary (Y.) v. Special Deputy Collector, Land Acquisition , AIR 1981 AP 232. Likewise, he cited Bhikraj Jaipuria v. Union of India , AIR 1962 SC 113, to show that when a provision is mandatory, even if it affects a third party on the basis of equity, the illegality cannot be allowed to continue. Therefore, he contended that it is a well-founded principle of law that there is no estoppel against statute. He refuted the reliance on Paradise Motor Co. Ltd.'s case [1968] 2 All ER 625 (CA) stating that in this case the issue related to the provisions of the articles and not statute. He also contended that Section 75 of the English Act is not in pari materia with Section 108 of the Indian Act. He also relied on Guide to the Companies Act by Ramaiya, twelfth edition, at page 523. But as the language of the present section appears to be mandatory, the words used are 'shall not register', and any transfer which does not comply with its requirements will not be valid. 33. Dealing with the contention of the respondents that the proceedings under Section 111 are summary in nature and as such disp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Comp Cas 241 ; AIR 1955 Bom 79, that if a company registers an instrument of transfer of shares which is not duly stamped, it would be doing something which is not lawful. He also cited the decision in Joshi (C.H.) v. Bombay Paper Mills Ltd . [1991] 72 Comp Cas 173 (CLB) in which it was held that adhesive stamps affixed on the transfer instruments are to be cancelled in accordance with Section 12 of the Indian Stamp Act failing which they will not be duly stamped and as under Section 108(1) of the Act it is mandatory the company shall not register the transfer. 36. Shri Zaiwala refuted the arguments that the provisions of the Indian Stamp Act cannot and do not override the provisions of Section 108 of the Act. Non-compliance with the provisions of Section 108 makes the instrument ab initio void. The non-cancellation of the stamps makes the instrument not duly stamped and as such it cannot be registered as it would be against the provisions of Section 108. When the provisions of statute are mandatory, the ab initio defect cannot be cured and the doctrine of relating back cannot be applied, he asserted. 37. According to him, Section 111(4) of the Act stipulates that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their names to be put back on the register as in that case it would mean ordering something which is illegal. Therefore, he contended that when the company itself has approached the Company Law Board for rectification, the Company Law Board should take into consideration the illegality of the registration and order rectification. He drew support from Turner Morrison and Co. Ltd.'s case [1980] 50 Comp Cas 296 (Cal) to indicate that in that case the company was held to have powers to rectify the register of members in case of fraud. 39. Dealing with the requirements of Section 108, he stated that they are both positive and negative. Non-fulfilment of mandatory provisions makes the instrument void and the registration unlawful. Quoting Palmer, Shri Zaiwala pointed out that once an act is found to be unlawful, its rectification is imperative. In support of this, he once again cited Nuddea Tea Co. Ltd.'s case [1988] 64 Comp Cas 775 (Cal) in which it was held that an unstamped instrument is a nullity. Since Section 63 of the Indian Stamp Act provides penalty for infringement of Section 12, it is clear that infringement of Section 12 is illegal and, therefore, such instrume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instruments that have prompted the company to file these petitions, but the allegations of the respondents being Reliance companies. According to him, this itself shows the mala fide intention of the company that the petitions have been filed with an ulterior motive to deny the respondents their right of holding shares in the company. In October, 1991, there was no question of any take-over attempts in view of meagre acquisitions and as such the contention that the company would have acted under the provisions of Section 22A of the Securities Contracts (Regulation) Act is only illusive. He questioned the ratio of counsel for the petitioner citing the Privy Council decision in Dottikaran's case , AIR 1928 PC 92. He asserted that in the Privy Counsel case the issue was impersonation and it has no relevance in a stamp case. He drew our attention to Ma Pwa May v. S.R.M.M.A. Chettiar Firm , AIR 1929 PC 279, to show that documents not duly stamped and admission to registration is an error in procedure and curable under Section 87 of the Registration Act. According to him, the same ratio was followed in CIT v. Lakshmi Talkies [1984] 145 ITR 191 (Kar). He also relied on the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objections. Normally, preliminary objections are to be raised only before admission of a petition or at least before commencement of arguments. However, learned counsel for the petitioner did not contest this and he dealt with each one of the objections. 44. The preliminary objections have been based on the following pre mises :-- 1. Proceedings under Section 155 (now 111(4)) are summary in nature ; 2. In equity and due to mala fides on the part of the petitioner the petitions deserve to be dismissed ; 3. The petitions suffer from non-joinder of the transferors ; 4. On account of delay and laches the petitions should be dis missed; 5. Estoppel operates against the petitioner. Even though learned counsel has projected these issues as prelimi nary issues, we are of the view that issues relating to equity and estoppel deserve to be dealt with along with the merits of the case and not as preliminary issues. We have accordingly done so. 45. The main objection relates to the scope and the powers of the Company Law Board under Section 111(4). Shri Cooper strongly advocated by citing decisions in a number of cases, that the proceedings under Section 111(4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hemical Products Ltd. v. State of Orissa [1966] 36 Comp Cas 592 in which the Supreme Court, while dealing with the scope of Section 38 of the Indian Companies Act, 1913, observed in paragraph 11 (at p. 597) the jurisdiction created by Section 38 is very beneficial and should be liberally exercised . Even in Public Passenger Service Ltd.'s case [1966] 36 Comp Cas 1, the Supreme Court while observ ing (at p. 6) where by reason of its complexity or otherwise the matter can more conveniently be decided in a suit, the court may refuse relief under Section 155 in exercise of the discretionary jurisdiction and relegate the parties to a suit used only the word may and not shall . In other words, it is not mandatory that whenever complicated issues are involved in proceedings under Section 155 (now Section 111) the same should be relegated to a suit. 48. We have come across a recent decision by the Division Bench of the Karnataka High Court in Muniyamma v. Arathi Cine Enterprises Pvt. Ltd . [1993] 77 Comp Cas 97 (Kar) ; [1993] 2 Comp LJ 327 reversing the deci sion of the single judge (see [1991] 72 Comp Cas 555) . Paragraph 55 states thus (at page 124 of 77 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n into account, but as we have explained later we have not considered the conduct of the petitioner to be such that we cannot use the discretionary powers to enter tain these petitions. Accordingly, we are unable to agree with the prayer of Shri Cooper to relegate the parties to a civil suit. 51. Shri Cooper's contention relating to mala fides on the part of the petitioner and that equity is in favour of the respondents as elaborated in earlier pages rests on the following premises : (1) The company obtained mandatory minimum 90% subscription only on account of the respondents applying for the rights PCDs. (2) The rights partly convertible debentures would go to the directors who actually approved the transfer and this would mean putting a premium on dishonesty. (3) The company should have returned the original transfer instru ments in June, 1991/June, 1992, as not duly stamped so that the deficien cies could have been rectified. (4) Mala fides on the part of the petitioner are apparent from the fact that one of the grounds relied on for rectification is the allegation that the respondents belong to the Reliance group. In regard to the first, the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transferee who pays the stamp duty and there is generally no privity of contract between the first transferor and the last transferee. The broker through whom shares are purchased becomes del credere agent and the contractual relationship is only between him and the purchaser. In this connection, it is appropriate to quote from Palmer's Company Law, page 470, 23rd edition, if the company, under its powers, appropriately exercised, refuses to register the transfer, the transferee has no right against the transferor for breach of any implied warrantee to have the transfer registered or for the recovery of the purchase price and rescission of the contract. Any such term must be expressly provided for. Otherwise the seller's duty is performed when he hands over to the buyer a duly executed instrument of transfer, together with the certificate or its equivalent. If the buyer wishes to protect himself, he must buy with 'registration guarantee'. In Stray v. Russel [1859] 1 E E 888, the Queen's Bench held that in case of sale of shares, there is no undertaking on the part of the transferor that the company would register the name of the transferee and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such application was filed after a delay of over five years so as to avoid the liability of being a contributory. It was also observed by the court that the applicant had not explained properly the delay in filing the application. In the case before us, according to the petitioner company, non-cancellation of stamps was noticed only in December, 1992, and immediately thereafter it filed the petitions before us. Even the respon dents have alleged in their replies that only at the time of allotment of the rights partly convertible debentures, with a view to deprive the respon dents, of the rights partly convertible debentures the company laboured to find deficiencies in the instrument of transfer. In other words, it is fairly clear that whatever may be the motive for filing these petitions, there has not been any undue delay and the petitions have been filed within the period of limitation even assuming the provisions of Section 113 of the Limitation Act are applicable. Therefore, we are not inclined to sustain this objection of the respondents. 58. Accordingly, with the decision that the petitions are maintainable, we dispose of Miscellaneous Application No. 67/SRB/93 filed by r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63 shares, the stamps are partly cancelled. 62. Before we consider the second issue, a reference to the statutory provisions involved in this case is necessary. Section 108(1) of the Compa nies Act, 1956, reads as follows : 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 deben tures. Section 2(11) of the Stamp Act, duly stamped : 'duly stamped', as applied to an instrument, means that the instrument bears an adhesive or impressed stamp of not less than the proper amount and that such stamp has been affixed or used in accordance with the law for the time being in force in India. 63. Section 12 of the Indian Stamp Act : 12. Cancellation of adhesive stamps.--(1)(a) Whoever affixes any adhesive stamp to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , being in violation of the manda tory requirement of law, is void and has to be rectified, it is further sub mitted. 65. In Mannalal Khetan's case [1977] 47 Comp Cas 185, the Supreme Court was faced with a situation where the board of directors of the company approved the transfer even without production of the instru ments duly signed by the transferors and without the share certificates. The term duly stamped occurring in the section was not the main issue. 66. In this connection, it is essential to note that the Companies Act does not define the term duly stamped , while the same is defined in the Indian Stamp Act in Section 2(11). Normally, the definition clause in a statute can be used only for the purpose of interpreting the words appear ing in that particular statute and not for the purpose of interpreting the words appearing in other statutes ( Geyer v. Geyer [1949] Lah 867). It was also held in Rao Bahadur Ravulu Subba Rao v. CIT [1956] 30 ITR 163 (SC) that it is not safe to pronounce on the provisions of one Act with reference to provisions dealing with other Acts which may not be in pari materia. However, as indicated later, various courts have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indicated below. 70. In Mathrubhumi Printing and Publishing Co. Ltd. v. Vardhaman Publi shers Ltd. [1992] 73 Comp Cas 80, the Division Bench of the Kerala High Court held that the instruments of transfer of shares had not been duly stamped as the adhesive stamps had not been cancelled at the time of execution but only at the time of lodgment with the company and as such the board of directors of the company was justified in rejecting the regist ration of transfers . Likewise, the Division Bench in Muniyamma's case [1993] 77 Comp Cas 97 (Kar) reversing the decision of the single judge (see [1991] 72 Comp Cas 555 ) held that the instrument of transfer of shares should bear the requisite stamps and the adhesive stamps should be cancelled at the time of affixation of stamps or execution of the docu ment. In case it is not so cancelled then it cannot be said to be duly stamped. The provisions of Section 108(1) of the Act and Section 12 of the Karnataka Stamp Act are mandatory. These two provisions should be read together. If the stamps are not cancelled, the document must be held to be not duly stamped. Consequently, it must be held to be invalid. 71. Shri Coop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is a pre-condition which has not been fulfilled in respect of instruments in Lists A and C of annexure I. Accordingly, we hold that as far as instruments covered in Lists A and C are concerned, they have not complied with the mandatory provisions of Section 108(1) of the Act, as they were not duly stamped within the meaning of Section 12 of the Indian Stamp Act. Therefore, when these instruments were registered without fulfilling the mandatory requirement, it has to be held that they were registered without sufficient cause and accordingly we hold so. 75. As far, as List B is concerned, no doubt, affidavits have been filed by two employees of the twelfth respondent to the effect that the stamps on the instruments covered in that list were either cancelled by rubber stamp or by hand by themselves. We are unable to accept this submission. Annexure I shows that the shares were lodged by the respondents in three lots on three different dates, viz., June 29, 1991, June 11, 1992, and Septem ber 21, 1991. On June 29, 1991, in all about 2,500 transfer instruments were lodged with the company by the respondents of which only 15 remain uncancelled today. If we consider the submission th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corrective action can revive the instruments. Shri Cooper advocated that the defects could be cured and there would be no need for rectification of the register. Relying on the impounding provi sions in Part IV of the Stamp Act, he suggested that the instruments which are considered to be not duly stamped may be impounded and sent to the Collector for adjudication so that once they are certified by the Collector, they could be admitted in evidence, acted upon and registered. 77. As far as the impounding is concerned, it is to be pointed out that the grounds on which the petitions have been filed relate to infringement of the provisions of the Companies Act and the decision we are called upon to give is whether there has been infringement or not and the effect thereof. Therefore, we are unable to accede to the prayer of Shri Cooper for impounding the documents as per the Indian Stamp Act. We draw support from the observation of the Calcutta High Court in Nuddea Tea Co. Ltd.'s case [1988] 64 Comp Cas 775 when demand for impounding was raised we do not find any substance in the contention . . . This is not the case in the present appeal. The question in this appeal, as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ragraph 4 that there is no bar against an instrument not duly stamped being acted upon after payment of stamp duty and the penalty according to the procedure pre scribed by the Act . This also indicates that any action with reference to such instrument is futuristic. Thus, even if the defect is cured now, it will not protect the registration done earlier. 80. The next issue for consideration is regarding the application of the principle of equity. The contention of Shri Cooper in this regard, accord ing to us, has a lot of weight and merits very careful consideration. It should be said in all fairness to Shri Cooper that even though he stressed the point that non-cancellation is only a procedural defect yet he fairly admitted that in case the transfer had not been registered, he perhaps could not approach the Company Law Board for a direction for registration, as such direction may be considered to be a direction to do an unlawful act. But once the registration has taken place and considerable time has lapsed, then different equities arise between the parties and even an unlawful and void transaction becomes irregular and voidable, he argued. 81. He stressed that the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borne out from the averments of the respondents where they have further alleged that only with a view to deny the respondents the rights PCDs, the company, at the time of allotment of the PCDs, scrutinised the old instruments and detected the impugned deficiencies. While it has not been established that the company had full knowledge of the deficien cies in the instruments at the time of registration, it is apparent that the applications for a large number of rights by these respondents had prompted the board to look for some excuse to prevent allotment of such rights. The company has, on its part, justified these petitions on the plea that the respondents had hidden the fact of their belonging to the Reliance group and if this fact had been known to the company, it could have rejected the request for registration under the relevant provisions of Section 22A of the Securities Contracts (Regulation) Act which opportunity, the company claims, has been denied due to non-disclosure of this vital information by the respondents. To sustain their claim about the Reliance connection, the petitioner has relied on the Supreme Court observation in N. Parthasarathy's case [1991] 72 Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stration of a defective transfer of shares may be regarded after a long lapse of time as a mere irregularity and not a nullity . 85. It is worthwhile at this point of time to refer to the dates of lodgment of the transfer forms, registration of the transfers and the dates of closure of the books. The transfer forms in lots were filed just a couple of days before the book closure dates and the transfers were approved just a day before the date of book closure. For instance, the first lot of shares were lodged by five respondents on June 29, 1991, and were approved for regist ration on July 1, 1991, a day before book closure on July 2, 1991. Likewise, ten respondents lodged the second lot on June 11, 1992, and were approved for registration on June 15, 1992, a day before book closure on June 16, 1992. The act of ultra quick registration can be termed both as signify ing the bona fides of the company as well as its acquiescence while lodg ment by the respondents at the last minute as tactical as well as surrepti tious. Whatever it may be, we feel that the arguments of Shri Cooper about the equity being in favour of the respondents cannot be easily brushed aside. 86. However, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... void the prin ciple that equity considers as done that which ought to be done must be held to be inapplicable to such a transfer. 87. Coupled with the earlier arguments is the issue relating to estoppel. It is an admitted position that the company has registered the shares in the name of the respondents in respect of the shares under dispute, paid them dividend on these shares and also offered rights PCDs, and the respondents have also applied for rights PCDs. Thus, the respondents have been held out to be members and they also acted as such. Therefore, Shri Cooper is justified in asserting that there is clear estoppel operating against the company in this regard. 88. The only argument of the company on this is that there is no estoppel against the statute, inasmuch as they have sought for rectification of the register of members only on the ground that the mandatory provisions of Section 108 of the Act were not fulfilled when the transfer instruments were delivered to the company. To support this contention, a large number of court decisions have been cited as indicated earlier. Unfortunately, the respondents were not able to rebut this argument to our satisfaction. Vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y . Similarly, we have also come across another case wherein rectification was ordered because of the reason that the transfer was not in compliance with the articles of association of the company. This was the decision of the Punjab and Haryana High Court in Amrit Kaur Puri v. Kapurthala Flour, Oil and General Mills Co. Pvt. Ltd. [1984] 56 Comp Cas 194. 91. In view of this, we have to perforce conclude that the names which were entered in the register of members without sufficient cause have to be removed therefrom and the prayer of the petitioner for rectification in relation to shares covered in Lists A and C be granted. We order accord ingly. 92. In this connection, we would like to make the following observa tions. As we have indicated earlier, in respect of listed securities, a large number of transfers take place with blank transfer forms, it is very difficult to identify the intermediaries between the first transferor and the last transferor. The intent of the Legislature is to ensure free transfer ability of shares and even the new Companies (Amendment) Bill makes abun dantly clear only the circumstances under which transfers could be refused by companies. Even t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds the shares under blank transfer or who has got his name entered in the instrument but whose name has been refused to be registered in the register of members, yet it is not a healthy practice. Once a person hands over the shares in blank transfers, he has divested his interest in the shares and the shares are transferred either on cum dividend basis and cum rights or ex rights basis. In other words, whatever subsisting interest there is in the shares at the time of transfer, it is taken care of in the consideration paid, thus completely relieving him of any interest/liability in respect of the shares. The property, in the shares passes on to the transferee. However, by legal fiction because his name continues on the register of members, till the ultimate transferee's name is put on the register, he is treated to be a member of the company and all the rights as member accrue to him. While the need for continuing him on the register of members is neces sary till someone fills up the blank transfer form and presents it for registration, yet once the instruments are lodged with the company and the company has notice of the transfer, different legal provisions should apply, but i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allotted to the respondents even in the case of rectification as their names were on the register of members on the record date. (b) They should be allotted to the existing members in consulta tion with the stock exchange. (c) In case of rectification, as the names of the transferors will be put back on the register of members, they alone would be eligible for these PCDs in case they are not allotted to the respondents. In addition to the above three alternatives, we have, before us, the provisions of Section 206A of the Act which we have already dealt with in an earlier paragraph. 95. We have given careful thought to all the above alternatives. Even though we have already held that in respect of shares in Lists A and C, the register of members should be rectified, we are of the view that the plea of equity advocated by Shri Cooper becomes very relevant in the case of rights PCDs. With the handing over of blank transfer forms and on receipt of consideration, the original transferors have no beneficial inter est in the shares. Even Section 206A of the Act recognises this aspect and provides for keeping in abeyance the rights allotment in case of transfers which are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eady received in the past, we are of the view that there is no need for them to refund the same to the company as even otherwise they would be entitled for the same from the original transferors. This is in line with Section 27 of the Securities Contracts (Regulation) Act according to which in case a transferee lodges transfer instru ments with the company for transfer to his name within 15 days from the date on which the dividend became due, such dividend can be paid to him. Registration of a transfer is not the criteria to claim such dividend. In the present case, the dividends were paid after registration only. While coming to this decision, we have also taken into consideration the deci sion of the Supreme Court in Chunilal Khushaldas Patel v. Adhyaru (H.K.) [1956] 26 Comp Cas 168 (SC) in which it was held (at page 190): . . . the liquidators, even though they received the dividend from the company by virtue of their having been shown as shareholders in the register of shareholders of the company, would be bound, once the contract of sale had been entered into between them and Chunilal, to hand over the said dividend to Chunilal. In the result, the petitions are par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Name of the first respondent Rights applied Additional applied Rights allotment kept in abeyance Additional allotment kept in abeyance Total allotment kept in abeyance 1 Lazor Detergents (P.) Ltd. 3,778 7.562 3.778 5,482 9,260 2 Maxwell Dyes and Chemicals (P.) Ltd. 2.525 5,075 2,525 3,662 6,187 3 Swadee Chemicals (P.) Ltd 3.598 7,202 3,598 5,219 8.817 4 Oscar Chemicals (P.) Ltd. 1,876 3,754 1.876 2.722 4.598 5 Prolab Synthetics and Detergents (P.) Ltd. 1,283 2,567 1,283 1,862 3.145 6 Mikantra Trading (P.) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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