TMI Blog1998 (10) TMI 549X X X X Extracts X X X X X X X X Extracts X X X X ..... duly cancelled, and (c) the transferors, apprehending foul play in respect of their shares had requested the respondent-company not to transfer the shares. 2. The petitioners' case is that between September, 1994, and May, 1995, the petitioners in the course of their business had advanced diverse sums of money as loans, by cheques. As security for these loans, share certificates of various companies were pledged with the petitioners accompanied by blank transfer forms, duly signed by the transferors. In the event of defaults in repayment of loan these shares along with the transfer forms were to be lodged for transfer, in the name of the petitioners. As there is a default in the repayment of the loan, the aforesaid shares have been lodged accompanied by transfer form on November 18, 1996, for transfer in their name. 3. As some defects were pointed out by the company in the transfer forms, the petitioners have been following up with the company and asked for return of the original transfer deeds so that they may be replaced by the new set of transfer forms and relodged but the said transfer deeds along with the share certificates were not returned by the company. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udice in the Bombay High Court and the transfer of the said shares was withheld pending the orders of the High Court. They have further submitted that from the pleadings in the said suit it appears that there are allegations of fraud and cheating against the petitioners and the company would not like to be involved directly or indirectly in the matter if such allegations were ultimately found to be true by the court. It is further submitted that in so far as the respondent-company is concerned even the transfer deeds which were first lodged with them in respect of the said shares contained material alterations which were unauthenticated. Subsequently, fresh transfer deeds were lodged in respect of some of the said shares under the signature of the transferor, thus giving some credence to the, transferor's contentions in the said suit which requires going into in detail. In this connection, they invited our attention to the decision of the Board in Bipin K. Jain v. Savik Vijay Engineering (P) Ltd. [1997] 26 CLA 255 ; [1998] 91 Comp Cas 855 (CLB) wherein the Company Law Board held that if complicated questions of law or facts arise in a petition under Section 111 which cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout making any urgent application therein for any reliefs whatsoever, particularly, obtaining ad interim injunction against transfer. It is further submitted that this reluctance on the part of the transferor, indicates that the transferor is well aware that he is not entitled to any reliefs and has therefore, abstained from making the same. It is further submitted that the respondent-company is not concerned with the fact that a suit has been filed, as no orders have been passed by the High Court restraining the company from transferring the shares. It is further submitted that the respondent-company has admitted that the transfer forms and the shares have not been returned on O. P. Roongta's instructions and now they cannot take the plea of filing the case in High Court. It is further submitted that having signed blank transfer forms the transferor is there after estopped from questioning the validity of the transferee title having washed his hands of the shares himself. It is further submitted that no allegations have been raised that the signatures on the transfer forms are not those of the transferor. It is further submitted that the documents on record will themselves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relevant shares in question in respect of these two petitions, has joined the proceedings as an intervenor and has filed his written submissions. It appears that Shri Roongta has been dealing in shares through S. J. Tibrewala, a share broker and registered member of the Mumbai Stock Exchange and during the course of his dealings with the said broker the petition shares have been pledged with him. Shri Roongta has further submitted that at all times he continued to be the sole and absolute owner of the shares and the said broker never had or acquired any right, title or interest whatsoever in respect of the said shares as purchaser or transferee or pledgee or in any other capacity whatsoever. He has further submitted that the said broker had no right or authority to effect any pledge/transfer or disposal thereof. It is further submitted that the petitioners as the purported transferees of the said shares, cannot and did not acquire any title to the said shares in as much as the said broker had no title to the said shares. It is further submitted, without prejudice and assuming whilst denying, that the said broker was a pledgee thereof, the purported sale or transfer by the said b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and on the understanding that being in possession of blank transfer deeds conferred on the holder the right, title and interest thereto, the holder thereof was entitled to dispose of the same. It is further submitted that the petitioners being the holders of the shares and transfer deeds in good faith and for due consideration, subsequent to default in repayment of advances made by the petitioners, the petitioners' right to have the said shares transferred in their name crystallised and the petitioners are, therefore, entitled to have the shares transferred in their name and the register of members rectified accordingly. It is further submitted that the intervener/respondent knowingly signed away his title to the shares, and now is admitting that the company was instructed by him not to effect the transfer of the shares and to retain the original transfer deeds and share certificates. It is a blatant admission of collusion and connivance between the company and the transferor and, therefore, the petition should be made absolute with costs. It is further submitted that in the event there was any defect in the deeds that were lodged, the same should have been returned to the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that there are no pleadings that the petitioners had knowledge of the bad title. Further, in so far as the petitioners are concerned, there has been no notice to them at the time of lodgment of these shares that the broker is not entitled to sell or transfer these shares. He further submitted that the shares are movable property and as per Section 30(2) of the Sale of Goods Act, 1930, once the transferor has given the shares with blank transfer deeds it has to be presumed that the shares have been parted with with his consent and could be sold and as such the question of suspecting fraud does not arise. In this connection, he placed reliance on Central National Bank v. United Industrial Bank, AIR 1954 SC 181, wherein it has been held that if an innocent purchaser or pledgee obtains goods from the person in possession thereof, whose possessory right is defeasible on the ground of fraud but had not actually been defeated at the time when the transaction took place, there is no reason why the rights of such innocent purchaser or pledgee should not be protected. 9. He further submitted that Shri Roongta has parted with the shares to Shri Tibrewala and who in turn has given posse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Tibrewala and the transferor and no money is due or payable to Shri Tibrewala, he had no authority to sell these shares. In any case no due notice was given to the transferor nor his consent obtained for sale of the shares. He further submitted that as per Section 27 of the Sale of Goods Act whereby goods are sold by a person who is not the owner thereof and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had unless the owner of the goods is by his conduct precluded from denying the seller's authority to sell. He submitted that since in this case neither the broker had authority to sell the shares, nor these shares have been sold with the consent of the transferor, the buyer does not acquire any title. He further submitted that even the proviso to Section 27 of the Sale of Goods Act would not come to the rescue of the petitioner as the said broker was not acting as a mercantile agent for the transferor. In this connection, he placed reliance on Hindustan Dorr Oliver Limited v. A.K. Menon [1994] 80 Comp Cas 384 (Special Court) wherein it has been held that before the proviso to Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6, if the pawnor makes default in payment of the money, the pawnee may bring a suit against the pawnor after giving due notice to the pawnor. He further submitted that the provisions of Section 178A of the Contract Act are not applicable to the present case. He placed reliance on Belgaum Pioneer Urban Co-operative Credit Bank Limited v. Swamiji, AIR 1962 Mys 48, and submitted that since nothing is due and payable to Shri Tibrewala, ho has no right to the pledged shares and they are to be returned to the transferor. 10. On the basis of the material available we are inclined to agree with the petitioners that there is a collusion between the transferor and the respondent-company. We are constrained to observe that the company has not acted in the spirit of the listing agreement as well as the various laws--cases decided on the subject, in not returning the shares and transfer deeds once it has decided not to effect the registration of transfer of shares. From the material available it is clear that the company has been acting as per the liking of the transferor rather than as per the listing agreement and the decided law cases. When the shares and the transfer deeds were lodged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their name. Since there was default in payment, the shares in question after filling in the blank transfer deeds along with the share certificates have been lodged with the company for registering the transfer of shares in their favour. According to them as the shares have been acquired for consideration and without any knowledge of the dispute between the transferor and Shri Tibrewala, proper titles have passed and they are entitled to get the shares transferred in their name. The question for consideration is whether Shri Tibrewala, had an authority to sell these shares and pass on the title to the parties: whether he was dealing with these shares acting as the mercantile agent so also whether the shares have been sold after due notice to the transferor. The transferor and the respondent-company have taken the plea that since Shri Tibrewala is not before this Bench who is a necessary party to all the transactions, the matter cannot be adjudicated as oral or otherwise evidence would be required to be led. It is further submitted that the Board has time and again viewed that the proceedings under Section 111/111A are of summary nature and wherever there are complicated issues to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecords. The proviso to Sub-section (2) was not there when Section 111A was inserted in the Companies Act through the Depositories Ordinance Act. Since the Depositories Act envisaged electronic mode of transfer, without involvement of the company concerned, rectification of register of members after registration of transfer under certain circumstances, was provided under Sub-section (3). Later, in view of the fact that still manual transfers are prevalent, with a view to ensure that registration of transfer of shares is not refused by companies indiscriminately, the proviso to Sub-section (2) was inserted later. Thus, the proviso to Sub-section (2) deals with pre-registration issues while Sub-section (3) deals with post-registration issues. Further, it is also clear from the provisions of this section that (1) the shares of a public company are freely transferable (2) in case there is a refusal to transfer without sufficient cause, the transferee may appeal to the Company Law Board (3) in case the Company Law Board finds that the company has refused without sufficient cause, the Company Law Board shall direct the company to register the transfer. Therefore, when a company ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sufficient cause . In respect of the second ground, even though there is a prayer in the civil suit for permanent injunction against the transfer of shares, no interim order has been passed. The mere filing of a civil suit cannot entitle the company to take cognizance of the same and refuse registration of transfer. The third ground that there is contravention of the provisions of Section 108 is the only ground which would fall within the term sufficient cause . However, as per the version of the petitioners, in respect of 1,400 shares, there has been subsequent compliance with the provisions of Section 108, which has not been controverted by the respondent-company. Therefore, as far as these shares are concerned, the refusal of the company to register the transfer has to be declared to be without sufficient cause and as such we have to direct the company to register the shares in the names of the petitioners and rectify the register of members accordingly. 15. However, it is on record that the petitioners did not acquire the shares directly from the registered holders of the shares but have acquired the same from a share broker by way of security for certain loans given by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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