TMI Blog1991 (1) TMI 450X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent No. 1, respondent No. 2 was negotiating with the appellant for financial assistance/loan. Shri F. M. Pochkhanwala, chairman of the company (respondent No. 1), vide letter dated April 28, 1986, addressed to the appellant, for and on behalf of the board of directors of the company, stated as follows : We have no objection to your extending financial assistance to him and in the event of his not repaying the full amount with interest of financial assistance within one month from your demand we will transfer the shares deposited with you in your favour. There is no time limit to this letter. Annexures to the said letter contained details of 16,440 shares (11,464 in the name of respondent No. 2 , 2,221 in the name of respondent No. 3 and 2,755 in the name of respondent No. 4). (iii) On or about July 2, 1986, the appellant advanced a sum of ₹ 1.50 lakhs to respondent No. 2 at the rate of interest of 18% per annum for the purpose of trade and business. In consideration thereof, respondent No. 2 deposited the said 16,440 shares with the appellant. He also executed an on demand promissory note dated July 2, 1986, in favour of the appellant and the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and directed to register the transfer of 16,440 shares in favour of the appellant by deleting the names of respondents Nos. 2 to 4 from the register of members of respondent No. 1 and by substituting the name of the appellant in their place. 3. The company (respondent No. 1), in its reply, has stated that in the board's meeting held on November 14, 1987, the board did not approve of the transfer. The relevant extracts from the minutes of the board's meeting are reproduced below : The said Jagdishchandra Parekh has embarked upon a spate of litigation against the said Champaklal K. Parekh in view of certain disputes he has with and/or against the said C.K. Parekh. The chairman further stated that there have been disputes also in the family of Mr. K.P. Mehta and it is significant that all the said three forms are attested by Mr. B.D. Mehta, who is the nephew of the said K.P. Mehta and who is also party to the said disputes among the family members of the said K.P. Mehta, The chairman further stated that prior to the commencement of this meeting he had inquired from Shri K.P. Mehta whether the transfer forms were attested by the said B.D. Mehta, at the time when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onspiracy with the said B.D. Mehta who is on inimical terms with Mr. K.P. Mehta. The share certificates so lodged with the company constitute more than 30% of the paid-up share capital of the company and there is reasonable apprehension that if the said shares are transferred in favour of the said J.C. Parekh in spite of the above correspondence such transfer would be prejudicial to the interest of the company. He further stated that in the circumstances aforesaid the proposed transferee is an undesirable person and if the shares are transferred in his favour, he is bound to create difficulties and problems for the company. The chairman further stated that article 48 of the articles of association of the company provides, inter alia, to the effect that the directors may at their absolute and uncontrolled discretion decline to register or acknowledge any transfer of shares and shall not be bound to give any reasons for such refusal and in particular may so decline unless the transferee is approved by the directors. He, therefore, stated that it was not in the interest of the company to approve such transfers. 4. The company (respondent No. 1), in its rejoinder has raised the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . [1985] 58 Comp Cas 162 wherein it was observed by the court that (at page 168) under Sections 108 and 110 of the Companies Act, both the transferor and the transferee could seek the registration of transfer subject to the conditions and restraints imposed in those sections. Therefore, the rights of the transferee of a share did not depend on the conduct of the transferor, who might seek to register the transfer or might not. Once the transferor had signed the instrument of transfer and it was duly stamped, the title in the share or shares passed on to the transferee . Dealing with the right of the transferor in challenging such a transfer, Shri Doctor relied upon the decision of the Nagpur Bench of the Bombay High Court in Sadashiv Shanhar Dandig v. Gandhi Sewa Samaj Ltd. [1958] 28 Comp Cas 137 wherein it was held that the transferee of shares can make an application under Section 155 (of the Companies Act) for an order of rectification of the register of members and the transferor is not a necessary party. 6. While referring to the allegation made by the respondents that no notice of default of payment of the pledge amount was given to the respondent, Shri Doctor pointed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 987. In this context, Shri Kapadia referred to the provisions of Sections 13 and 18 of the Securities Contracts (Regulation) Act, 1956. Section 13 states that if the Central Government is satisfied, having regard to the nature or the volume of transactions in securities in any State or area, that it is necessary so to do, it may, by notification in the Official Gazette, declare this section to apply to such State or area, and thereupon every contract in such State or area which is entered into after the date of the notification otherwise than between members of a recognised stock exchange in such State or area or through or with such member shall be illegal . He pointed out that the sale had taken place in Bombay and neither party is a member of the stock exchange. By notification dated November 29, 1957, Section 13 has been made applicable to Greater Bombay and as a result, the present contract is in contravention of the provisions of Section 13 of the Act and is illegal. Section 18 states that the provisions of Section 13 are not applicable to spot delivery contracts. Shri Kapadia challenged the contention of the appellant that the transfer of shares is covered under spot delive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri F.M. Pochkhanwala who was a director of the company in 1986 and 1987 has acted as chairman at the time of the board of directors meeting held on March 7, 1986, and November 14, 1987, and Shri K.P. Mehta, respondent in this case, was present at both these meetings as director. (5) The decision of rejection of the transfer request was conveyed to the appellant by a letter dated November 16, 1987, but no grounds were given. As stated in the board of directors' resolution dated November 14, 1987, the following are the grounds of rejection of the request for transfer of the impugned shares : (i) There are disputes between the transferee and Mr. C.K. Parekh, chairman of the company. (ii) There are disputes between Shri K.P. Mehta, director of the company, and Shri B.D. Mehta, who has attested the transfer forms. (iii) When the transfer forms were handed over by the transferor to the transferee, they were blank transfer forms. (iv) Consideration as mentioned in the transfer forms was not received by the transferors. (v) The blank transfer forms were given as security. (vi) The transfer, if approved, would be prejudicial to the interest of the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act, the stock exchange is contemplated as a market given under the Act and the shares which are sold in the market must have a high degree of liquidity by virtue of their character of free transferability and such a character of free transferability is to be found only in the shares of a public company. Since the decision of the two-member Bench of the Bombay High Court is a later decision, we are bound to follow it and we, therefore, hold that the provisions of the Securities Contracts (Regulation) Act will be applicable to the shares of a public limited company which are being traded on the stock exchange. 12. It is also to be noted that almost all the sections of the Securities Contracts (Regulation) Act refer to the stock exchange although such a reference is not there in Sections 13, 14, 16 and 17 of the Act. But then, reference to Section 13 in juxtaposition to reference to Section 9 of the Act in Section 14, which deals with all contracts entered into in any State or area notified under Section 13, is itself corroborative of the fact that Section 13 cannot be applied except for transactions in a recognised stock exchange. It is also noteworthy that Section 18 refers t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they acted for a collateral purpose. 15. Considering the reasons stated in the board's resolution dated November 11, 1987, it is quite clear that the board was more concerned with the disputes between the transferee and the chairman of the company and disputes between the members of the Mehta family. At the board of directors' meeting when the decision for rejection of the transfer of shares was taken, Shri K.P. Mehta, one of the respondents, was present as a director of the company though it is mentioned in the resolution that he did not vote on that resolution. It is also a well-settled principle that the company cannot reject the transfer of shares on the ground that the transferor has not received consideration. The duty of the company caused by the law is only to ensure that the instrument is duly stamped and duly executed. Though it is also mentioned in the board's resolution that the transfer would be prejudicial to the interest of the company as the transferee is likely to create difficulties to the company, it is quite clear that the resolution rejecting the transfer of shares was passed in order to protect the other interest of the directors including the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll as to regulate the transfer of listed securities. In respect of transactions completed with the help of share brokers, the transaction is essentially in the nature of a contract to sell. While in respect of transactions where the pledged shares are involved, the title passes as soon as the pledgee hands over the security and gives the blank transfer form and, therefore, we do not think that such transactions are in violation of Section 13 of the Act. A number of financial institutions accept pledge of shares in blank transfer forms and if the pledger fails to pay the liabilities, the blank transfer forms are completed and lodged for transfer. If such transactions are considered as void according to the provisions of Sections 13 and 18 of the Securities Contracts (Regulation) Act, it will create innumerable difficulties and will negate the existing commercial practices prevailing in the market. In view of this we have no hesitation to conclude that by signing the blank transfer forms on July 20, 1987, in respect of shares which were already in the physical custody of the pledgee, the transfer of shares was complete for all the purposes. 17. In view of the foregoing, the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
