TMI Blog1991 (3) TMI 399X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the second respondent is the karta. On March 31, 1990, the board of directors resolved to permit the transfer of certain shares whereby the sixth respondent was permitted to transfer 1,318 shares to the third respondent ; the second respondent was permitted to transfer 175 and 1,628 shares to the fourth respondent under two transfer deeds. Similarly, the fifth respondent was permitted to transfer 900 shares to the third respondent. There is also no dispute that these transferees were already shareholders of the company as is clear from annexure B (list of shareholders filed by the petitioners). The fact that these transferees are the existing shareholders has relevancy while considering the applicability of Articles 7 and 8 of the articles of association of the first respondent company. These two petitioners attack the permission for transfer and the consequential transfer of the shares registered in the register of shareholders on the following grounds : . (i) In effecting the transfer, there was violation of the provisions of Section 108 of the Companies Act, 1956 (for short, the Act ) ; (ii) The effected transfer contravened the provisions of Article 7 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are justified in pointing out that in case really the notice had been served on March 30, 1990, itself, the second respondent who was present as a special invitee, as well as the first petitioner, would have agitated the question before the board or at least immediately thereafter. The contesting respondents assert in their objection statement that this notice was delivered to Suresh Kumar Manchanda (second petitioner) at his residence and, according to the information given to the contesting respondents (respondents Nos. 2 to 6), the envelope was addressed to the second petitioner and not to Prakash Roadlines, i.e., the first respondent-company. These respondents further pointed out that the notice was received by the company only on April 2, 1990, for which purpose they rely on the copy of the notice filed as annexure R-4 bearing the seal of the company dated April 2, 1990. These respondents assert that the copy of the notice filed as annexure-H was never served on the company and the copy produced by the petitioners is the one made out of the notice copy available with the petitioners to create an impression that the sale transactions in question were engineered to defeat the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... auditor. I find it difficult to accept this contention for the simple reason that when a share is proposed to be sold to another shareholder, the question of offering it to other shareholders would not arise at all. The object of Article 7 is to preserve the shareholding to the members of the family and to the existing shareholders. Suppose a shareholder wants to sell 3 or 4 shares to another shareholder and all other shareholders offer to purchase the same at the market price, how to effect the transfer by selling the share to other shareholders is not forthcoming from Article 7.The shares cannot be divided in proportion to the shareholding of different shareholders who are willing to purchase the same. Further, what is the purpose of preventing one shareholder from purchasing the share of another is also not clear. The purpose behind Article 7 is clear when it is compared with Article 8. Article 8 states that shares shall not be transferred without the previous sanction of the directors except when transfer is made by one member to another or to a member's wife or child, etc. In other words, Article 8 does not bar the transfer of the share by one shareholder to another shareh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company on March 30, 1990, at a time when the second respondent was the chairman and managing director of the company and she had made certain claims against the second respondent as also regarding certain shares in the company. Subsequently, she filed a suit in the Delhi High Court bearing O. S. No. 1779 of 1990 which is pending. Thus, it is clear that the wife of the second respondent has already taken steps to safeguard her alleged interest and the recourse to the filing of the original suit is certainly a very appropriate forum resorted to by her rather than invoking the summary jurisdiction of this court under Section 155 of the Act. Instead of making a separate order on the said application (C. A. No. 185 of 1991), the said application is rejected here itself for the reasons stated hereinabove. 7. The contention of the petitioners questioning the bona fides of the second respondent in effecting the share transfer also is similarly rejected as irrelevant for the purpose of these proceedings. 8. The substantial contention involves the application of Section 108 of the Act. On facts, the question raised is : The transfer forms were presented for stamping purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the board's meeting held on March 31, 1990, when the board resolved to permit the share transfers. Thereafter, on April 14, 1990, at a time when the petitioners were the directors of the company they confirmed the minutes of the meeting of the board held on March 31, 1990. These respondents have produced a copy of the minutes of the meeting held on April 14, 1990, as annexure-R2. Therefore, these respondents contend that the petitioners were fully aware of the share transfers effected and they were parties to the transactions in question and, therefore, they are estopped from contending that the shares were transferred illegally by filing this petition on September 19, 1990. According to these respondents, the petitioners are trying to help the wife of the second respondent who failed to get any interim relief in the suit filed by her in the Delhi High Court and, therefore, the present petition was filed in September, 1990. The conduct of the petitioners is such, it is contended, that the petitioners are not entitled to any discretionary relief under Section 155 of the Companies Act. 9. In Muniyamma v. Arathi Cine Enterprises (P.) Ltd., , I have already expressed my ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould have noticed the transfer deeds. In this connection, the affidavit of the then secretary of the company Shreesha is quite relevant. In the said affidavit of Shreesha, filed along with the objection statement of respondents Nos. 2 to 6 dated October 4, 1990, he has stated that four sets of share transfer forms were lodged with the company on March 30, 1990, and he gave details of the same. On finding that the delivery was beyond two months of the stamping, Shreesha informed respondents Nos. 3 and 4 about it and, therefore, on the next day at about 10 a.m., new sets of share transfer forms were lodged with the company through the secretary (Shreesha). He further asserts that the original share certificates were taken back for the purpose of enclosing them with the newly filed share transfer forms and actually they were refiled as such. The secretary states that he placed them before the board of directors at its meeting held on the same day and they were approved. He further states that, by mistake, he made endorsements on the first set of the share transfer forms and sent those transfer forms for the signatures of the chairman and the managing director. On realising the mistak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. The mandatory character of Section 108 is now firmly established by the decision of the Supreme Court in Mannalal Khetan v. Kedar Nath Khetan ; this is relied upon by Mr. Raghavan to contend that delivery of the instruments of transfer beyond two months after the stamping of the transfer form is invalid and, therefore, the resolution of the board made on March 31, 1990, was illegal. The Supreme Court held that the provisions of Section 108 are mandatory. The transactions in question were prior to the amendment made to the Act in the years 1965 and 1966. Sub-sections (1A), (1C) and (1D) were inserted for the first time by the amending Act 31 of 1965. The Supreme Court was interpreting the provisions of Section 108 as it stood at the time of the impugned transaction therein and the Supreme Court had no occasion, therefore, to make any observation concerning Sub-section (1A) of Section 108. Section 108 as it then stood is similar to the present Section 108(1) only ; this provision bars the company against registering a transfer of shares unless a proper instrument of transfer duly signed by both sets of parties is delivered to the company with the certificate of shares. Nowher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of transfer is sent immediately on execution, it is not delivered by the postal department or the courier, or the movement is delayed for reasons beyond the control of the person sending the instrument ; it is also possible that the company's office is closed due to strike or for some other reason resulting in the non-delivery of the instrument of transfer, in time. It is not possible to foresee the several factors which may cause the delay in the delivery of the instrument. In these circumstances, the requirement of Sub-section (1A)(b)(ii) has to be read reasonably, so as to enable its smooth functioning ; a delivery of an instrument of transfer within a reasonable time should be held as a proper delivery. It is only where the company opines that the instrument of transfer has become stale and that it is improper to act upon it, the instrument of transfer has to be held as liable to be ignored. 16. Nowhere the Companies Act declares that a duly executed instrument of transfer ceases to be effective or becomes void after the period referred to in Sub-section (1A) of Section 108. In fact, under certain circumstances, those instruments can be acted upon by moving the C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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