TMI Blog2020 (11) TMI 547X X X X Extracts X X X X X X X X Extracts X X X X ..... t of justice. In the instant case the Respondent had furnished the Indemnity Bonds / Sworn Affidavit to the effect that they had lost the original share certificates and that the first Appellant / Company was requested for issuance of Duplicate Share Certificates to the Respondent / Petitioner since the shares were sold. When the original share certificates were lost / mislaid / untraceable, it is not prudent for the Appellants to insist upon the production of original share certificates in question to effect the transfer of shares, as opined by this Tribunal. Besides this, the other reasons projected on behalf of the Appellants that just because the Respondent / Petitioner had filed numerous criminal / civil cases and that he was not attending the Board Meetings and he would create problems for smooth functioning of affairs of the Company will not hold water and they are unworthy of acceptance in the considered opinion of this Appellate Tribunal. Taking into consideration of the facts and circumstances of the present case in a holistic fashion, especially in the teeth of rejection of transfer of shares through letter dated 30.10.2015 mentioning two reasons therein, this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12,500 equity shares (Registered Folio No. 06), etc. 5) The Petitioner is directed to submit all necessary documents as sought by the Company, within a period of three weeks from the date of receipt of copy of this Order, and thereafter, the Company is directed to comply the directions as mentioned above, within a period of three weeks thereafter. 6) The petitioner is entitled for all consequential benefits by virtue of transfer of above shares. 7) No order as to costs. Appellant s Contentions 3. The Learned Counsel for the Appellants submits that the impugned order passed by the National Company Law Tribunal , Bengaluru Bench, Bengaluru dated 16.10.2018 is bad in Law and further that the Tribunal had decided the matter erroneously without reference to the admitted documents and not taking into consideration of the pleadings of the case. 4. The Learned Counsel for the Appellants contends that the Tribunal had ignored the statutory provisions under Section 56 of the Companies Act, 2013, the mandatory requirement for a person to maintain a petition viz. that the duly executed Transfer Deed is to be accompanied with the Original Share Certifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If the Articles permits the Directors to decline to register a transfer of shares without stating the reasons, the Court would not draw unfavourable inferences against the Directors because they had not given reasons. In other words, the Court will assume that the Directors acted reasonably and bonafide and those alleging to the contrary would have to prove and establish the same by evidence . 10. The Learned Counsel for the Appellants strenuously points out that the Transferor in the present case, should have obtained duplicate share certificate as envisaged under Rule 6(2)(a) of the Companies (Share Capital and Debentures) Rules, 2014 and thereafter sold the shares. 11. The Learned Counsel for the Appellants takes a stand that the sole intention of the Respondent is to dismantle the Company as he was creating several problems for the Appellant Company and their Directors for number of years and that for the welfare of the Appellant Company, the letter dated 30.10.2015 was issued. 12. It is represented on behalf of the Appellants that the Tribunal had not considered Article 5 of the Articles of Association of the Company and Section 56 of the Companies Act, 2013. Also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in existence along with the letter of allotment of the shares. There are two provisos to Section 108 of the Act. We are not concerned with the first proviso in these appeals. The second proviso states that nothing in this section shall prejudice any power of the company to register as shareholder or debenture holder any 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. The words shall not register are mandatory in operation of law. The words shall not register are mandatory in character. The mandatory character is strengthened by the negative form of the language. The prohibition against transfer without complying with the language is worded to emphasised by the negative language. Negative language is worded to emphasise the insistence of compliance with the provisions of the Act. (See State of Bihar v. Maharajadhiraja Sir Kameshwar Singh of Darbhanga : 1952 SCR 889, 988-989; K Pentiah v. Muddala Veeramallappa (1961) 2 SCR 295, 308 and unreported decision dated April 28, 1976 in Criminal Appeal 279 of 1975 and Additional District M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivate company is a contract between the parties. Clause (8) reads that: No transfer of any share in the capital of the company shall be made or registered without the previous sanction of the Directors . It is an admitted position that no previous sanction has been obtained from the Directors for transfer of the shares held by Mr. Malhan. Shri Lekhi contends that Mr. Malhan being the only Director, since his father had already resigned and he had entrusted the shares to the appellant, Bhagat, there is a resigned and he had entrusted the shares to the appellant, Bhagat, there is a transfer in the eye of law. We are unable to agree with the learned counsel. The concept of previous sanction of the Directors connotes that there should be a written resolution accepting the transfer from Mr. Malhan in favour of Bhagat and such previous sanction should be preceded by handing over of the shares. In this case, such an action was not done and, therefore, even the transfer of the shares held by Mr Malhan in favour of the appellant is not valid in law. The Division Bench of the High Court, therefore, was right in granting the decree as prayed for. Respondent s Submissions 20. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation never underwent any change and that the Articles of Association submitted in support of the present Appeal never existed and that the Appellants had no option but to admit that no such document ever existed. 24. According to the Respondent, the Board should have communicated the Notice of Refusal to both the Transferor or Transferee in terms of ingredients of Section 58(1) of the Companies Act, 2013 read with Article 6 of the Articles of Association . However, in the present case, no notice of refusal was ever communicated to the transferors and, therefore, the Appellants had partially admitted to the transfer of shares qua the transferor and in part refused to rectify the register of shares qua the Respondent which smacks of malafides. Also, that the Board had rejected the requests of transfer of shares without even investigating the evidence produced. 25. It is the contention of the Learned Counsel for the Respondent that the Board should have followed the procedure as per Rule 6(2)(a) of the Companies (Share Capital and Debenture) Rules in accordance with Law before refusing to register the shares in the name of Respondent by citing private disputes betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is actually registered, the transferee s title to the share is actually inchoate and the legal title remains vested in the transferor. 30. This Tribunal aptly points out the decision Hindustan Dorr Oliver Ltd. V. A.K. Menon (1994) 80 Comp cas 384 (Bom) wherein it is observed that an owner of shares can follow the shares even into the hands of a bonafide purchaser for value. The term transfer is used in regard to inter vivos transfer as per decision Hemendra Prasad Barooah V. Bahdur Tea Co. P. Ltd. (1991) 70 Comp cas p 792 (Guwahati). 31. Till the stage of execution of transfer all that is made is to pass an equitable interest in the shares to the Transferee . In reality, there is no completion of legal assignment. Even when the Board of Directors accepts the transfer and passes it for registration of transfers in records, the transfer is not completed. Until the actual entry of transferee s name was effected in the company s register, the transferor remains the legal holder of shares as per decision Copal Varnish Co. Ltd. In re reported in (1917) Ch.D 349. Assessment 32. It comes to be known that the Respondent / Petitioner in C.P. No. 1 of 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s declared that original share certificate in respect of the above-mentioned shares were lost and it was requested to the company to issue new share certificate in the name of purchaser (Respondent / Petitioner). The purchaser had agreed to sign the transfer form enabling the seller to submit the same to the First Appellant / First Respondent. 36. It is brought to the fore that an Agreement was executed on 30.06.2015 between the Respondent / Petitioner (purchaser) and P.A. Ibrahim Hazi (seller) towards the sale of 12,500 equity shares of ₹ 100/- each for a total consideration of ₹ 24,46,875/- which was paid through cheque No. 212432 dated 30.06.2015 drawn on Federal Bank, Kasaragod branch. Besides this, on 27.03.2015, an affidavit was executed by the transferor wherein a request was made for an issuance of duplicate share certificates in the name of the Respondent / Petitioner, since the original share certificates were lost or mislaid or not in possession and further that was unable to find out or trace the same. 37. That apart, on 13.08.2015 the Respondent / Petitioner addressed a communication to the Board of Directors of the First Appellant / First Respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall keep and maintain register of members for each class of equity and preference shares, the register of debenture holders and register of any other security holders. According to Rule 3(1) of the Management Administration Rules, 2014 every Company limited by shares shall, from the date of registration, maintain a register of its members in Form No. MGT-1. 43. The First Appellant / First Respondent/Company through its communication dated 30.10.2015 addressed to the Respondent / Petitioner had rejected the request for transfer of the shares in question specifying reasons: - (i) that the Respondent / Petitioner, as one of the Directors of the Company have a fiduciary duty to act in accordance with the best interest of the company and further that created all kinds of hurdles in the working of the company and indented flimsy excuses and avoided attending Board meeting even though some of these board meetings had been postponed based on his express requests; and (ii) that the Respondent / Petitioner had made serious allegations of criminal nature against the Company s other Directors and in such circumstances acquiring additional shares is deemed detrimental to the interests ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtificate numbers were not mentioned, witness signature and name was not found, the Transferee s details was not mentioned. Further, the Allotment Letter or the Original Share Certificate was not enclosed with the share transfer form. Continuing further, the Transferor signature is to be attested by the Notary Public and in the present case the same is absent. 49. On the side of Respondent, it is contended that the Board of Directors had not issued the duplicate share certificates even though request was made by the transferors on 10.04.2015 and 30.06.2015. Further, the Respondent cannot have details without the original certificates and the notice of refusal was given only to transferor and not to both the Transferor and Transferee . 50. It is the version of the Respondent that the Appellants Grounds of Appeal and the Questions of Law are based on non-existent Articles of Association dated 18.02.1992 which is a forged and fabricated document with a view to mislead this Tribunal in reversing the findings of the impugned order. For the fraudulent acts committed by the Company and its Directors an investigation is to be ordered and a direction for filing of crim ..... X X X X Extracts X X X X X X X X Extracts X X X X
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