2006 (5) TMI 534 - Board - Companies Law

Transfer Deeds Must Be Properly Stamped: Company Petition Dismissed

Multimedia Frontiers Limited Versus Software Frontiers Limited and Ors.

Multimedia Frontiers Limited Versus Software Frontiers Limited and Ors. - [2007] 75 SCL 511 (CLB) Issues Involved:1. Validity of the transfer of shares without duly stamped transfer deeds.2. Rectification of the register of members under Section 111A(3) of the Companies Act, 1956.3. Limitation period for filing the application for rectification.4. The impact of non-payment of consideration on the transfer of shares.5. The locus standi of the petitioner to seek rectification.Detailed Analysis:1. Validity of the Transfer of Shares Without Duly Stamped Transfer Deeds:The petitioner argued that the transfer of 36,77,500 shares to the respondents 6 and 7 was invalid due to the non-fulfillment of the mandatory requirement of Section 108 of the Companies Act, 1956, which mandates that every instrument of transfer must be 'duly stamped.' The apex court in Mannalal Khetan v. Kedar Nath Khetan held that the provisions of Section 108 are mandatory, and any transfer that does not comply with these requirements is void. The petitioner claimed that the share transfer deeds were unstamped and thus the transfer was null and void. However, the petitioner failed to produce the original unstamped transfer deeds, and the company did not provide the communication dated 01.08.2000, which allegedly instructed not to transfer the shares. Consequently, the plea that the instruments were unstamped was not substantiated, and the court could not conclude that the transfer violated Section 108.2. Rectification of the Register of Members Under Section 111A(3):The petitioner sought to rectify the register of members under Section 111A(3), arguing that the transfer of shares was in contravention of Section 108. The court noted that quoting a wrong section should not be a ground for rejecting an application if it is otherwise maintainable. The court treated the petition as one filed under Section 111A and considered whether the registration of the transfer was valid. Since the petitioner did not provide sufficient evidence to prove the unstamped nature of the transfer deeds, the court could not grant the relief sought for rectification.3. Limitation Period for Filing the Application for Rectification:The respondents argued that the petition was barred by limitation, as the application under Section 111(4) should be filed within three years from the date of such entry or default. The court, however, did not delve deeply into the question of limitation, as the primary issue of the validity of the transfer was not established by the petitioner.4. The Impact of Non-Payment of Consideration on the Transfer of Shares:The petitioner contended that the respondents 6 and 7 did not pay the consideration for the shares as per the Memorandum of Understanding (MOU) dated 21.02.2000. However, the court stated that the issue of non-payment of consideration was not relevant to the present proceedings, which focused on the validity of the transfer under Section 108. The court emphasized that once a transfer form is executed, the transfer is complete between the transferor and transferee.5. The Locus Standi of the Petitioner to Seek Rectification:The respondents argued that the petitioner, having sold the shares, could only seek recovery of the unpaid consideration and not claim ownership or rectification of the register. The court noted that the petitioner failed to establish the unstamped nature of the transfer deeds, which was crucial for proving the invalidity of the transfer. Without this proof, the petitioner's locus standi to seek rectification was undermined.Conclusion:The court dismissed the company petition, stating that the petitioner failed to substantiate the claim that the transfer deeds were unstamped and thus invalid under Section 108. The absence of original instruments of transfer and the lack of cooperation from the company and respondents 6 and 7 raised doubts about the petitioner's claims. Consequently, the court did not grant the reliefs sought for rectification of the register of members. The petition was dismissed without any order as to costs.