1953 (11) TMI 14 - HC - Companies Law

Legal ownership upheld until share transfer registered; demand for letters of administration valid.

The appeal was deemed maintainable as the order of Niyogi J. was considered a 'judgment.' The court held that until the transfer of shares is registered, ... Transfer of Shares – Power to refuse registration and appeal against refusal and Powers of Court to rectify register of members Issues Involved:1. Maintainability of the appeal.2. Validity of the order of Niyogi J.3. Legal ownership and rights of the transferor and transferee.4. Demand for letters of administration by the company.5. Compliance with the Indian Companies Act and Articles of Association.6. Registration of transfer of shares.Issue-wise Detailed Analysis:1. Maintainability of the Appeal:A preliminary objection was raised regarding the maintainability of the appeal on the grounds that the order of Niyogi J. was not a 'judgment' within the meaning of clause 10 of the Nagpur Letters Patent. The court examined the definition of 'judgment' as provided by Couch C.J. in Justices of the Peace for the Town of Calcutta v. Oriental Gas Co., which defines a judgment as 'a decision which affects the merits of the question between the parties determining some right or liability.' The court concluded that the order of Niyogi J. had conclusively determined the right of the heirs of Jairam to obtain a duplicate share certificate without the production of letters of administration, thus constituting a 'judgment' within clause 10 of the Letters Patent. Therefore, the appeal was deemed competent.2. Validity of the Order of Niyogi J.:The order of Niyogi J. directed the transferee to furnish an indemnity bond and to present the instrument of transfer duly stamped. The court found that Niyogi J. proceeded on the incorrect basis that no title or right remained vested in Jairam after the transfer of shares. The court referred to Halsbury's Laws of England and the Supreme Court ruling in R. Mathalone v. Bombay Life Assurance Co., which state that until the transfer is registered, the transferor remains the legal owner of the shares. Consequently, the demand for letters of administration by the company was justified.3. Legal Ownership and Rights of the Transferor and Transferee:The court emphasized that until the instrument of transfer is registered, the transferor remains the legal owner and is liable for calls made on the shares. The transferee, although having accepted the transfer, does not become the legal owner until registration. Thus, Jairam continued to be the legal owner until his death, and his heirs inherited the same right.4. Demand for Letters of Administration by the Company:The court examined Articles 49 and 50 of the company's Articles of Association, which entitle the company to demand letters of administration from the heirs of a deceased member. The court cited Kasivishwanathan v. Indo-Burma Petroleum Co., which supports the company's right to insist on such demands unless tainted by fraud. The court concluded that the company's demand for letters of administration was valid and could not be challenged under section 38 of the Indian Companies Act.5. Compliance with the Indian Companies Act and Articles of Association:Section 34(3) of the Indian Companies Act requires that the instrument of transfer be duly stamped, executed by both parties, and delivered along with the share certificate for the transfer to be registered. In this case, the instrument was neither duly stamped nor accompanied by the share certificate, rendering the company legally incompetent to register the transfer. The court noted that these statutory conditions create a liability that cannot be waived.6. Registration of Transfer of Shares:The court addressed the contention that the company's failure to register the transfer within the specified period under section 34(4) of the Indian Companies Act should result in automatic registration. The court clarified that returning the application within one month was tantamount to a refusal to register. Moreover, a breach of section 34(4) only entails a penalty and does not mandate automatic rectification of the register.Conclusion:The appeal was allowed, and the application of respondent No. 1 under section 38 of the Indian Companies Act was dismissed with costs throughout. The court's decision emphasized the importance of adhering to statutory requirements and the company's Articles of Association in the registration of share transfers.