TaxTMI 
TaxTMI 
1991 (11) TMI 196
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....etitions under section 155 of the Companies Act, 1956 (for short "the Act"), for rectification of the share register; some of them filed at the instance of the transferors and some at the instance of the transferees, of the equity shares of Mathrubhumi Printing and Publishing Company Ltd. (for short, "the company"), a company registered as a public company limited by shares. The transferees lodged the share transfer applications with the company for registration of transfers of 455 shares. The transferees are public limited companies, wholly owned subsidiaries of M/s. Bennet Coleman and Company Ltd. which publish the Times of India group of publications. The transferee companies, before the expiry of the statutory period of two months contemplated under the Companies Act to register the transfer, filed the above company petitions for rectification of the share register mainly on the ground of unnecessary delay in entering in the register the fact of the transferees having become members. They also moved the learned single judge with a separate application for the issue of an interim injunction restraining the appellant from holding the extraordinary general meeting scheduled to be ....
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.... transfer was illegal and that the directors acted with ulterior motive and contrary to the interest of the company. Regarding the objection on the cancellation of the stamps, the transferees contended that the cancellation of stamps was proper and that the other objections raised by the company are frivolous. The company petitions were heard jointly and, by a common judgment, the company court passed orders directing Mathrubhumi to register the transfer of 432 out of 455 shares dealt with in the four company petitions, subject to certain conditions in respect of certain shares. Registration was disallowed only in respect of 23 shares. It is the said common judgment that is under challenge in these appeals. The questions arising for consideration are: (i)Was the company justified in refusing to register the transfer of shares on the grounds: (a)that the instruments of transfer are not duly stamped; and (b)that the transfer applications are not accompanied by evidence showing payment of fee as per article 22 of Table A of Schedule I to the Companies Act ? (ii)Whether the alteration of the articles of the company by inserting article 17 is valid ? (iii)If valid, ....
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....executes any instrument on any paper bearing an adhesive stamp shall, at the time of execution, unless such stamp has been already cancelled in manner aforesaid, cancel the same so that it cannot be used again. (2) Any instrument bearing an adhesive stamp which has not been cancelled so that it cannot be used again, shall, so far as such stamp is concerned, be deemed to be unstamped. (3) The person required by sub-section (1) to cancel an adhesive stamp may cancel it by writing on or across the stamp his name or initials or the name or initials of his firm with the true date of his so writing, or in any other effectual manner". "63. Penalty for failure to cancel adhesive stamp.-Any person required by section 12 to cancel an adhesive stamp, and failing to cancel such stamp in manner prescribed by that section, shall be punishable with fine which may extend to one hundred rupees". Learned counsel for the appellant formulated his argument thus: Judicial pronouncements including those of the apex court have categorically declared that the words "shall not register" employed in section 108, are indicative of the legislative intent that the provisions contained in the section....
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....and if the stamps are cancelled in an effectual manner so that it cannot be used again, that will amount to substantial compliance with the requirements of section 12 of the Stamp Act. The time at which the cancellation takes place is totally irrelevant if at the time of lodgment or at the time when the board takes up the instruments for consideration the stamps were duly cancelled. In support of this argument he cited the following decisions: STO v. K.I. Abraham [1967] AIR 1967 SC 1823; Acraman v. Merniman (117 ER 1164); Royal Bank of Scotland v. Tottenham [1894] 2 LR 715 (QB); Ramen Chetty v. Mahomed Ghouse [1889] ILR 16 Cal 432; Motilal v. Jagmohundas 6 BLR 699 and Surij Mull v. Hudson [1900] ILR 24 Mad 259. Before we consider the scope of the above contentions it is relevant to refer to some of the admitted facts. Some instruments of transfer were stamped , at the time of lodging and those stamps were cancelled by the chartered accountant, Sri Gopalakrishnan, representing the respondents who lodged the instruments with the secretary of the appellant company on behalf of the transferees. On some of the instruments the fee contemplated under article 22 of Table A of Schedul....
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....ion 63. This, in short, is the scheme of these sections contained in Part B and Part C of the Stamp Act. This scheme makes it very clear that the stamps affixed to any instrument executed in India require to be cancelled at the time of the execution of the document following the procedure prescribed in clause (b) of sub-section (1) of section 12. The cumulative effect of sections 17 and 12(1)(a) and (b) is that, unless the person executes an instrument on a paper bearing an adhesive stamp already cancelled in the manner prescribed under clause (a), he is bound to cancel the adhesive stamp which he is obliged to affix to the instrument at the time he executes the instrument in India. That this is how the adhesive stamps affixed to instruments executed in India shall be cancelled is made further clear by sections 18 and 19 read with section 12(1)(a). It is relevant in this context to note that an instrument executed outside India, in order to be declared to be duly stamped, must be affixed with the adhesive stamps, provided the said instrument is one of the five categories of instruments contemplated under section 11. A reference in this connection to section 47 is also relevant. Thi....
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.... instrument not duly stamped cannot be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon, registered or authenticated by any such person or by any public officer. These instruments, however, can be impounded by the persons mentioned in section 33. On the payment of the duty and penalty, if any, under section 35, section 40 or section 41, the person admitting such instrument in evidence, or the Collector, as the case may be, shall certify by endorsement thereon that the proper duty, or, as the case may be, the proper duty and penalty (stating the amount of each) have been levied in respect thereof and the name and residence of the person paying them (see sub-section (1) of section 42). Section 42(2) says that every instrument so endorsed shall thereupon be admissible in evidence and may be registered and acted upon and authenticated as if it had been duly stamped. It is relevant in the context to keep in mind the significance of section 44. This section provides that when any duty or penalty has been paid under section 35, section 37, section 40 or section 41, by any person in respect of an in....
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....negative, is relevant. In other words, if an affirmative statute which is introductive of a new law, direct a thing to be done in a certain way, that thing shall not, even if there be no negative words, be done in any other way (see Craies on Statute Law, 17th edition, pages 264 and 265). We, on account of the above principle, are emboldened to declare that the provisions contained in section 12 are mandatory and, therefore, non-compliance with the requirements prescribed thereunder make the instrument not duly stamped and, therefore, shall not be received in evidence, registered or acted upon. None the less, the respondents could have availed of the benefit of subsection (2) of section 42 if the board of directors of the company can be treated as a person within the meaning of section 33 and hence empowered to rectify the irregularity and thereby give a declaration that the instrument of transfer must be deemed to be duly stamped, that is, the instrument bears adhesive or impressed stamps of not less than the proper amount and such stamps have been affixed or used in accordance with law for the time being in force. Such a contention the respondents, in our view, cannot raise be....
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.... It has come out in evidence that in some cases the proper fee within the meaning of article 22 of Table A of Schedule I to the Act has not been paid. The non-compliance with the requirements prescribed by this article is fatal, it cannot be cured by offering to file the share certificate and a demand draft for the fee in the court. The court has no jurisdiction to accept the documents and the fee (see P.V. Chandran's case (supra)). The learned judge in that decision has observed thus: "It is only after the instrument of transfer along with the share certificate and the registration fee are delivered or left at the office of the company duly, does the occasion for the directors to consider the matter arise". This decision of the learned single judge has been confirmed in appeal by the Division Bench and ultimately by the Supreme Court by rejecting the special leave application. The learned judge, therefore, was in error in issuing a direction to the company to recognise the transfers after receiving the fee the transferees are bound to pay in terms of article 22. This decision of the learned single judge, in any view, shall be said to be per incuriam. Remaining questions ....
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....unsel for the respondents refuted the above argument. According to him, the question pertaining to registration of the transfer requires to be considered with reference to the articles that existed at the time when the transfers were made, that is, in January and February, 1989, or at the date of the lodgment of the applications for registration. Dilating on this aspect he contended that the articles reflect a contract between the member and the company and as such a public document containing a representation to the public as to what the contract is, so that the members of the public, who want to deal with the company or its members in regard to various matters, can act upon the articles pertaining to those matters. From the point of view of the transferor his share is freely transferable without any restriction (see section 82 of the Act) and the said right enures to the benefit of the transferees of the shares and if that be so, the transferees have the right to challenge the resolution rejecting their request to register the transfers based on a change introduced in the articles particularly if the change is after the lodgment. The amendment of the articles is made in violation....
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....es than the number held by him at the date on which the alteration is made, or in any way increases his liability as at that date, to contribute to the share capital of, or otherwise to pay money to, the company: Provided that this section shall not apply- (a)in any case where the member agrees in writing either before or after a particular alteration is made, to be bound by the alteration; or (b)in any case where the company is a club or the company is any other association and the alteration requires the member to pay recurring or periodical subscriptions or charges at a higher rate although he does not agree in writing to be bound by the alteration". Construing these provisions a Division Bench of the Madras High Court has opined thus : (see Swaminathan ( M.V.) v. Chairman and Managing Director, SIDCO [1988] Writ LR 41). "Section 31(2) of the Companies Act cannot be understood to mean that any alteration made in the articles of association would have retrospective effect as if it was there from the inception of the articles of association. The section is intended only to confer validity on the alteration made to the articles. It is only for the limited purpose of ....
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.... that, under his contract with a society which has power to alter its rules, he remains subject to the rules when duly altered". The High Court of Australia, after reviewing the decisions in (supra ) and Sidebottom (supra ), have held in Peters 'American Delicacy Company Ltd. v. Heath 61 CLR 457 thus: "(1)Section 20 (corresponding to section 31 of the Act) empowers-a company to alter its articles only subject to the conditions contained in the memorandum of association. (2)An alteration in a particular case may constitute a breach of contract with a shareholder, but such a breach of contract does not invalidate the resolution to alter the articles (see Deri's case [1900] 1 Ch 656, 672). (3)The fact that an alteration prejudices or diminishes some of the rights of the shareholders is not in itself a ground for attacking the validity of an alteration (see Sidebottom [1920] 1 Ch 154, Shuttleworth [1927] 2 KB 9 and Mien's [1900] 1 Ch 656 cases). Any other view would, in effect, make unalterable and permanent any articles of association which conferred rights upon a class of shareholders, or possibly upon any shareholder, if they or he desired that those rights should contin....
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....on to the following excerpt from the judgment is profitable: "The alteration come into force at its own date, and, if so, section 50 is no authority for Mr. Sandeman's proposition. There is also this further element that the alteration was made, not so much because the directors deemed it to be an alteration required in the general interests of the company, but simply in order to meet the particular case of the petitioner's transfer". (2) There was no dispute as regards the valid lodgment of the application for registration. A reference in this connection to the following findings is profitable: "It is admitted that at the time when he presented the transfer for registration he was, according to the existing regulations of the company, entitled to have it registered". Here in the case on hand there was no valid lodgment of the application for registration. If that be the position the question as to whether the transferee has the right to demand that the transfer shall be registered, does not arise. Under these circumstances, we are of the view that the Scottish case has no application to the facts of this case. It should, however, be borne in mind that the company will ....
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.... value of the shares at a price to be certified by the auditors. The resolution was plainly against the plaintiffs, but the Court of Appeal held that it was in the interest of the company as a whole to be protected against competition, and upheld the resolution. To appreciate the above principle one should refer to the decision of Astbury J. in Brown v. British Abrasive Wheel Co. Ltd. [1919] 1 Ch 290 where the learned judge held that the alteration was not for the benefit of the company but for the benefit of the majority who got the resolution passed. This view the learned judge formed at a time when the true meaning of the test "that the alteration must be 'bona fide for the benefit of the company as whole' " was not yet ascertained. For the first time this view was expressed in Sidebottom's case (supra ). Taking all these aspects into account, Palmer has stated thus: "The true distinction between these two cases is that in Sidebottom's case [1920] 1 Ch 154, the expropriating article was not discriminatory in character and, in appropriate circumstances, would likewise have operated against the majority, but that in British Abrasive Wheel Co.'s case [1919] 1 Ch 290, the article....
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....r the transferees submits, because when once the transfer is completed and recognised by the company it relates back to the time when the transfer was first made. In support of this argument he pressed into service the following rulings including a ruling of this court. Killick Nixon Ltd. v. Dhanraj Mills (P.) Ltd. [1983] 54 Comp. Cas. 432 (Bom), Travancore Electro Chemical Industries Ltd. v. Alagappa Textiles (Cochin ) Ltd. [1972] 42 Comp. Cas. 569 (Ker) and two decisions of the Supreme Court in Escorts Ltd's case (supra ) and Vasudev Ramchandra Shelat 's case (supra). The question, therefore, is: when would the transfer become effectual as between the company and the transferees ? The deed of transfer shall not have any effect so as to put the transferee into the position of the transferor until it has been lodged with the company, and it must be not only lodged, but accepted by the company as properly lodged, because if the company finds that it does not comply with the provisions of the Act it is its duty to refuse to receive it (see the decision of the Chancery Division in Nanney v. Morgan [1888] 37 Ch 346). Until the lodgment, the transfer may be effective between the t....
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.... transfer may be defeated (see para 39.07 of Palmer, 23rd edition). The position has been illustrated by Palmer thus: "The rule on this point is that, as between two persons claiming title to shares in a company like this, which are registered in the name of a third party, priority of title (i.e., equitable title) prevails, unless the claimant second in point of time can show that as between himself and the company, before the company received notice of the claim of the first claimant, he, the second claimant, has acquired the full status of a shareholder; or at any rate that all formalities have been complied with, and that nothing more than some purely ministerial act remains to be done by the company, which as between the company and the second claimant the company could not have refused to do forthwith; so that as between himself and the company he may be said to have acquired, in the words of Lord Selborrie, 'a present, absolute, unconditional right to have the transfer registered, before the company was informed of the existence of a better title' ". It, therefore, follows that the equitable right of the transferee gets: metamorphosed into the absolute right of a shareh....
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....manner of right to challenge the resolution. Now, we shall consider the question as to whether the transferors have any right other than the one recognised under sections 397 and 398 read with section 399 to challenge the resolution amending the articles in a proceeding under section 155. As answer to this question it can be conceded that they have certain rights which can be called as "individual shareholder's right". Such individual shareholder's right pressed into service in this case by the transferors have been dealt with by the learned single judge in paragraphs 28, 29 and 30 of the judgment. They can be formulated thus: The questions that were considered in this connection are: Whether the notice and explanatory statement of the extraordinary general meeting are legal and valid, whether the resolution as passed was materially different from the resolution as proposed in the notice. The learned single judge, after considering the various aspects of these questions and also the relevant provisions contained in sections 171, 172, 173(2) and 189 has found that the notice and explanatory statement of the extraordinary general meeting were legal and valid. We shall in this conn....
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....be heard to say that the resolution as passed was different from the resolution as proposed in the original notice, even though the power given to the board to decline to register transfer without assigning any reasons in its absolute discretion was not envisaged in the original proposal". On seeing the evidence dealt with by the learned single judge we are of the view that there is little scope to interfere with the said finding. We accordingly concur with the said findings. Learned counsel for the transferors, Mr. Pathrose Mathai, has then submitted that even if the amendment of the articles is held to be valid, article 17 in so far as it confers absolute discretion on the board to reject transfers is void being repugnant to the provisions in section 82 read with section 9 of the Act. It amounts to an absolute restriction regarding transferability of shares. Further, he submitted that the article is opposed to public policy and as such void and inoperative and cannot be relied upon to reject the transfer applied for. We do not find any merit in the above contentions. The object of the provision is to arm the directors with power to be exercised in special and exceptional ca....