TaxTMI 
TaxTMI 
TaxTMI 
1991 (5) TMI 259
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....oard (coram Shri S. P. Upasani, Chairman, Shri Y. A. Rao, Member, and Shri A. M. Chakraborti, Member). However, due to indisposition of Shri A. M. Chakraborti, these matters were heard, after December 3, 1990, by the double Member Bench (coram Shri S. P. Upasani, Chairman and Shri Y. A. Rao, Member) with the consent of the parties. 2. The position set out in the pleadings of the parties, in brief, is as under : (1) Case No. 23 of 1990-CLB : This is an appeal dated November 12, 1990, under Section 111(3) of the Act filed by JIL against refusal to transfer 87,320 shares of MML. The impugned shares were lodged with MML between March 2, 1990 and September 17, 1990, requesting MML to return the share certificates duly transferred at the address of JIL. MML, vide its letters dated April 28, 1990, July 14, 1990 and August 29, 1990, informed JIL to send a copy of the board's resolution authorising purchase of shares. It was also stated in the letter dated August 29, 1990, that "in case we do not hear from you within 15 days from the receipt of this letter, we shall have no alternative, but to send back the shares untransferred to you". It is alleged by JIL that the letters....
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....rtificates listed in the annexure hereto together with the resolution aforesaid were placed before the board of directors of Mohan Meakin Ltd., to consider and if thought fit to approve the registration of the transfer of the shares. After consideration, the board declined to register the transfer on the following grounds: (i) The investment on behalf of Jagajit Industries Ltd., forming the subject-matter of the transfers sought to be registered, has not been authorised by the board of directors of the transferee-company as required under Section 292 of the Companies Act, 1956. (ii) The transfer deeds are not stamped in accordance with law in as much as they have been signed unstamped by the transferor and have been subsequently stamped by the transferee, and the adhesive stamps have been subsequently cancelled. (iii) The transfer deeds in respect of the shares are not in accordance with Section 108 of the Companies Act, 1956, in as much as they do not specify the occupation of the transferee. (iv) The transfer deeds with respect to shares specified in this behalf in the annexure, have not been signed by a witness. (v) The transfer deeds with respect to shares specified in thi....
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....led the appeal before this Board. It is further stated that MML in fact, instructed its share registrars to register 7,200 shares, presumably, being the first two lots of lodgment made with MML. As evidence, a photocopy of the relevant page of the list of shareholders bearing the appellant's Folio No. 2168 in the register of members of MML, was filed. From this, it is noticed that 39,224 shares stood registered in the name of the appellant in Folio No. 2168, while, as a matter of fact, before the lodgement of shares for registration on March 2, 1990, only 32,024 shares were held by JIL in the respondent-company. It is further stated that it would appear from the photo-copies of the endorsements made on the back of share certificates Nos. 27879 and 27880 that, as an afterthought, MML had cancelled the endorsements, to put the clock back. In the reply affidavit, dated December 27, 1990, MML confirmed the dates of lodgment of the share transfer deeds, and the correspondence exchanged. It is contended that the resolution dated December 4, 1989, and March 22, 1990, passed by the board of directors of JIL are bad in law and legitimately it should not register the shares, as the same ....
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....ly no information unknown or wanting that needs to be investigated by the Company Law Board ; that JIL is well aware of the shareholding of MML and the names of the transferors of the shares in question. It is further stated that the application made by JIL amounts to gross abuse of the process of this Board. In the rejoinder affidavit filed by JIL, it is stated that since MML is denying the title of JIL, who is a bona fide purchaser, the application is maintainable. (3) Case No. 26 of 1990-CLB : This is an appeal dated November 30, 1990, under Section 111(3) of the Act made by GPPL, who lodged the instruments of transfer in respect of 5,000 shares of ₹ 5 each of MML, consisting of 50 share certificates, on August 21, 1990 (received by MML on 24 August, 1990). On August 30, 1990, GPPL made available a certified copy of its board's resolution dated June 29, 1990, authorising Shri A.K. Srivastava, to sign share transfer deeds for purchase of 5,000 to 10,000 shares of MML at market rates. As per letter dated August 25, 1990, of MML, GPPL was informed that the power of attorney of the officials of the authorised signatory of GPPL, who had signed as transferees, is not regis....
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....ections. The articles of association of MML do not empower it to refuse registration of transfers except in case the shares are not fully paid up or in the case of lien on the shares. In regard to the alleged ground of rejection that the occupation of the transferee was not mentioned in the instrument of transfer, it is stated that against the said column, the word "company" has been mentioned. In the reply affidavit filed by MML, the sequence of events indicated in the appeal has been admitted, except the allegations made therein. It is stated that the board of directors of MML, at its meeting held on September 26, 1990, took the decision to decline registration of transfer of shares, for the reasons stated in the letters addressed to the transferors and it was further resolved that the share certificates be returned to the registered holders thereof, whose names appeared in the register of members, under advice to GPPL. It is further stated that the transfer is contrary to the mandatory provisions of Section 108 of the Act and the purported resolution of the board of directors of GPPL is not in accordance with law. MML has, accordingly, sought for dismissal of the appe....
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....L refused transfer of 900 shares on the ground that the same was not in accordance with the provisions of Section 292/372 of the Act and that the transfer deeds are not duly stamped as they had been signed unstamped by the transferors. MML has also stated that they had informed the procedure and formalities to be adopted by the QRICL in regard to 8,600 shares lost in transit. With respect to these 8,600 shares, in para 12 of the reply, it is also stated that the request for transfer of these shares suffered from the same defect of want of valid resolution. 4. In the rejoinder affidavit filed by QRICL, the allegations made have been denied and it is further stated that MML has failed to make a reference under Section 22A of the Securities Act and that it cannot urge any new ground for non-transfer of shares, which were not conveyed to QRICL, while rejecting the transfer. 5. Notice was issued to MML on November 14, 1990, in respect of Cases Nos. 23 of 1990-CLB and 24 of 1990-CLB and the matter came up for hearing on November 23, 1990. Shri P.P. Malhotra, senior advocate, appearing on behalf of JIL, submitted that in view of the very peculiar nature of the case, as the company had s....
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....st have complied with the provisions of Section 292 of the Act. However, the board of directors of the investee company, while considering the registrability of the transfer can certainly ask for a copy of such a resolution. Once asked to do so, the transferee company cannot refuse to deliver a copy of the resolution to the company. We also observed that as per the mandatory requirements of Section 372(2)(5) of the Act, there has to be a specific resolution of the board of directors. It has been admitted in the affidavit filed by JIL that such a resolution has been passed. Since copies of the minutes of the resolution passed by the board of directors of JIL duly authenticated under the Act are already on record, we further observed that the statutory presumption contained in Section 195 of the Act must be allowed to hold the ground especially, in the absence of even an iota of evidence to the contrary. In the result, the applications dated December 19, 1990, were dismissed. 8. As directed by us at the hearing held on December 13, 1990, notices were also sent to the concerned 354 shareholders--transferors on December 10, 1990, asking them to file replies to the appeal dated Novembe....
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....seeking condonation of delay in making the appeal in respect of 11,400 shares lodged by JIL. An appeal under Section 111 of the Act is required to be preferred against the refusal to register transfer of shares within two months of the receipt of the notice of refusal by the appellant. All the appeals herein have been filed during the stipulated period, except in respect of 11,400 shares lodged on different dates in Case No. 23 of 1990-CLB. JIL has filed the application under Section 637B of the Act seeking condonation of delay on the grounds stated therein. No objection has been raised by MML on the prayer made for condonation of delay. We feel that serious prejudice will be caused to JIL if the said delay is not condoned. It appears that JIL had been pursuing the matter with MML for seeking registration of the impugned shares. We, accordingly, condone the delay. 10. On the basis of the allegations, affidavits and counter-affidavits, filed by all the parties in these four cases, the facts regarding authority, date of authority to purchase shares and various resolutions passed and lodged with the MML date-wise are as follows : A-Facts relating to ]IL Date of board meeting of JIL....
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....half of JIL has not been authorised by the board of directors of the transferee-company as required under section 292 of the Act. (ii) The transfer deeds are not stamped in accordance with law inasmuch as they have been signed unstamped by the transferor and have been subsequently stamped by the transferee, and the adhesive stamps have been subsequently can* celled. (iii) The transfer deeds are not in accordance with section 108 of the Act inasmuch as they do notspecify the occupation of the transferee. C. Facts relating to QRICL 76 9,500 (i) The investment on behalf of JIL has not been authorised by the board of directors of the transferee-company as required under sections 292 and 372 of the Act. (ii) The transfer deeds are not stamped in accordance with law inasmuch as they have been signed unstamped by the transferor and have been subsequently stamped by the transferee, and the adhesive stamps have been subsequently cancelled, (relating to 900 shares). 11. Arguments were advanced on behalf of the appellants and respondents on different dates and final hearing was held on March 8, 1991. On behalf of the appellants while detailed arguments were made by Shri P.P. Malhotra....
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....n the grounds mentioned in their communication addressed to the transferors/transferee-companies ? Issue No. 2 : Whether MML has rightfully returned the share certificates to the transferors and retained the instruments of transfer ? Issue No. 3 : Whether the MML was required to make a reference to the Company Law Board under Section 22A(4)(c) of the Securities Act for the alleged contravention of sections 292 and 372 of the Act ? Issue No. 4 : Whether the applicants are entitled to any relief ? 13. Regarding issue No. 1, the board of directors of MML rejected the request for transfer of impugned shares, on the grounds that the investment was not authorised as per provisions of Section 292 and Section 372, transfer deeds were not stamped in accordance with law, transfer deeds do not specify the occupation of the transferee, or bear the name of the witness. Registration of 200 shares in favour of JIL was also rejected on the ground that transfer deeds were lodged beyond the period of validity. Similarly, the registration of 2,200 shares in favour of JIL was rejected on the ground that the transfer deeds were not signed by the witness. These objections of MML were accepted by Shr....
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....fied. 15. On behalf of MML, Shri Koura submitted that the board's resolutions passed by the transferee-companies do not specify the total amount up to which the shares in MML could be purchased and in the absence of such mention in the board's resolutions it does not amount to a valid delegation and the investment made is without any authority of law. Shri Koura further submitted that in view of this non-compliance with the mandatory provisions of the Act, the impugned transfers are void ab initio and the question of ratification in the case of a void contract does not arise. He relied on the cases in Bengal Coal Co. Ltd. v. Union of India, AIR 1971 Cal 219, K. Panduranga v. State of Mysore, AIR 1965 Mys 244, Rajkumari Soni (Smt.) v. State of H.P., AIR 1972 HP 1 and Mulamchand v. State of M.P., AIR 1968 SC 1218. 16. In regard to the objection of non-compliance with the provisions of Section 372(5) of the Act, by QRICL, it was submitted on behalf of the appellant that the said provisions have been duly complied with. Shri Koura pointed out that no evidence has been given by the company about the compliance with this provision. 17. By an interim order dated January 9, 1991....
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....s. Rohini Chandrakant Vijayakar v. A.I. Fernandes, AIR 1956 Bom 421, in which, it was held that stamping should be done some time before the document is executed or that a stamped paper must be placed before the executant who must execute it or just before he executes it he must stamp it and execute the document. 19. On behalf of JIL, QRICL and GPPL, Shri Malhotra, submitted that blank transfers are recognised by the Companies Act and in the cases before this board, the transferors had signed the share transfer forms in blank and the entries were made thereafter by the transferee/their brokers. In this connection, he referred to the case of Howrah Trading Co. Ltd. v. CIT [1959] 29 Comp Cas 282 ; AIR 1959 SC 775, wherein it was held that the transfer of shares of a company takes place either by a fully executed document such as is contemplated by regulation 18 of Table A of the Indian Companies Act, 1913, or by what are known as "blank transfers". In such blank transfers, the name of the transferor is entered and the transfer deed signed by the transferor is handed over with the share scrip to the transferee, who if he so chooses, completes the transfer by entering his na....
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....ed, violates the provisions of Section 108 of the Act. Shri Malhotra, submitted that against the column "occupation" of the transferee, the word "company" has been stated along with the existing folio number of the transferee, viz. JIL. It was further pointed out that MML is well aware of the "occupation" of the transferee, being an existing shareholder. He also submitted that the "occupation" of a company is a known fact and the defect pointed out by the MML is not of a material nature and, therefore, registration of shares on this ground should not have been refused. 22. We have carefully considered the arguments advanced by both counsel. In the case of a company, its "occupation" is a matter of public knowledge as, when the memorandum and articles of association of a company are registered, they become public documents and are open to inspection by any member of the public. In so far as the provisions of the Act are concerned, Sub-section (1) of Section 108 requires the giving of the name, address and occupation, if any, of the transferee, which means that the occupation of a transferee is to be given only when it is applicable.....
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....e same defect of non-compliance with the provisions of sections 292 and 372 of the Act. In view of our finding that the transferee-company has duly complied with the provisions of sections 292 and 372 of the Act and as QRICL have complied with the necessary formalities in regard to registration of 8,600 shares, lost in transit, as desired by MML, vide letter dated December 12, 1990, in terms of the first proviso to Sub-section (1) of Section 108 of the Act, the company should register the transfer of such shares. The transferee-company has already made available photo copies of the transfer deeds and share scrips in question and made a request for duplicate share certificates. There cannot be any objection for MML to register transfer of these impugned shares. 26. In view of the above, except for rejection to transfer of 2,400 shares, all the other rejections by MML for transfer of shares lodged by JIL, GPPL and QRICL, are held to be not in accordance with the provisions of law and, therefore, cannot be sustained. 27. A peculiar feature which has come to our notice in the present appeals is that MML has returned the share certificates to the transferors and has retained the instr....
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....uld specifically draw the attention of listed companies to the following mandatory requirements ; (b) that documents should be scrutinised by listed companies promptly on presentation, and if found to be defective or not in order, they should be returned forthwith to the parties concerned, and in any case, expeditiously within a week with a memo clearly stating the nature of the defect or objection." 28. It is clear from the above circular that the share certificates have to be returned to the parties concerned, which can only be the transferees in the present appeals before us. MML has neither complied with the letter nor the spirit behind the above circular and has chosen to return the share scrips to the transferors, apparently, with a view to harass the appellant-transferees. The action taken by MML is against all the canons of law, justice, equity and fair play, and is not in accordance with sound business principles or prudent commercial practice. We understand that all the companies return the share certificates to the persons concerned, whosoever lodge the same. The practice adopted by the company is neither in the interest of the shareholders nor the investing publ....
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.... register a transfer on the ground that the transfer is in contravention of any law. This provision enables a company to refuse registration of transfer whenever the transfer involves a contravention of the provision of various statutes, such as, the Monopolies and Restrictive Trade Practices Act, the Foreign Exchange Regulation Act, the Companies Act and the rules and regulations made thereunder imposing restrictions on transfer of securities. It would also be noted that the procedure in dealing with refusal under Clause (a) and Clause (b) is different in as much as if the grounds fall under Clause (b), a reference is required to be made to the Company Law Board before conveying the refusal while no such reference is required for refusal under Clause (a). It can be concluded that under Clause (a), the reference is not required to be made to the Company Law Board as violations are relating to registration of transfer, majority of which are capable of being rectified as prescribed under various related statutes. Considering the language used in Section 108(1) of the Act and Section 22A of the Securities Act, non-compliance with "requirements under the law relating to the regist....