TaxTMI 
TaxTMI 
1991 (5) TMI 259
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.... 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 dated April 28, 1990, ....
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....her 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 this behalf in the annexure, do not car....
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....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 do not comply with the mandatory requ....
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....at 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 Rs. 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 registered with MML and that MML do not have....
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....s 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 appeal. A copy of the resolution....
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....es 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 sent the share certificates....
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....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 November 12, 1990, in Case ....
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....n 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 Authorit....
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....; (18.9.90) 1.65,000 87,320 87,320B. Facts relating to GPPL 29.6.90 10,000 24.7.90 5,000 21.8.90 5,000 (24.8.90) C. Facts relating to QRICL 2.6.90 15,000 10.7.90 to17.7.90 9,500 6.9.90 9,500 (11.9.90 received only 900 shares) On the basis of the reasons indicated in the board's resolution and the letters written by MML to transferors/transferees, the reasons for refusal to register transfer of shares and the number of shareholders involved are summarised below : A. Facts relating to ]IL No. Of shareholders No. of shares Reasons for refusal 336 80,420 (i) The investment on behalf 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 tran....
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....ing shareholders in MML and MML is a listed company on the Calcutta and Delhi Stock Exchanges. Shri Malhotra referred to articles 28 and 29 of the articles of association of MML and pointed out that the articles do not permit the company to refuse transfer of fully paid up shares. He further argued that in terms of provisions of Section 22A of the Securities Act, the shares of listed companies are freely transferable and the company cannot refuse registration of transfer of securities on any ground other than those specified therein. He vehemently condemned the modus operandi adopted by MML in returning the share certificates to the transferors and for retaining the instruments of transfer by MML, although as per usual practice followed by all the companies, the instruments of transfer and relative share certificates are returned either to the transferor or transferee whoever has lodged the same. According to him this action, on the part of MML, has created innumerable further difficulties in getting the shares transferred in the name of the company and his clients are finding it difficult to recover the share certificates from the various transferors and this has, therefore, affec....
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....tra submitted that it is an admitted position that MML has no power to refuse transfer of shares in respect of fully paid-up shares as per the articles of association. He further stated that the company cannot refuse transfer even in respect of fully paid-up shares except on the grounds specified in Sub-section (1) of Section 108 of the Act, or under Section 22A(3)(a) of the Securities Act, as these provisions are of mandatory nature. Referring to the ground of non-compliance with the provisions of sections 292 and 372 of the Act, Shri Malhotra submitted that the transferee companies have passed the necessary board resolutions in the meeting of the board of directors expressly specifying the number of shares to be purchased at the prevalent market rates and the delegate has been identified authorising him to sign the share transfer deeds. He submitted that Section 292(l)(d) read with Sub-section (3) thereof provides that the board resolution delegating the power shall specify the total amount up to which the funds may be invested and the nature of investments that may be made by the delegate. Both these stipulations have been complied with. He also submitted that although the board....
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.... of law specifically when there is no evidence available with MML to the contrary. We are of the view that the resolutions passed by the board of directors of the transferee-companies for making certain investments are prima facie in compliance with the provisions of Sections 292 and 372 of the Act. We, therefore, hold that the rejection of registration of transfer of shares by MML on this ground was not according to the provisions of law. 18. Regarding the ground that the transfer deeds were not stamped in accordance with the law, it was stated on behalf of MML that the share transfer forms were not stamped in accordance with the law in as much as they were stamped subsequent to the execution by the transferor and, therefore, the instruments were invalid. According to Shri Koura, the provisions regarding stamping of the instrument mentioned in Section 108 of the Act are mandatory. He further submitted that Section 2(12) of the Indian Stamp Act (hereinafter referred to as "Stamp Act") defines the expressions "executed" and "execution" to mean "sign" and "signature". It makes all documents which are chargeable with duty when executed, chargeable as soon as they are signed by the ....
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....it was held that the note was stamped at the time of execution. He also referred to commentary on page 599 of the book titled The Indian Stamp Act by K. Krishnamurthy (sixth edition 1990) in which the author has stated that "An instrument of transfer of shares executed by the registered holder, but in blank as to the date and name of the transferee an inchoate instrument and is not liable to duty (page 234 of the Indian Stamp Act by Mulla and Pratt, fourth edition). The completion of the transfer by the date and the name of the transferee being filled in by the purchaser makes the instrument a proper instrument of transfer and the practice of the stock exchange is that the transferee is liable to bear the stamp duty and registration charges". His submission was that it is not necessary that these share transfer deeds be stamped at the time of signing by the transferor as the document is stamped and finally executed only when it is signed by the transferee. He also stated that there is no allegation that stamps of adequate value had not been affixed. 20. We have carefully considered the arguments advanced by both counsel. However, we are unable to accept the contention of the res....
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.... existing shareholder of the company and against the column "occupation", they have stated "company" and also given their folio number, we are of the view that it is substantial compliance with the law and, therefore, rejection of transfer of shares on this ground cannot be sustained. In view of this, refusal of transfer of 80,420 shares in favour of JIL cannot be sustained and MML ought to have registered all these shares. 23. In respect of the remaining 4,500 shares, MML has raised an additional objection that the registration of transfer cannot be allowed because the transfer deeds do not bear the name of the witness. Referring to this ground, Shri Malhotra submitted that although the concerned transfer deeds have been signed legibly by the witnesses, the name of the witness has not been stated. In this connection, he relied upon the following "guidelines" : Good or bad delivery of documents issued by the Ministry of Finance, Department of Economic Affairs, Stock Exchange Division (vide No. F.1/ 10/SE/83, dated July 21, 1983) : Good or bad delivery Remarks "27. Transferor's signature witnessed bya person but his full name not given. GOOD If name and address of the w....
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....tion in law that the transferor loses his right in the shares as soon as he executes the transfer in blank. It is an established practice in the corporate sector that the share scrips are returned to the transferor or the transferee, who lodged the instrument of transfer. In Circular No. F/37/SE.79, dated December 29, 1970, issued by the Ministry of Finance, Department of Economic Affairs, regarding delay in registering transfers, it is stated that in the interest of investors, documents should be returned without delay. The relevant extracts of the said circular are reproduced below : "2. As is well known, the investing public invest in shares because of liquidity and ready marketability. The ease and facility with which savings can be invested in shares and the rapidity with which shares can be converted into cash are of utmost importance from the point of view of investors. The listing regulations specifically prescribe a maximum period of one month for return of documents by listed companies. In the interest of investors, documents should be returned to them much earlier, as, for instance, is the case in the USA and the UK where it does not take more than a few days. 3. I....
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....MML has returned these share certificates to the transferors only with a view to harass the company and delay registration of transfer of shares. 30. One of the important issues arising out of the appeals is whether the respondent-company, whose securities are listed in the recognised stock exchange, was right in not making a reference to the Company Law Board, as required under Section 22A(4)(c) of the Securities Act on the ground that reasons given in the resolutions passed by the board of directors of MML and in the letters sent to the transferors/transferees, rejecting the registration of transfer of shares are covered under Clause (a) of Sub-section (3) of Section 22A of the Securities Act. In this context, it is necessary to examine the difference in the grounds covered under Clause (a) and Clause (b) of Sub-section (3) of Section 22A of the Securities Act. According to Clause (a) of Sub-section (3), the registration of a transfer may be refused on the ground (i) that the instrument of transfer is not proper ; or (ii) that the instrument has not been duly stamped, or (iii) that it is not duly executed ; or (iv) that the share certificate relating to the transfer has not be....
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....istration of transfer of shares, we have no hesitation to conclude that the reasons given in respect of violation of the provisions of Section 292/ 372 of the Act cannot be covered under Clause (a) of Sub-section (3) of Section 22A, as it does not relate to the procedure/law relating to registration of transfers and if the company wanted to use this as a ground for rejection, the company ought to have made a reference to the Company Law Board under Clause (c) of Sub-section (4) of Section 22A of the Securities Act. 31. Now, it only remains to consider issue No. 4, whether the applicants are entitled to any relief for the deliberate action on the part of the company to create complications in returning the shares to the transferors and not to the companies who have lodged the shares. The modus operandi adopted by the MML in returning the shares to the transferors and retaining the transfer deeds with the company is unique as we have never come across any such case in respect of appeals under Section 111 of the Act or in respect of cases under Section 22A of the Securities Act, such an action is against the existing commercial practice as well as guidelines issued by the Ministry ....