Jagatjit Industries Ltd., Galaxy V/s. Mohan Meakin Ltd.

Transfer not to be registered except on production of instrument of transfer.

Case name:	Jagatjit Industries Ltd., Galaxy V/s. Mohan Meakin Ltd.
Case number:	1994 80 Comp Cas 411 CLB
Court:	Company Law Board
Bench:	The Honourable Mrs. Justice S Upasani, The Honourable Mr. Justice Y Rao
Decided on:	MAY 21, 1991
Relevant Act/Sections:	Companies act,1956, section 111, section 247 and section 250.

• BRIEF FACTS AND PROCEDURAL HISTORY:
• This is an appeal dated November 12,1990, under section 111(3) of the ac, filed by JIL against refusal to transfer 87,320shares 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 authorizing 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, and July 14, 1990, were never received; JIL, vide letter dated September 3, 1990, forwarded a certified copy of its board’s resolution dated December 4, 1989, to purchase 15,000 equity shares of MML.
• On September 11, 1990, MML informed JIL, about the receipt of 16,400 shares (8,100, 3,300 and 5,000 shares, respectively, vide letters dated March 30, 1990, May 10, 1990, and August 4, 1990), and stated that the board’s resolution dated December 4, 1989, authorized purchase of 15,000 shares only and the purchase of 16,400 shares is beyond the limit laid down in the resolution. JIL, vide letter dated September 17, 1990, forwarded another copy of the board’s resolution dated March 22, 1990, for purchase up to 1.50 lakhs more shares of MML.
• On receipt of the aforesaid communication, a letter dated November 1, 1990, was sent by the solicitors of JIL informing MML that the board of directors of JIL had passed a resolution dated September 24, 1990, ratifying the transactions of purchase of 87,320 shares of the value of Rs. 16,29,561. The solicitors of JIL contested the right of MML to send back the share certificates to the transferors, who had sold and delivered the said shares for valuable consideration and have no legal right to the said share certificates. The solicitors, called upon MML to recall the shares from the transferors and return the same to JIL, duly transferred and also to pay dividend on the impugned shares to JIL and not to post any dividend warrant to the transferors, as also not to register transfer of the said shares in favour of any third party except JIL. The aforesaid appeal was accompanied by an application under Section 637B(a) of the Act seeking condonation of delay in making the appeal in respect of 11,400 shares lodged on March 2, 1990, March 14, 1990, March 30, 1990, May 10, 1990, and May 24, 1990 (in respect of 7,000, 200, 900, 700 and 2,600 shares lodged respectively), the appeal in respect of the remaining shares is within time. It is stated that MML had been holding out a promise to the appellant that the shares lodged would be registered on receipt of the necessary board’s resolution. This was so even up to August 29, 1990, when for the first time, MML asked the appellant to furnish the board’s resolution under Section 292 of the Act, had the appellant the slightest inkling that the respondent was going to refuse the registration, the appellant would have forthwith filed the appeal before this Board.
• The share certificates were returned to the transferors by stating that they are the legal owners of the shares as entered in the register of members of the company. A copy of the letter has also been endorsed to GPPL. It is further alleged that from the endorsement made on the back of the share certificates bearing Nos. 41953 and 13605, forming part of the appeal, it is evident that MML had, in fact, registered the shares in the name of GPPL and cancelled the same as an afterthought. The solicitors of GPPL, vide letter dated November 1, 1990, called upon MML to recall the shares from the transferors, also stating, inter alia, that its action in rejecting the transfer of shares in favour of GPPL was wholly arbitrary and mala fide. MML was also called upon to pay dividend on these shares to their clients and not to post any dividend warrants to the transferors.
• After hearing the parties, CLB passed interim orders that any transfer in respect of the impugned shares lodged by JIL shall be void till the hearing of the main application, as the possibility of third party rights being created by some of the transferors, who are in possession of shares, as apprehended by Shri Malhotra, could not be ruled out.

• ISSUE BEFORE THE COURT:
• Whether the board of directors of MML has formed, in good faith, their opinion as to whether registration of impugned shares ought to be refused on the grounds mentioned in their communication addressed to the transferors/transferee-companies?
• Whether MML has rightfully returned the share certificates to the transferors and retained the instruments of transfer?
• 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?
• Whether the applicants are entitled to any relief?

• RATIO OF THE COURT
• 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 Shri Malhotra, counsel appearing on behalf of JIL. In view of this, we hold that the rejection of registration of transfer of these 2,400 shares by MML was as per legal requirement of Section 108 of the Act.
• Regarding the remaining shares, Shri Malhotra 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. He also submitted that although the board resolutions were duly passed before the purchases were actually made, even the board resolutions ratifying share purchase transactions subsequent to the date of purchase are valid in law, as Section 292 does not require prior approval of the board. In this context, he cited the judgment of the Calcutta High Court in Mathura Prasad Saraf v. Company Law Board [1979] 49 Comp Cas 371 and the Supreme Court judgment in Life Insurance Corporation of India v. Escorts Ltd. [1986] 59 Comp Cas 548; AIR 1986 SC 1370 and Parikh Engineering and Body Building Co. Ltd., In re [1975] 45 Comp Cas 157 (Patna). He also placed reliance on the case, Parmeshwari Prasad Gupta v. Vnion of India [1974] 44 Comp Cas 1, wherein the Supreme Court held that it was open to a regularly constituted meeting of the board to ratify that action which though unauthorised, was done on behalf of the company.
• 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.
• 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”.
• 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 name and then applying to the company to register his name in place of the previous holder of the shares.
• The Court held that we have carefully considered the arguments advanced by both counsel. However, we are unable to accept the contention of the respondent-company that the instrument has to be stamped at the time of signing by the transferor, for the reason that the instrument of transfer signed in blank by the transferor will be deemed to be executed only when signed by the ultimate transferee, and at this stage, the adhesive stamps have to be affixed before the same are lodged with the company for transfer. Accordingly, the objection of the respondent-company for refusing registration of transfer of shares on the ground that transfer deeds were not stamped in accordance with the law is not valid.
• In regard to issue no.4 court held that 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 of Finance relating to registration of share transfers. This has created a number of legal complications for registration of shares in the name of rightful owners and has resulted in numerous possibilities of creating third party rights. Such action is totally against the objective and spirit behind the public policy of free transferability of shares. We have taken note of this action of MML and, therefore, in terms of the provisions of Section 111(6) of the Act, we award 11,500 (rupees eleven thousand five hundred only) as costs against MML to be paid to JIL, GPPL and QRICL.

• DECISION HELD BY COURT:
• In the result, the court accordingly, passed this order, in the following terms:
• In pursuance of the provisions of Sub-section (5) of Section 111 of the Companies Act, 1956, by virtue of the powers conferred on the Company Law Board, by Notification No. 443(E), dated October 18, 1972, Mohan Meakin Ltd. is hereby directed to register the impugned 84,920 shares, being the subject-matter of Appeal No. 23 of 1990-CLB in favour of Jagatjit Industries Ltd. (other than 2,400 shares, which have not been signed by witnesses and have been lodged beyond the period of validity and the instruments of transfer and share scrips be returned by MML to JIL) ; 5,000 shares in favour of Galaxy Pet Packaging P. Ltd., being the subject-matter of Case No. 26 of 1990-CLB ; and 9,500 shares in favour of Quick Return Investment Co. Ltd. being the subject-matter of Case No. 1 of 1991-CLB and give effect to this decision within 10 days of the receipt of this order.
• the relative share certificates be forthwith retrieved by MML from the transferors or in the absence thereof, duplicate share certificates be issued to give effect to this order, including certificates in respect of 8,600 shares in favour of M/s. Quick Return Investment Co. Ltd.
• Mohan Meakin Ltd. shall issue a public notice in at least two newspapers, within five days of the receipt of this order, cancelling the share certificates wrongly sent to the transferors and for issuing duplicate share certificates to the extent necessary.
• the interim order passed on November 23, 1990, in the application under Section 247/250 of the Companies Act, 1956 (in Case No. 24 of 1990-CLB) that any transfer by any of the transferors in respect of the impugned shares lodged by Jagatjit Industries Ltd. shall be void till the hearing of the main application will stand vacated, after the impugned shares are registered by Mohan Meakin Ltd. The said application under Section 247/250 of the Act is disposed of accordingly ; and
• in the facts and circumstances of this case, Mohan Meakin Ltd. shall pay costs of these proceeding assessed at Rs. 10,000, Rs. 500 and Rs. 1,000 payable to Jagatjit Industries Ltd., Galaxy Pet Packaging P. Ltd. and Quick Return Investment Co. Ltd. respectively within 10 days from the date of receipt of this order.