Company Law Board
A. Akhilandam And Anr. vs Great Eastern Shipping Company Ltd. on 20 February, 1998
Equivalent citations: [2000]100COMPCAS349(CLB)
ORDER
1. A. Akhilandam and A. Nagalakshmi (hereinafter referred to as "the petitioners"), who were the joint holders of 200 shares have filed a petition under Section 111 of the Companies Act, 1956, seeking rectification of the register of members of the Great Eastern Shipping Company Limited (hereinafter referred to as "the respondent-company"), in respect of share certificates Nos. S21346 and S21347 held in ledger folio No. 6377 each scrip being of 100 shares.
2. According to the petitioners the said shares were in the possession of the Bank of Baroda, Bangalore. The said shares were not pledged--there being no pledge letter signed by the joint shareholders. The shares were also not subject to any lien since no lien was given to the bank. However, the shares scrips were accompanied by blank transfer deed signed by the joint holders but the rest of the columns of the transfer deed were left blank. The Bank of Baroda without intimating the petitioners and quite contrary to the trust reposed in them by the petitioners in the said bank, the bank was only to be in possession of the share scrips and was not empowered to alienate or otherwise transfer and notwithstanding the fulfilment by the petitioners of all obligations on their part to the bank, appears to have held out that the bank had authority to transfer the shares. The bank purported to have transferred the shares to unknown persons. It is further submitted that on coming to know of the unlawful act of the Bank of Baroda, the petitioner wrote letter dated January 7, 1994, to the respondent-company not to put through the transfer in respect of the abovementioned shares. It is further stated that a letter dated February 17, 1994, the Sharepro Services who claimed to be the registrar and transfer agents of the respondent-company, acknowledging the receipt of the petitioners letter dated January 7, 1994, required an injunction or a similar order of the court. It is further submitted that the letter proceeded to state that if a valid transfer deed complete in all respects was presented to the respondent-company, the transfer may not be held back for a long time. However, irrespective of the objections lodged by the petitioner, the respondent-company and/or their transfer agents put through the transfer. The petitioners submit that they are aggrieved by the transfer effected as there can be no transfer unless the title is validly passed on to the transferee. In this case, the Bank of Baroda which acted on the blank transfer did not have authority or title or right or claim to the shares in question, the Bank of Baroda having been satisfied with reference to obligations vis-a-vis the petitioners, the bank was in the position of a person who had no title to pass on to another and cannot confer title on the transferee. It is further submitted that the share scrip did not accompany the transfer deed on the showing of the respon dent and hence the transfer is invalid. It is further submitted that the endorsement by the bank on the reverse of the transfer deed was incomplete, and further incorrect The dispute with the Bank of Baroda being genuine and bona fide, the bank had no authority to deal with the shares in any manner under company law except through a proper order from a competent court. It is further submitted that the transfer deed is invalid because of the various deficiencies as pointed out in the petition. The petitioner has also sought for the consequential reliefs as to the rights and dividend accrued on the shares.
3. The respondent-company has filed an affidavit dated August 8, 1995, wherein it is submitted that the petitioners were registered shareholders of 200 shares referred to earlier. The said certificates were received by the company in January, 1994, for transfer from the name of the petitioners to the name of New City Credit and Investment Limited along with the transfer deeds duly executed by the petitioners as transferor and by the said New City Credit and Investment Limited as transferee. The transfer deed was bearing presentation date of August 3, 1990, of the appropriate authority. The date of execution mentioned in the transfer deed was December 31, 1993. The signatures of the transferors had been duly witnessed by one K. Devendra, director of Nagalakshmi Leasing Company Private Limited, Bangalore. It is further submitted that the signatures of the transferors on the transfer deeds had already been attested by the Senior Manager of the Bank of Baroda, Main Office, Bangalore. The transfer deeds had been duly certified under Section 108(1) by the Senior Manager of the Bank of Baroda, Bangalore, main branch and the certificate was dated December 31, 1993, and the said transfer deed along with the share certificates has been duly lodged with the company within two months of the date of release by the bank as prescribed under Section 108 of the Companies Act. The signature of the transferors on the transfer deed tallied with the specimen signature on the respondent-company's records and the transfer deed was complete in all respects. The transfer was put through in the normal course of business and the transfer has been duly approved by the directors on February 18, 1994. The dividend rights and other benefits on the aforesaid shares have been already passed on to the transferees. It is further submitted that in the absence of the court injunction restraining the company from transferring these shares, the transfer was put through in the normal course. The respondent-company has further submitted that before any decision is taken in the matter notice should be issued to the transferee who is presently the registered holder of the aforesaid 200 shares and the transferees be given full opportunity to make their submissions.
4. When the matter was taken up on April 15, 1997, none was present on behalf of both the petitioners. However, the petitioners sent a telegram which reads as under :
"Unable to attend personally hearing of Appeal Number 9/111/CLB/ WR/95, Akhilandam v. Great Eastern Company on 15th April due to physical disability. Objection from respondent not received. Written submissions forwarded by post. Pray petition be decided on merits, thus, rendering justice."
5. S. C. Bafna, chartered accountant, appearing on behalf of the respondent-company submitted that the respondent-company having received duly executed transfer deed along with the share certificates the transfer has been effected in the normal course as the petitioners have failed to obtain any injunction order from the court. It is further submitted that the shares in question were lying with the bank and there is an endorsement from the bank that these shares were under lien with them for the advance granted and they have released the same on December 31, 1993. He submitted that according to the petitioners these shares were not pledged with the bank nor have they any lien on the said shares ; but the petitioners have not disclosed what for these shares were given to the bank. He submitted that there is an endorsement from the bank that these shares were under lien. Bafna further submitted that there appears to be some dispute between the Bank of Baroda and the petitioners. In this connection he invited our attention to letter dated February 8, 1994, addressed by the bank to the petitioners wherein the bank has observed as under :
"We shall release the remaining share certificates to you after the shares already sold by us are transferred in the name of buyers. As already advised, we have already appropriated the sale proceeds of shares towards the dues of Nagalakshmi wholesale to our bank. We have nothing to add in this regard."
and submitted that there appears to be a dispute of civil nature between the bank and the parties which cannot be adjudicated in this forum. He further submitted that no relief could be granted to the petitioners as the Bank of Baroda which had a lien on the shares and the transferees have not been made parties. Since third party interest has been created no relief can be granted unless and until the transferee is made party in these proceedings. He further submitted that for adjudicating the present proceedings, this Board would be required to go into the question as to what were the dues recoverable by the bank and whether they have been fully satisfied or whether the bank was justified in appropriating the sale proceeds towards those dues. He submitted that since there is dispute between the petitioners and the bank, this matter being a dispute of civil nature, this Board should relegate this matter to a suit.
6. The written submissions from the respondents were received after the hearing was over on April 21, 1997. The petitioner again submitted that he has not received the reply from the respondent-company. The petitioner further submitted that the transfer is defective and incomplete due to the fact that it does not bear the stamp of the prescribed authority as required under Section 108(1) of the Act, i.e., the date of presentation to the prescribed authority. He further submitted that the transfer deed is not a "blank transfer deed" as held by the Supreme Court in Howrah Trading Co. Ltd. v. CIT [1959] 29 Comp Cas 282 ; AIR 1959 SC 775, for the reason that the transferors had not filled in the name of the company and their names in the share transfer form. Further, from the transfer deed it is not clear whether the transferee is a public limited company or a firm or a proprietary concern. The column "occupation of the transferee" is unfilled. Further the endorsement on the transfer deed is incomplete, incorrect and makes no meaning and the name and place of the bank who had signed the endorsement is not known. It is further submitted that as per Section 108(1) of the Companies Act every transfer instrument shall be duly stamped. The transfer deed in question is deemed unstamped in view of the fact that as per the Maha-rashtra State Stamp Rules it requires a second cancellation of stamps by the company. In the present case the respondent company has not cancelled the stamps for the second time and hence the transfer deed is a defective and invalid document. It is further submitted that if at all the shares are deposited by the petitioner by way of security with the bank, for the due performance of any obligation undertaken by the petitioner, the documents such as letter of pledge of security, etc., should have been registered with the respondent-company by the bank and the same should have been filled in, in the column provided in the transfer deed. It is further submitted that Section 108(1C)(B) of the Companies Act specifically says that the shares deposited by any person with a scheduled bank by way of security for repayment of any loan for the purpose of endorsement. In the instant case the bank states in the endorsement that the shares were with lien. The shares held in lien are beyond the scope of Section 108(1C)(B) of the Act. It is further submitted that the endorsement of the bank does not say that the shares have been released for sale. In the absence of specific mention, the respondents should not have acted upon and put through the transfer and should have refused the transfer. The transfer deed was lodged beyond the time allowed and hence invalid.
7. M. Thirumalesh, advocate, appeared for the petitioners and reiterated their arguments already put forth in their earlier written submissions received on April 21, 1997. Y. Hariharasubramanian, assistant company secretary appeared for the respondent-company and reiterated their earlier stand. Thereafter, the petitioner has filed its further written submissions and counter representation dated October 17, 1997, wherein while reiterating its earlier allegations, he has alleged that the validity of the transfer deed bearing presentation date of August 3, 1990, by the prescribed authority has expired because the said transfer deed was valid only up to August 2, 1991, and not beyond that date. Hence, the respondent-company should not have acted upon the said invalid transfer deed. The respondent-company in its further reply dated November 25, 1997, has refused the aforesaid allegation of the petitioner that the transfer deed is valid only up to August 2, 1991, reckoned from the date of presentation, i.e., August 3, 1990, and not beyond. It has stated that in terms of Clause (B) of Sub-section (1C) of Section 108 of the Companies Act, 1956, no further validation is required under Section 108(1D) of the Companies Act, 1956. This procedure has been endorsed by the Reserve Bank of India Directions in respect of shares pledged with banks as security.
8. We have considered the various averments made by the petitioners and the respondent-company, and note that the shares have been duly transferred and the transferee's name has come on the register of members thereby third party interests have been created. If the relief is granted in this petition then the name of the transferee would be required to be deleted. But they have not been made the party in these proceedings. The petitioner has sought for rectification of register of members on two counts, firstly that the shares were lying with the blank transfer deed duly signed with the Bank of Baroda but they were not either in security nor had the bank any lien on the said shares and thus they could not have sold these shares in the market and passed on the title to a third party and secondly as per petitioner when the transfer deed was lodged with the company the validity whereof has already expired on August 2, 1991, and as such the respondent-company ought not to have effected the transfer. In so far as the sale of the shares by the bank is concerned it is clear that the petitioner had given the shares and they were held by the bank. The petitioner's contention is that these shares were neither given as a security nor had the bank had any lien on the said shares. However, he does not explain as to why the shares with the blank transfer deeds were given and held by the bank. The petitioner has also submitted that if the shares are deposited by the petitioner by way of security with the bank then documents such as letter of pledge of security, etc., should have been registered with the respondent-company by the bank. The petitioner's plea is that the respondent had not examined this aspect of the legal position. The question whether there was any lien on these shares or any amount was due and the petitioners were liable therefor or they stand duly discharged of their obligation and were entitled for return of these shares, are subject-matters of fact which cannot be verified in the absence of the Bank of Baroda who have not been made party in these proceedings.
9. In so far as objections raised by the petitioners on the validity of the transfer deed are concerned, unless the controversy regarding pledge or lien of the shares with the bank is resolved, it is not possible to come to the conclusion whether the validity period is to be reckoned with reference to the date of presentation to the prescribed authority as per Section 108(1) of the Companies Act or from the date of release of these shares by the bank as per Section 108(1C)(B) of the Act. Again this can be determined based on the facts.
10. In view of the submissions made by the petitioners, it would be necessary to determine as to how the bank claims that shares were under pledge or lien with them, the authority under which they have sold the shares and how the bank was entitled to appropriate the proceeds. In the absence of the bank who have not been made party in these proceedings these issues cannot he adjudicated upon. It is a settled view of the Board that where in a petition under Section 111 of the Companies Act complicated questions of fad arose, which could not be adjudicated upon and the controversy could be tested by a civil court alone, the Board would be reluctant to go into the matter but can relegate the parties to the civil court. In our opinion this is a fit case for relegating the matter to the civil court and no relief can be granted in the matter. The petition stands disposed of accordingly. There would be no orders as to costs.