Calcutta High Court
Nuddea Tea Co. Ltd. vs Asok Kumar Saha And Ors. on 3 February, 1986
Equivalent citations: [1988]64COMPCAS775(CAL)
JUDGMENT Prabir Kumar Majumdar, J.
1. This appeal arises out of the judgment and order dated December 16, 1983, passed by a learned single judge of this court on an application made by the respondent, Asok Kumar Saha, under Section 155 of the Companies Act, 1956, for rectification of the share register of respondent No. 1, Nuddea Tea Co. Ltd. By the said judgment and order, the court of the first instance allowed the said application.
2. On or about August 1, 1979, the respondent, Asok Kumar Saha, purchased 100 fully paid-up equity shares of Rs. 100 each of the appellant, Nuddea Tea Co. Ltd. (hereinafter referred to as "the company"), through a broker in the stock market. At the time of purchase of the aforesaid 100 equity shares by the respondent, they stood in the register of the company in the joint names of the following persons :
(1) Late Jadu Nath Sarkar, (2) Late Bijoy Nath Sarkar, (3) Late Anadi Nath Sarkar, (4) Late Birendra Nath Sarkar, (5) Late Akhil Nath Sarkar, (6) Late Sasi Sekhar Sarkar, (7) Sri Probodh Kumar Sarkar, (8) Sri Sukumar Sarkar, (9) Late Anil Kumar Sarkar, (10) Sri Bijon Kumar Sarkar, and (11) Sri Arabinda Sarkar. It is not in dispute that seven out of the eleven joint holders of these shares were dead at the time of purchase of the shares by the respondent.
3. On or about August 5, 1979, the respondent sent the above shares to the company together with the transfer deed as executed by the surviving shareholders as well as the heirs of the deceased joint-holders. On or about September 27, 1979, the respondent received a letter from the company signed by its secretary to the effect that all these documents forwarded by the respondent together with the said shares had been placed at the meeting of the board of directors of the company and it was the view of the board of directors that it would not be lawful for the company to register the transmission of these shares without having a clearance and/or exemption certificate from the Controller of Estate Duty in respect of the aforesaid shares. By the said letter, the respondent was requested to submit the above certificate to the company and on receipt of the same the whole case would be reviewed by the board of directors. The respondent, by a letter dated October 20, 1979, informed the company referring to Section 84(2) of the Estate Duty Act, 1953, as well as the clarification of the Government of India to the effect that Indian companies do not insist on the production of the estate duty clearance certificate in transmitting shares.
4. On or about December 4, 1979, the respondent received another letter from the company to the effect that under Article 44 of the company's articles of association, an heir, executor or administrator of a deceased member was required to obtain a succession certificate, grant of probate or letters of administration or other legal representation, as the case may be, in respect of shares held by the deceased member from a competent court in India and produce the same for, the company's perusal. The company referred to Section 370 of the Indian Succession Act, 1925, in this connection. The company thus asked for the necessary succession certificate or probate or letters of administration. By the said letter, the respondent was further informed that until the said documents were produced before the company, the application of the respondent for the necessary transmission of shares and/or rectification would remain in abeyance. The respondent informed the company that production of such succession certificate was not necessary and further that the dividends payable by the company on the shares held (jointly) by the deceased shareholders were being regularly paid to Sukumar Sarkar, one of the surviving joint holders of those shares and before payment of such dividends the company never asked for production of the succession certificate or estate duty clearance certificate or any other documents.
5. The company, however, did not make the necessary transmission of shares in favour of the respondent nor the necessary rectification in the shares register. In the event of such non-action or refusal by the company, the respondent made an application under Section 155 of the Companies Act, 1956, for a direction to the company to transmit the shares held by the deceased shareholders in the names of the legal heirs of the said seven deceased joint shareholders and thereafter to transfer the same in the name of the respondent and for necessary rectification in the relevant shares register by entering therein the name of the respondent in respect of the said 100 equity shares. As stated above, the said application has been allowed by the court of the first instance.
6. Mr. P.C. Sen, learned counsel appearing for the appellant, submits that there has been no default on the part of the appellant in making the necessary rectification in the company's share register as prayed for by the respondent. Mr. Sen submits that under Section 108 of the Companies Act, 1956, a company shall not register a transfer of shares unless a proper instrument of transfer was duly stamped and such stamped instrument of transfer was delivered to the company. It is the submission of Mr. Sen that in the present case, admittedly, the transfer deeds which were submitted by the respondent to the appellant-company for effecting and recording transfer of shares in the share register of the company were not duly stamped in the sense that the (adhesive) stamps as affixed on each of the said transfer deeds were not duly cancelled by the respondent as required by Section 12 of the Indian Stamp Act, 1899,
7. For the purpose of this appeal, the relevant portions of Section 108 of the Companies Act, 1956, are set out below :
"108(1). A company shall not register a transfer of shares in, or debentures of, the company, unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or On behalf of the transferee and specifying the name, address and occupation, if any, of the transferee, has been delivered to the company along with the certificate relating to the shares or debentures, or if no such certificate is in existence, along with the letter of allotment of the shares or debentures :
Provided that where, on an application in writing made to the company by the transferee and bearing the stamp required for an instrument of transfer, it is proved to the satisfaction of the board of directors that the instrument of transfer signed by or on behalf of the transferor and by or on behalf of the transferee has been lost, the company may register the transfer on such terms as to indemnify as the board may think fit :
Provided further that nothing in this section shall prejudice any power of the company to register as shareholder or debenture-holder any person to whom the right to any shares in, or debentures of, the company has been transmitted by operation of law.
(1A) Every instrument of transfer of shares shall be in such form as may be prescribed, and--
(a) every such form shall, before it is signed by or on behalf of the transferor and before any entry is made therein, be presented to the prescribed authority, being a person already in the service of the Government, who shall stamp or otherwise endorse thereon the date on which it is so presented, and
(b) every instrument of transfer in the prescribed form with the date of such presentation stamped or otherwise endorsed thereon shall, after it is executed by or on behalf of the transferor and the transferee and completed in all other respects, be delivered to the company--
(i) in the case of shares dealt in or quoted on a recognised stock exchange, at any time before the date on which the register of members is closed, in accordance with law, for the first time after the date of presentation of the prescribed form to the prescribed authority under Clause (a) or within two months from the date of such presentation, whichever is later ;
(ii) in any other case, within two months from the date of such presentation."
8. The relevant provisions of Section 12 of the Indian Stamp Act, 1899, are as follows :
"12. Cancellation of adhesive stamps.--(1) (a) Whoever affixes any adhesive stamp to any instrument chargeable with duty which has been executed by any person shall, when affixing such stamp, cancel the same so that it cannot be used again ; and
(b) Whoever 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."
9. Mr. Sen contends that in order to enable the company, to record the transfer of shares, the transfer deed has to be duly stamped. In his submission, such stamping is a condition precedent as provided under Section 108 of the Companies Act. Mr. Sen submits that Section 12 of the Indian Stamp Act, 1899, provides :--(a) the adhesive stamp as affixed has to be cancelled at the time of execution, and (b) if not cancelled, the instrument is deemed to be unstamped. Therefore, according to the submission of Mr. Sen, learned counsel appearing for the appellant, on reading Section 108 of the Companies Act along with Section 12 of the Indian Stamp Act, it appears that there is total statutory prohibition for the company to make a transfer in the circumstances as stated above. He further submits that in the present case the stamp affixed in the instrument is admittedly an adhesive stamp and admittedly not being cancelled in terms of Section 12 of the Indian Stamp Act, and at all material times the instruments were and still are unstamped within the meaning of Section 108 of the Companies Act, 1956, read with Section 12 of the Indian Stamp Act, 1899. Mr. Sen in this connection cites two decisions of this court, one in the case of Babulal Choukhani v. Western India Theatres Ltd. ; and another in the case of Coronation Tea Co. Ltd., In re, . Mr. Sen submits that the requirement of Section 108 of the Companies Act is mandatory. In support of such proposition, Mr. Sen cites a decision of the Supreme Court in the case of Mannalal Khetan v. Kedar Nath Khetan .
10. Mr. Sen contends that, in these circumstances, the court cannot direct the company to effect registration on the basis of an instrument of transfer which is'not duly stamped due to not being cancelled, because in doing so, the court would direct the company to do an illegal act. In support of this contention, Mr. Sen cites a decision in the case of Jagdish Mills Ltd., In re , and also another Bombay decision in the case of New Citizen Bank of India v. Asian Assurance Co. Ltd. [1945] 15 Comp Cas 53 ; AIR 1945 Bom 149.
11. It has been submitted by Mr. Sen that the tender of a properly executed and duly stamped transfer deed is a condition precedent to the right of the applicant to get relief under Section 155 of the Companies Act, 1956, and such application, if filed, discloses no cause of action.
12. Mr. Sen submits that if it is held by this court that the said transfer deed not being duly stamped nor duly cancelled within the meaning of Section 108 of the Companies Act or Section 12 of the Indian Stamp Act, the company cannot be directed to make rectification of the register as prayed for by the respondent, then in that case, it may not be necessary for the court to hold whether the production of the succession certificate or probate or estate duty clearance is necessary or not. Since the point has been urged in the court of first instance by the respondent-petitioner, Mr. Sen submits that Article 44 of the articles of association of the company confers a discretion upon the directors whether or not to recognise the heirs of a deceased shareholder without production of the succession certificate or probate, as the case may be. He submits that, in the facts and circumstances of the case, the directors did not know personally either the deceased shareholders or their heirs. Most of the deceased jointholders died a long time ago and in that view of the matter, the directors exercised their discretion properly in asking for the succession certificate or probate, as the case may be. Mr. Sen draws our attention to the provisions of Sections 370 and 372 of the Indian Succession Act. Section 370(2) provides that security will include stock or debenture or shares in a company. Therefore, in the absence of such succession certificate, the respondent cannot have the shares transferred. In this connection, Mr. Sen relied on a decision of this court in the case of New Mankhooshi Tea Co. Ltd., In re, .
13. Mr. A.K. Mukherjee, learned counsel appearing for the respondents, submits that the shares of a public limited company are freely transfer able and the board of directors of the company can only refuse to trans fer subject to the provisions in the articles of association. However, such refusal to register the transfer of the shares has to be made by a resolu tion duly passed by the board. Learned counsel for the respondents further submits that Section 108 of the Companies Act, 1956, restricts the validity of the transfer deed, inter alia, for a period of two months from the date of its presentation with the prescribed authority so far as its delivery to the company by the transferor or transferee is concerned.
According to him, this section does not envisage any embargo upon the company to register a transfer beyond the period of said two months from the date of the said presentation provided the transfer deed is duly delivered to the company within the said two months. He submits that in the present case, on or about August 8, 1979, the respondents sent the shares to the company with necessary documents for transmission and transfer simultaneously. He submits that on one pretext or the other, the company refused to rectify the share register and did not transmit or transfer the said shares on some pretended grounds such as absence of estate duty clearance certificate or production of a succession certificate or probate, so on and so forth.
14. Learned counsel also submits that the court has wide jurisdiction under Section 155 of the Companies Act, 1956, to direct the company to allow the petitioner-respondent to cancel the stamps at the back of the transfer deed and direct the company to transfer the shares in the name of the respondent on the strength of the same transfer deed already delivered to the company within the aforesaid limitation period of two months. Learned counsel also cites decisions of various High Courts to show that even when the provisions contained in Section 108 of the Companies Act, 1956, were not complied with, the court, in the facts and circumstances of the case, directed the company to make the necessary rectification of register of transfer under Section 155 of the Companies Act, 1956, or under Section 111 of the Companies Act, 1956. The cases cited by the respondents are : Rangpur Tea Association Ltd. v. Makkanlal Samaddar [1973] 43 Comp Cas 58 ; [1972] Tax LR 2439 (Cal), Babulal Choukhani v. Western India Theatres Ltd. , Bajaj Auto Ltd. v. N.K. Firodia , Hoshiarpur Azad Transporters P. Ltd. [1983] 54 Comp Cas 254 (P & H), Gulabrai Kalidas Naik v. Laxmidas Lallubhai Patel [L978] 48 Comp Cas 438 ; [1978] Tax LR (NOC) 33 (Guj), Jatia Cotton Mills Lid. v. Ram Prosad Bajoria [1915] 45 Comp Cas 686 ; [1975] Tax LR 1489 (Cal). Learned counsel also relies on two English cases, one, Imperial Chemical Industries Ltd. [1936] 2 All ER 463 and another, Sussex Brick Co. [1904] 1 Ch 598.
15. Learned counsel appearing for the respondent submits that until the hearing of the case before the court of first instance, the appellant never raised any objection as to stamps as a ground for refusal to transfer shares in the name of respondent No. 1. The only objection taken by the company until the filing of this application by the respondent under Section 155 of the Companies Act was that the transfer could not be made in the absence of the production of necessary estate duty clearance certificate or the production of succession certificate or probate. Learned counsel submits that it is only after the petition was filed in the court of first instance, this ingenious objection as to stamps has been raised by the company in its affidavit filed in the court of first instance. Here also in this appeal, the appellant takes it up as a principal ground in its argument. In this connection, learned counsel has drawn our attention to the observation of the learned judge of the court of first instance which runs thus :
" The next submission of Mr. Sen, on behalf of the company, was on the basis of non-cancellation of the stamps in the share transfer deed. Reference was made in this connection under Section 108 of the Companies Act. Reference was made to several authorities in support of the proposition that this is not a formal defect but cancellation is a mandatory requirement before transfer can be effected. I am merely recording this contention of Mr. Sen as I do not want to go into this question in any detail or express my views thereon. This is because in the correspondence disclosed in the instant case, although the company had been taking various grounds including some shifting grounds, non-cancellation of stamps is not one of them. Although this point is indicated in paragraph 9 of the affidavit of Mr. Nihar Ranjan Roy mentioned above is in my view, a clear afterthought. It follows that in my view, this question should not be allowed to be canvassed by the company in the present application."
16. We will now consider first the mandatory character of Section 108 of the Companies Act, 1956. Mr. Sen, learned counsel for the appellant, Contends that under the provisions of Section 108 of the Companies Act, 1956, a company "shall not register" transfer of share unless a proper instrument of transfer, duly stamped is delivered to the company. This, according to Mr. Sen, is a mandatory requirement and if there is any non-compliance with the provisions contained in Section 108 of the Companies Act, the company will be justified in refusing to transfer the share in the names of the respondents as stated above. In support of this contention, Mr. Sen cites a decision of the Supreme Court in the case of Mannalal Khetan v. Kedar Nath Khetan . The question that arose in that case was whether the provisions of Section 108 of the Companies Act, 1956, were mandatory in regard to the transfer of shares. Considering the said question, the Supreme Court observes that the words " shall not register" are mandatory in character and such mandatory character is strengthened by the negative form of the language. It is the view of the Supreme Court in this case that the prohibition against transfer without complying with the provisions of the Act is emphasised by the negative language and such negative language is worded to emphasise the insist-ance of compliance with the provisions of the Act. It is further observed by the Supreme Court in this case (at page 191): "Prohibition and negative wprds can rarely be directory. It has been aptly stated that there is one way to obey the command and that is completely to refrain from doing the forbidden act. Therefore, negative, prohibitory and exclusive words are indicative of the legislative intent when the statute is mandatory ". The Supreme Court further observed that (at page 192) : " If anything is against law, though it is not prohibited by the statute but only a penalty is annexed, the agreement is void. In every case, where a statute inflicts a penalty for doing an act, though the act be not prohibited, yet the thing is unlawful, because it is not intended that a statute would inflict a penalty for a lawful act."
17. In the case of New Citizen Bank of India v. Asian Assurance Co. Ltd. [1945] 15 Comp Cas 53 ; AIR 1945 Bom 149, the Bombay High Court had to consider several points, one of such was whether the company was bound to accept the transfer deed not duly stamped for the purpose of rectification of share register. Section 34, Sub-section (3), of the Indian Companies Act, 1913, which corresponds to Section 108 of the Companies Act, 1956, was in the following terms :
" It shall not be lawful for the company to register a transfer of shares in, or debentures of, the company unless the proper instrument of transfer duly stamped and executed by the transferor and the transferee has been delivered to the company along with the scrip. "
18. The case before the Bombay High Court was an appeal from the, judgment of Chagla J. (as he then was) under Section 38 of the Indian Companies Act, 1913, ordering rectification of the appellant company's register. It has been quoted in that judgment in New Citizen Bank of India v. Asian Assurance Co. Ltd.. [1945] 15 Comp Cas 53 ; AIR 1945 Bom 149, in extenso, the views of the learned judge on the question which are as follows (at page 53 of 15 Comp Cas) :
"The only other question that remains to be considered is the contention raised by respondent No. 1-bank that inasmuch as the transfer forms sent by the petitioners along with, their shares were not stamped, the petitioners are not entitled to maintain the petition. This is an entirely unmeritorious defence. Fortunately, there is no reason why it should prevail, as it is not supported either by authority or principle. It is not disputed that the transfer forms which were sent by the petitioners to the respondent bank were not stamped. Under Section 34 of the Companies Act, it is provided that it shall not be lawful for the company to register a transfer of shares unless the proper instrument of transfer duly stamped and executed by the transferor and the transferee has been delivered to the company along with the share scrips. Mr. Daphtary contends that in asking for an order of rectification of the register pursuant to unstamped transfer forms, the petitioners are asking respondent No. 1-bank to do something which is unlawful ; and he further argues that before the petitioners could maintain this petition, it was incumbent upon them to have got the transfer forms properly stamped. Now, it has to be remembered that right up to the time the petition was filed, there never was any dispute between the petitioners and respondent No. 1 bank on the question of stamps. Respondent No. 1 bank resisted the application of the petitioners to transfer the shares to its name only on the ground that it has a lien on these shares. It was never suggested by the bank that the transfer forms should be stamped nor did it ever call upon the petitioners to stamp them with the proper stamps. Nor is there any suggestion that the petitioners ever refused to stamp their transfer forms with the proper stamps. It is only after the petition was filed that this ingenious defence is raised. The fact that it could not be raised earlier is clear from the relationship of the parties and the course of business between them. "
19. The Bombay High Court in that case also referred to an unreported decision in the case of F.A. No. 46 of 1942 decided by Beaumont C.J. and Wassoode J. (Vinayak Balvant Gokhale v. Commonwealth Assurance Co. Ltd.). In that unreported case referred to, it was alleged that the company's practice in the past had been to accept instruments of transfer together with moneys sufficient to pay the stamp duty, the object of that practice being that if the company decided to register the transfer, they would buy the stamp and affix it to the instrument of transfer, but if they decided not to transfer, then no money having been expended in buying the stamp, the money would be returned to the shareholder. Commenting on that, Beaumont C.J., delivering the judgment of the court of appeal in that unreported case, observed as follows which observation is quoted in the judgment in New Citizen Bank of India v. Asian Assurance Go. Ltd. [1945] 15 Comp Cas 53 ; AIR 1945 Bom 149 (at page 55 of 15 Comp Cas) :
" But the difficulty in this case is that in point of fact no duly stamped instrument of transfer has ever been delivered. Putting it at the highest, and assuming that the company agreed with the applicant that they would apply the proceeds of his cheque towards buying the necessary stamp, and would affix such stamp on the instrument of transfer as soon as the company decided to register the transfer, and assuming that the company ought to have decided to register the transfer, even so the position is that the agreement by the company has not been carried out, and we have no jurisdiction in a summary application under Section 38 to direct the company to carry out its agreement. All that we can do is to order rectification of the register, and to order rectification of the register, when in fact there has been no duly stamped instrument of transfer delivered to the company, although that omission may be due to the company's own default, would be for us to order the company to act in contravention of the statute. "
20. Stone C.J. delivering the judgment in the case of New Citizen Bank oj India v. Asian Assurance Co. Ltd. [1945] 15 Comp Cas 53 ; AIR 1945 Bom 149, observed that :
" Of the merits of the matter we have no concern, when the statute is mandatory in its terms, and admittedly has not been complied with. That being so, how can it be said that the transferee's name was omitted from the register without any sufficient cause. The petitioners did not comply with Section 34, Sub-section (3), and did not deliver a proper instrument of transfer duly stamped. The company would have been breaking the law if they had registered the transfer. I think, if I may say so with greatest respect to the learned trial judge, that he was led away by the controversy on the question of lien and has not given sufficient weight to this condition precedent. "
21. With this observation, the learned judges of the Bombay High Court set aside the order of the trial court.
22. The next case cited by Mr. Sen is the case of Jagdish Mills Ltd., In re . The Special Bench of the Bombay High Court in this case held that if a company registered an instrument of transfer of shares which was not duly stamped, it would be doing something which was not lawful, and further that there was no provision in the Companies Act or in the Stamp Act, which would make the company liable for payment of the proper stamp duty. The liability to pay stamp duty in the case of an instrument of transfer was only upon the executant and not on the company.
23. The next case cited by Mr. Sen was the case of Coronation Tea Co. Ltd. In re . In this case there were instruments of transfer but they were not duly stamped, that is, the stamps which had been affixed had not been cancelled. S.P. Mitra J. (as he then was) delivered the judgment and, in interpreting the expression "duly stamped" as appears in Section 2(11) of the Indian Stamp Act, Section 12 thereof and in other provisions of the Companies Act and also the Stamp Act, observed that the company in the present case was justified in refusing registration of the shares on the ground that the instrument of transfer was not duly stamped within the meaning of Section 108 of the Companies Act. The learned judge in that case also observed that a company could not register a transfer of shares unless a proper instrument of transfer "duly stamped" had been delivered to the company. It may also be pointed out that there also an objection as to the stamp was raised for the first time at the time of hearing of the application under Section 155 of the Companies Act. In that case too, the company raised various objections to register the transfer, but never raised any objection that the stamp had not been cancelled until the hearing of that application.
24. Mr. Sen next relies on a Bench decision of this court in the case of Babulal Choukhani v. Western India Theatres Ltd., . The Division Bench held that the company was justified in refusing to register a transfer of shares on the ground that the transfer deed was not stamped as required by law. It further observed that the obligation was not of the company but of the transferee to deliver the transfer deed duly stamped and executed and such stamp must be put at the time of or before the execution of the transfer deed. The Division Bench also observed that whether the company in refusing registration was acting under a particular provision of the articles of association which provided absolute discretion to the directors to refuse registration of transfer of shares or not was immaterial, as the law gave the company power to refuse to register in case the transfer deed was not duly stamped. In this case, what happened was that the petitioner sent a cheque for the value of stamps necessary to be affixed on the transfer deed to the company and the company failed to affix necessary stamps on the transfer deed. In this case too, the company refused the registration on other grounds but not on the ground of not putting due stamps on the transfer deed and it was contended in this case that the said objection of stamp had not been taken at the time of registration. P.B. Mukharji J. (as he then was), speaking for the Bench, answered the said contention by observing as follows : (at page 583) " Assuming that it was only under Article 52 that the company had rejected the registration of the transfer of the shares, but the law gives the company power to refuse to register in case the transfer deed is not duly stamped. That point was taken in the written statement of the defendant company. In fact, it is one of the main issues in the suit. The issue was 'Was the transfer deed duly completed ? ' If the law requires stamp on the transfer deed, it cannot be said to be complete without the stamp."
25. We have heard the respective contentions of learned counsel appearing for the parties. It is the admitted position that the adhesive stamp affixed on the document was not cancelled as required under Section 12 of the Indian Stamp Act, 1899. Under Section 12(2) of the Indian Stamp Act, 1899, any instrument bearing an adhesive stamp which has not been cancelled shall be deemed to be unstamped. Under Section 108 of the Indian Companies Act, 1956, a company shall not register the transfer of shares or debentures of the company unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee has been delivered to the company along with the certificate relating to the shares or debentures. Therefore, the requirement under Section 108 of the Companies Act, 1956, is that the instrument of transfer should be duly stamped and that the same should be delivered to the company. It is the requirement under Section 12(1)(a) of the Indian Stamp Act, 1899, that whoever affixes any adhesive stamp to any instrument chargeable with duty which has been executed by any person shall, when affixing such stamp, cancel the same so that it cannot be used again. Therefore, under Section 12 of the Indian Stamp Act, 1899, such cancellation of stamp should be made at the time of execution of the document. If any instrument does not bear the requisite stamps and if such stamps are not cancelled, then such instrument shall be deemed to be unstamped.
26. Reading the two sections, namely, Section 108 of the Companies Act, 1956, and Section 12 of the Indian Stamp Act, 1899, it comes to this that the instrument should bear the requisite stamps and that the adhesive stamps should be cancelled at the time of affixation of such stamps and execution of the document. If such requirements are not complied with, then the instrument, although bearing an adhesive stamp but not cancelled in the manner as contemplated in the Indian Stamp Act, 1899, cannot be said to be an instrument "duly stamped ".
27. Section 108 of the Companies Act, 1956, provides that the company shall not register unless a proper instrument of transfer duly stamped and executed by and on behalf of the transferor and by and on behalf of the transferee has been delivered to the company. The question that arises in this appeal is whether the provisions of Section 108 of the Companies Act, 1956, are mandatory in nature. Learned counsel appearing for the appellant contends that it is mandatory and that the company is not bound to effect the transfer on the basis of an instrument not duly stamped and his submission is also that the court cannot give any direction to the company to effect the transfer of shares and rectify the share register on the basis of the instrument of transfer which has not been duly stamped. Learned counsel, appearing for the respondent, contends that the company, before refusing the transfer of shares or rectifying the register of shares should give notice to the petitioner that such transfer cannot be made on the ground of non-cancellation of stamp on the back of the transfer deed. Learned counsel for the respondent, further contends that had the petitioner such notice, then the defect could be rectified by cancelling the stamp before registering the transfer. It is also the contention of learned counsel for the respondent that in any event, the company itself could have cancelled the stamp before registering the transfer.
28. It is provided by Section 12 of the Indian Stamp Act that an adhesive stamp must be cancelled at the time of affixation of the stamp and also at the time the execution of the instrument. Therefore, such cancellation, in our view, cannot be made subsequent to the execution of the instrument. If such stamp was not cancelled before the execution of the document, then such instrument and/or document would be deemed to be an unstamped document and such cancellation made at a later stage will not be taken as proper cancellation within the meaning of Section 12 of the Indian Stamp Act, 1899. Therefore, it seems to us that it is the obligation of the parties executing the transfer deed chargeable with a duty to cancel the stamp, if such stamp is adhesive stamp, at the time of execution of the document and then only such instrument would be an instrument "duly stamped" within the meaning of Section 108 of the Companies Act, 1956. It is contended by learned counsel for the respondent that if respondent No. 1 was informed of such non-cancellation of stamps at the time when such instrument was delivered to the company, then respondent No. 1 could have taken steps for rectifying the defect. In our view, such defect could only be rectified by withdrawing or cancelling the entire document so delivered and submitting a fresh and proper instrument duly stamped together with cancellation if adhesive stamps are affixed and executed by and on behalf of the transferor and by and on behalf of the transferee. After the execution of the instrument by the transferor and the transferee, the adhesive stamp borne on the instrument, if not cancelled at the time of execution, will render the instrument an unstamped instrument. Therefore, even if respondent No. 1 was informed of such defect and if respondent No. 1 cancelled the stamp at that stage, then, by such cancellation of the stamp, the instrument could not have been regarded as duly stamped, because the cancellation was made long after the affixation of stamp and also the execution of the document. The only remedy then left to respondent No. 1 was to submit a fresh instrument duly stamped and executed by the parties.
29. Regarding the contention of learned counsel for the respondent that the company itself could have cancelled the stamp before registering the transfer, in our view, the company is not obliged to do so and even if the company deliberately has not done that, no court can compel the company to effect the transfer of share and rectify the register even though the adhesive stamps were not cancelled at the time of execution of the document. It is our view that it is not the obligation of the company under the law that the company should have cancelled the stamp and rectified the share register accordingly. This point has been fully considered in the Bombay decision (Jagdish Mills Ltd., In re), and also the decision of this court in Babulal Choukhani v. Western India Theatres Ltd., .
30. Learned counsel appearing for the respondent also contended that such non-cancellation was merely a formal defect and on the ground of such formal defect, the company could not refuse to rectify the share register. In support of his contention he relies on a decision of this court in the case of Madanlal Patodia v. Luxminarayan Cotton Mills Ltd. [1976] 80 CWN 1070, [1978] 48 Comp Cas 747. The learned judge in this case observed that " the appeal by the petitioners before the Company Law Board under Section 111 of the Companies Act was rejected solely on the formal defect that the stamps on the transfer deed were not cancelled and as such, according to the decision of this court referred to above, the transfer deeds were deemed to be not duly stamped ". The decision of this court referred to in that observation is the decision of Coronation Tea Co. Ltd., In re, , which was noted earlier in our judgment. We are unable to agree with the said observation of the learned judge in the case reported in [1976] 80 CWN L070 ; [1978] 48 Comp Cas 747 (Madanlal Patodia v. Luxminarayan Cotton Mills Ltd.) that such non-cancellation of stamp was a mere formal defect and that that should not be a bar to the rectification of the share register in terms of Section 108 of the Companies Act, 1956.
31. It has been observed by the Bombay High Court in the case of New Citizen Bank of India v. Asian Assurance Co. Ltd. [1945] 15 Comp Cas 53 ; AIR 1945 Bom 149, that the statute is mandatory in this respect and when the petitioner did not comply with Section 34, Sub-section (3), and did not deliver a proper instrument of transfer duly stamped, the company would have been breaking the law if they had registered the transfer. In the said judgment, Stone C.J. quoted an observation of Beaumont C.J. made in another unreported judgment cited in that case to the effect that to order rectification of the register, when in fact there has been no duly stamped instrument of transfer delivered to the company, although that omission may be due to company's own default, would be to order the company to act in contravention of the statute. We respectfully agree with the decision in the case of New Citizen Bank of India v. Asian Assurance Co. Ltd. [1945] 15 Comp Cas 53 ; AIR 1945 Bom 149, and also the observation expressed by Stone C.J. in New Citizen Bank's case. We have already referred to those cases in detail in the earlier part of our judgment. In this appeal, we are invited to give direction to the company to register the transfer and rectify the register although, admittedly, the instrument delivered to the company has not been duly stamped. In giving such direction, we will have to order the company to act in contravention of the statute. We have no doubt in our mind that the provisions contained in Section 108 of the Companies Act are mandatory in nature and that has been clearly spelt out in the case of Mannalal Khetan v. Kedarnath Khetan . In these circumstances, if the company is asked to rectify the register by accepting such instrument not duly stamped, the company will be acting contrary to law.
32. It has been contended by Mr. Mukherjee, learned counsel for the respondent that even if any instrument is not found to be duly stamped under the provisions of the Indian Stamp Act, 1899, such instrument, not duly stamped, may be impounded and the person executing the stamp may put in the requisite stamps or duty upon the payment of penalty as provided in the Indian Stamp Act, 1899. We do not find any substance in this contention of Mr. Mukherjee for the reason that under Section 35 of the Indian Stamp Act, 1899, the instrument not duly stamped cannot be admitted in evidence and to make such instrument admissible in evidence, the instrument is required to be impounded in accordance with the provisions contained in Chapter IV of the Indian Stamp Act, 1899. This is not the case in this present appeal. The question in this appeal, as we have already noted, is whether the company is bound in law to accept any instrument not duly stamped within the meaning of Section 108 of the Companies Act or Section 12 of the Indian Stamp Act, 1899, and to make registration of transfer and rectify the share register.
33. On the question of obtaining succession certificate by respondent No. 1, Mr. Sen has referred to Sections 370 and 372 of the Indian Succession Act, 1925, and also referred to Article 44 of the articles of association of the company. According to Mr. Sen, the company was justified in asking for the succession certificate. According to Mr. Sen, Article 45 of the articles of association of the company confers a discretion upon the director whether or not to recognise the heirs of the deceased shareholders without production of the succession certificate or probate, as the case may be. It is admitted that most of the deceased joint holders died a long time ago and in that view of the matter, according to Mr. Sen, the company was justified in asking for the succession certificate or probate, as the case may be. In that connection, Mr. Sen refers to Sections 370 and 372 of the Indian Succession Act, 1925. It is his contention that in the absence of such certificate, the registration cannot be effected. Mr. Mukherjee, for the respondent, contends that while paying dividends on the shares to the surviving joint holders, the company did not insist on production of any succession certificate and the company exercised the discretion after considering the facts and circumstances involved in the case. Therefore, it is mala fide act on the part of the company to ask for the succession certificate at the time of registration of transfer and rectification of the share register. It is the contention of Mr. Mukherjee that the company has been shifting its stands, first they insisted on production of estate duty clearance certificate and after it was properly explained by the respondent that it was not necessary, the company then insisted on production of the succession certificate although, admittedly, while paying dividends in respect of the identical shares to the surviving joint holders, the company did not ask for any succession certificate. According to Mr. Mukherjee, this is not the bona fide stand of the company. We feel that there is some substance in the contention of Mr. Mukherjee. If it is the discretion of the company to insist or not to insist on the production of the succession certificate in terms of Article 44 of the articles of association of the company, then we do not find any proper basis for using such discretion. In the facts and circumstances of the case, no such basis has clearly been indicated or established by the company in its affidavit filed before the trial court. Since it is a discretionary power of the company, we do not wish to express any view on the question whether, in the facts and circumstances of the case, the succession certificate would be necessary or not.
34. The appellant will return the transfer deeds to respondent No. 1 and respondent No. I will be at liberty to file fresh transfer deeds to the appellant in accordance with law.
35. For the reasons aforesaid, this appeal is allowed. The judgment and order of the trial court is set aside.
36. There will, however, be no order as to costs.
R.N. Pyne, J.
37. I agree.