Company Law Board
Vijaya Finance Corporation Ltd. And ... vs Peerless General Finance And ... on 29 October, 2004
Equivalent citations: [2006]129COMPCAS733(CLB)
ORDER
S. Balasubramanian, Chairman
1. This is a petition filed under Section 111A of the Companies Act, 1956, seeking for rectification of the register of members of M/s. Peerless General Finance and Investment Company Ltd. (Peerless). The facts of the case are : one M/s. Poddar Udyog Limited (Udyog) held 2,18,240 shares of Peerless. By an order dated August 19, 1997, the Calcutta High Court sanctioned a scheme of arrangement amongst others between Udyog, Poddar Projects Limited (Projects) by which certain properties, rights and interests of Udyog were transferred to and vested in Projects. The impugned shares were also a part of the assets transferred by that scheme. On or about September 3, 1999, Projects sold the impugned shares to M/s. Vijaya Finance Corporation (Vijaya) for a consideration of about Rs. 41.46 lakhs by executing relevant transfer instruments. Projects also executed a power of attorney dated July 30, 2001, in favour of Vijaya to exercise all rights in respect of the impugned shares and executed fresh transfer deeds on September 14, 2001, in favour of Vijaya. By a letter dated November 12, 2001, Vijaya lodged these share certificates along with the instruments of transfer with Peerless for registration of transfer in favour of Vijaya. Peerless refused to register the transfer by a letter dated January 9, 2002. Thereafter, by virtue of the power of attorney, Vijaya again lodged the share certificates along with the order of the Calcutta High Court sanctioning the scheme, seeking for registration of the shares in the name of Projects. Again Peerless refused to register the shares in the name of Projects by a letter dated August 8, 2002. Hence this petition with the following main relief: "Register of members and other necessary books of the respondent-company be rectified by including therein the names of petitioner No. 2 and petitioner No. 1 (M/s. Vijaya) respectively in respect of the said 2,18,240 equity shares of and in the respondent-company as stated in paragraph 6 hereinabove". During the hearing it was explained that the prayer was that the name of Projects should be entered in the register in place of Udyog and thereafter, the name of Vijaya be entered in place of Projects. However, in the written submissions it is stated that the cause of action for the instant petition was the refusal by the company to register the transfer pursuant to the application made by Vijaya and Vijaya is the petitioner in the proceeding and Projects has been added by way of abundant caution. (Para. 15(1)).
2. When the matter was taken up for hearing, it was noticed that Peerless had neither sent copies of the minutes of the board meetings in which the registration was refused to the petitioners nor it had filed the same with this Bench. Therefore, Peerless was directed to file copies of the board resolutions with this Bench with a copy to the petitioners. This direction was complied with.
3. Shri Mitra, senior advocate for the petitioners submitted : In the scheme sanctioned by the Calcutta High Court, it was specifically provided that "with effect from the transfer date, the PC3 shall, in pursuant to Section 394(2) of the Act and without any further act or deed be transferred and to vest in and be deemed to have been transferred to and vested in Poddar Projects Ltd." This being the case, on sanctioning of the scheme and on filing a copy of the order of the court with the Registrar of Companies, Projects had become the shareholder of Peerless in respect of the impugned shares. The entry of its name in the register of members of Peerless was only a ministerial act to be done by Peerless and it has no other discretion. In the meanwhile, Projects was in negotiation for sale of the impugned shares to Vijaya, as, by the scheme sanctioned by the High Court, shares had been transferred and vested in Projects. Accordingly, Projects sold the shares to Vijaya on September 3, 1999, for valuable consideration and on spot delivery basis, by executing relevant transfer instruments. Since, the validity of the instruments expired before lodgment, fresh transfer instruments were executed on September 18, 2001. The shares were lodged for registration in the name of Vijaya on November 10, 2001, but Peerless refused registration without assigning any reason. It is a settled law that an order sanctioning a scheme under Section 391/394 is a judgment in rem, and therefore, there was no necessity to get the name of Projects entered in the register of members before transferring the shares to Vijaya. The right of Projects to transfer the shares in favour of Vijaya did not depend on whether, Projects had intimated the company of the scheme or had served a copy of the scheme to Peerless. However, when Peerless refused to register the shares in favour of Vijaya, by way of abundant caution, to avoid any objection by Peerless, that Projects name should have been registered in respect of the shares, Projects lodged the shares for registration in its name even though in terms of Section 394(2), the transfer was completed and did not require any perfection. Again Peerless refused registration without assigning any reason, that too after a delay of over three months, notwithstanding the fact that in terms of Section 111A(2), Peerless should have decided the matter within a period of two months of lodgment. In both the letters of refusal, it was only stated that considering relevant factors, it had been decided to refuse registration. Therefore, the refusal by Peerless on both the occasions was without sufficient cause.
4. Learned counsel further submitted : Peerless is a public company, the shares of which shall be freely transferable in terms of Section 111A(2). In respect of registration in the name of Vijaya, all formalities in terms of Section 108 had been complied with and as such Peerless was obligated to register the shares in favour of Vijaya. In respect of de-mat shares, the registration is instantaneous and therefore, even in cases where the shares are in physical form, the transfers should be registered once there is compliance with the provisions of Section 108. Then only, the concept of free transferability can be meaningful. Only after registration, one can seek rectification on any of the grounds specified in Section 111A(3). In other words, in a public company, there is no scope to refuse registration of transfer of shares. It is evident from the fact that while Section 111 talks of "power to refuse", there is no such provision in Section 111A. Even otherwise, refusal on sufficient cause could be only when there is a dispute between the transferor and transferee. In the present case, there is no dispute as transfer from Udyog to Projects was by a scheme sanctioned by the High Court and the transfer from Projects to Vijaya was for valuable consideration and Projects has no objection in the registration in the name of Vijaya. When there is a transfer by operation of law, Peerless cannot refuse registration in the name of Projects. By this refusal, now the shares are in limbo which is not permissible in law. In Sulphur Dyes Ltd. v. Hickson and Dadajee Ltd. [1995] 83 Comp Cas 533 (Bom), it has been held that if rectification is not allowed, then there would be nobody to exercise the rights on the shares and therefore, rectification should be allowed. In Moore v. North Western Bank Ltd. [1891] 2 Ch. D 599, it has been held that if all formalities have been complied with by a transferee and to the knowledge of the company there is no other prior claim on the shares, then the company has to only perform the ministerial act of registering the shares in the name of the transferee and it cannot refuse the same. In the present case, the admitted fact is that there is no one claiming the shares except Vijaya and therefore, the shares should be registered in its name. In LIC v. Bokaro and Ramgur Ltd. [1966] 36 Comp Cas 490 (CT), it has been held that in a case of transmission of shares by operation of law, there is no need to comply with other formalities like execution of instruments of transfer, etc. Therefore, the refusal to register the shares in the name of Projects is mala fide and for ulterior purposes and as such Peerless should be directed to first register the shares in the name of Projects.
5. In so far as the refusal to register the transfer in the name of Vijaya is concerned, learned Counsel submitted : The main reason adduced by Peerless in the reply is that Vijaya is controlled by Shri Parasmal Lodha, who has been litigating with the company for a long time and to substantiate the same, it has listed a number of cases without any proof that he is behind those cases. It is quite possible that Peerless itself had caused these cases instituted and later on withdrawn the same to attribute those cases to Shri Lodha. Even otherwise, this cannot be a reason for refusal as Peerless is a public company the shares in which are freely transferable. He was a director of Peerless for a long time and the acquisition of the shares is for investment purposes. The fact that a director or a majority shareholder or an associate of a transferee of shares is an undesirable person is irrelevant. Therefore, the ground that Vijaya is an undesirable person cannot be taken any cognizance of. In Estate Investment Co. Pvt. Ltd. v. Siltap Chemicals Ltd. [1999] 96 Comp Cas 217 the Company Law Board has held that "sufficient cause" in terms of Section 111A(2) would cover only those grounds on which rectification could be sought under Section 111A(3). Undesirability of a person is not a ground under which rectification can be sought under Section 111A(3) and therefore, that ground cannot come under "sufficient cause" in proviso to Section 111A(2).
6. Learned counsel further submitted that one of the grounds for refusal as seen from the copy of the minutes of the board is that the sale of shares by Projects to Vijaya was against the provisions of the SCRA Act, as the sale was not on spot delivery basis. The SCRA Act is not applicable to an unlisted public company. It is applicable only to listed companies. Even though there are diverse decisions of the courts as to the applicability of the SCRA to unlisted companies, now the matter is before the Supreme Court. Anyway, the sale of shares by Projects to Vijaya was on spot delivery basis. The transfer instruments which were executed on September 3,1999, were, instead of being revalidated, executed afresh and on that basis it cannot be claimed that there was no spot delivery transaction.
7. Shri Sarkar, senior advocate for Peerless submitted : This petition has been filed for rectification of the register of members under Section 111A of the Act. Section 111A(2) of the Act deals with only transfer of shares and not with rectification. Rectification of the register of members is governed by Section 111(4) of the Act. Therefore, this petition is not maintainable under Section 111A of the Act. Assuming that this petition is maintainable under Section 111(4), then, this petition is barred by limitation. The right of Projects to get its name registered in the register of members accrued in August, 1997, when the High Court sanctioned the scheme of arrangement but the request for registration in its name was received by the company only in May, 2002, after a delay of over five years. The settled law is that in the case of rectification of the register of members, the limitation period is three years in terms of the residuary Article 137 of the Limitation Act of 1963. In Kerala State Electricity Board v. T. P. Kunhaliumma , it has been held that Article 137 of the Limitation Act is not confined only to applications contemplated by or under the Code of Civil Procedure. The Company Law Board has held in Bombay Dyeing and Manufacturing Co. Ltd. v. Arun Kumar Bajoria [2001] 107 Comp Cas 535 that the provisions of the Limitation Act are applicable in a proceeding under Section 111A of the Act. This being the case, the provisions of Article 137 of the Limitation Act are squarely applicable to this case and as such the Projects' remedy in regard to the said shares stood extinguished as soon as the period of limitation expired. The question of the cause of action continuing from day-to-day and thereby saving limitation does not arise as transfer is a one time matter. Since Projects' application is barred by limitation, the question of registration in favour of Vijaya also does not arise. Even if the date of obtaining a certified copy of the scheme of arrangement is taken as the starting point for computing limitation, a copy of the order was received by Projects on June 10, 1998, as is evident from the endorsement made in the copy of the order at annexure A1. Therefore, the petition is time barred and the company cannot be directed to do something which is barred by limitation. Further, the scheme of arrangement was sanctioned by the Calcutta High Court on August 19, 1997. Projects never applied for registration of the shares in its name in pursuant to this scheme sanctioned by the High Court. Instead, it sold the shares to Vijaya on September 3, 1999, and it was Vijaya which sought for registration of the impugned shares in his favour on November 12, 2001. Peerless could not have recognised the transfer by Projects as it was not a member. Only a member of a company can transfer his shares. In Vasudev Ramchandra Shelat v. Pranlal Jayanand Thakar , the Supreme Court has held that even in the case of gift of shares by handing over signed blank transfer instruments by the donor, it does not become complete till other formalities like lodgment, registration, etc., take place and till then the transfer is incomplete and pending registration, the transferee has only an equitable right but does not become a legal owner until his name is entered in the register of members. When the company sent an intimation of refusal by a letter dated January 9, 2002, the shares were re-lodged in two lots on May 16, 2002, for registration in the name of Projects. Once again, the company refused registration and communicated the same on August 27, 2002, and this petition was filed on October 28, 2002. In terms of Section 111A(2) of the Act, an appeal against refusal has to be filed within a period of two months. Since the company had communicated its refusal to Vijaya on January 9, 2002, the present petition is barred being beyond a period of two months in so far as Vijaya is concerned.
8. Further, in terms of Section 108 of the Act, the provisions of which have been held to be mandatory by the Supreme Court in Mannalal Khetan v. Kedar Nath Khetan , there should be instruments of transfer for every transfer of shares. In the present case, Udyog has not executed any transfer instruments in favour of Projects. The contention of the petitioners that when shares are transferred under a scheme of arrangement under Section 391/394, there is no need to comply with the provisions of Section 108 of the Act is not correct. In General Radio and Appliances Co. Ltd. v. M.A. Khader , the Supreme Court has held that a scheme of amalgamation is a voluntary act of parties and therefore transfer of tenancy rights would constitute unauthorised subletting giving rise to the ground for eviction. It is because of the voluntary nature of the transaction that the mischief of the bar against subletting is attracted. The position regarding transfer of shares is no different. Section 108 of the Companies Act contains a negative stipulation and imposes a bar on the company from recording a transfer without compliance with the provisions of that Section. It is not the case of Peerless that the shares have not been vested in Projects but it cannot register the shares in its name because of non-compliance with the provisions of Section 108 of the Act. In Vasudev Ramchandra Shelat v. Pranlal Jayanand Thakar , the court has held that the title to the shares has two components, namely, title/right to the property in the shares and the right to get on to the register and to exercise the second right, compliance with the provisions of the Act is necessary. In Hindustan Lever v. State of Maharashtra , the Supreme Court has pointed out that the order passed by the court amalgamating the companies is based on a compromise or arrangement arrived at between the parties and as such there is no adjudication by the court on the merits. Again in Singer India Ltd. v. Chander Mohan Chadha [2004] 122 Comp Cas 468 : [2004] SCCL.com 705, the Supreme Court has held that even if there is an order of the court sanctioning a scheme of amalgamation under Section 391/394 of the Act whereunder the leases, rights of tenancy or occupancy of the transferor company get vested in and become the property of the transferee company, it would make no difference in so far as the applicability of Section 14(1) (b) of the Delhi Rent Control Act is concerned. In other words, this decision would indicate that an order of the High Court under Section 391/394 of the Act does not exempt compliance with provisions of other laws. All these cases would indicate that in a case of voluntary transfer of shares, all the formalities as contemplated in the Act have to be complied with for getting the name of the transferee registered in the register of members. In Albion Jute Mills Co. Ltd. v. Rivers Steam Navigation Co. 100 Cal LJ 70, the Calcutta High Court has categorically stated that the vesting order does not do away with the necessity of the formalities of execution of instruments or conveyances or other formalities which are necessary for effectually vesting a property or rights of the transferor company in the transferee company and therefore it cannot be said that the transfer takes place purely and solely by operation of law. In the present case, so far Projects has not submitted any instruments of transfer in terms of Section 108 of the Act signed by Udyog. Unless and until it is done, Projects' name cannot be entered in the register of members.
9. He further submitted : As far as Vijaya is concerned, the person in control of that company is Mr. Parasmal Lodha who is an ex-director of Peerless and who has been litigating against the company since 1991. He is seeking to acquire shares of Peerless through Vijaya not for bona fide investment purposes but with an ulterior motive. Peerless shares are not quoted on the stock exchange and Peerless is practically a family company. Peerless has not declared any dividend since 1996 till 2003 and therefore the acquisition cannot be for a bona fide purpose of earning returns. If Mr. Lodha's attempt to acquire more shares in Peerless in the names of companies controlled by him succeeds, then, he will be holding almost 20 per cent, of the subscribed and paid up capital of Peerless. That is the reason why the board of directors of Peerless, in exercise of powers under Article 46 of the articles of association, decided to refuse registration. Further, substantial number of the impugned shares are bonus shares, the transfer of which has been prohibited by the Supreme Court and the matter is sub judice. The term "sufficient cause" in Section 111A(2) must receive the same construction in so far as the width and amplitude of the said expression is concerned, as in Section 111(4) of the Act, since it is to be presumed that the same expression has been used in the same sense in two parts of the same statute. Therefore, the provisions of Section 111A(2) are not controlled by Section 111A(3) which is a separate provision dealing with statutory contravention. There are innumerable decisions on the scope of the term "sufficient cause" as used in Section 111(4) of the Act and as long as the refusal is based on bona fide grounds and in the interests of the company, the decision of the board of directors cannot be impugned.
10. Shri Jayant Mitra, senior advocate for the petitioners, in rejoinder submitted : Peerless is a public company and therefore in the matter of transfer of shares only the provisions of Section 111A are applicable and not the provisions of Section 111. In terms of Section 111A(2), the shares of a public company are freely transferable. The provisions of the Limitation Act are not applicable and it is irrelevant, when in terms of the order of the High Court transfers take place instantaneously without any further act or deeds by any party. The Limitation Act is applicable only to suits, appeals and applications filed in courts and has no application to any proceeding outside the courts. Even assuming that the provisions of the Limitation Act are applicable, in terms of Article 137 of the Limitation Act, the three year limitation would start only when the right to apply accrues. Right to apply means the right to apply for relief before a court of law. In the present case, the right to apply to the Company Law Board arose only when Peerless refused registration in favour of Vijaya and not from the date of the order of the High Court. In terms of Section 394(2) of the Act, when an order of the court provides for transfer of property, then, by virtue of that order, the property shall be transferred to and vest in the transferee company. In the present case, the shares were transferred and vested in Projects and Peerless has to only carry out the ministerial act of entering the name of Projects in the register of members and the question of application of the provisions of Section 108 does not arise. None of the cases cited by Shri Sarkar to urge that provisions of Section 108 have to be complied with, is relevant as they either relate to the provisions of the Rent Control Act or Stamp Act or related to personal services of employees. Further, right from the day the High Court sanctioned the scheme, Projects has been having continuous cause of action every day and as such the question of limitation does not arise. Further, in the refusal letter, Peerless had not disclosed any ground for refusal and the same was disclosed only after this Bench directed Peerless to produce copies of the minutes of the board. Since the petitioners were not aware of the grounds for refusal at the time of filing the petition, this Bench should not consider any of those grounds. Further, it is the apprehension of the petitioners that the purported reasons were manufactured and the purported minutes ante-dated. Even otherwise, from a reading of the minutes, it would be apparent that the refusal is completely without sufficient cause. There is no reference in the board minutes either to the provisions of Section 108 or limitation. In McDowell and Co. Ltd. v. Shaw Wallace and Co. Ltd. [2002] 108 Comp Cas 306 : [2002] 1 Comp LJ 160, this Board has held that in the case of public companies, a company could said to have sufficient cause to refuse registration only on grounds specified in Section 111A(3) of the Act. None of the grounds adduced by Peerless would fall within the grounds specified in Section 111A(3) of the Act. In most of the cases cited by Shri Sarkar, there was a legal embargo in transfer and that is why the courts have held that the transfer in terms of a scheme under Section 391/394 in those cases were invalid. However, in the present case, there is no legal embargo in the transfer of shares from Udyog to Projects.
11. In surrejoinder, Shri Sarkar submitted that the provisions of Section 108, being mandatory, are an embargo for registration of shares without compliance with the provisions of Section 108. Further, stamp duty is also payable for transfer of shares. Udyog had not been dissolved as only a part of the assets and liabilities were transferred to projects and as such the shares continue to be in the name of Udyog and as such they are not in limbo. Since any right acquired should be enforced within a period of three years in terms of Article 137 of the Limitation Act, Projects cannot enforce that right after a delay of over five years and as such this petition should be dismissed.
12. I have considered the pleadings, arguments and written submissions. This petition has been filed under Section 111A of the Act. The relevant provisions of this Section reads :
Rectification of register on transfer.--(1) In this Section, unless the context otherwise requires, 'company' means a company other than a company referred to in Sub-section (14) of Section 111 of this Act.
(2) Subject to the provisions of this Section, the shares or debentures and any interest therein of a company shall be freely transferable :
Provided that if a company without sufficient cause refuses to register transfer of shares within two months from the date on which the instrument of transfer or the intimation of transfer, as the case may be, is delivered to the company, the transferee may appeal to the Company Law Board and it shall direct such company to register the transfer of shares.
13. Shri Mitra contended that while Section 111 specifically recognise "the power to refuse" there is no such power specifically recognised in Section 111A, Peerless and therefore, no public company has the power to refuse registration of transfer as its shares are freely transferable. Even though this contention appears to be sound, yet, a reading of the proviso to Sub-section (2) would indicate that this proviso recognises the implied power of the board to refuse the registration on sufficient cause and therefore as long as there is sufficient cause to refuse registration, the company has the power to do so. Another contention of Shri Mitra that in view of the shares of a public company being freely transferable, the registration cannot be refused and only after registration, rectification can be sought in terms of Section 111A(3) of the Act. It is to be noted that Section 111A was introduced when the Depositories Act was enacted and in terms of the Depositories Act, shares are to be de-materialised and are to be kept in fungible form and transfers take place electronically and instantaneously without the interference of the company. That is the reason, why Section 111A(3) has provided for rectification after registration. However, when the shares are held in physical form, every transfer has to be approved by the board for registration and therefore, the proviso to Sub-section (2) has provided for refusal on sufficient cause. It would be illogical to hold that when, even at the time of considering the registration of transfer, the board of the company has sufficient cause to refuse, that registration should be effected and thereafter application is to be made to the Company Law Board for rectification. The next contention is that the term "sufficient cause" in the proviso to Sub-section (2) should cover only those grounds under which rectification can be sought under Sub-section (3). It is true that in a number of cases, like Shaw Wallace [2002] 108 Comp Cas 306 (CLB) : [2002] 1 Comp LJ 160 and Siltap [1999] 96 Comp Cas 217 (CLB) cases referred to by Shri Mitra, this Board had held so and all those cases were in relation to shares of listed public companies. So far this Board has not dealt with shares of any unlisted public company under Section 111A. Certain grounds that are available to seek rectification under Sub-section (3) are not available to an unlisted company. For instance, since an unlisted company is not subject to SEBI jurisdiction, it cannot complain that in acquisition of shares, the transferee had violated the provisions of the SEBI Act or regulations made thereunder. Practically, each one of the cases dealt with by this Board so far under Section 111A(3) related to violation of the provisions of the SEBI Regulations. In this connection, it is relevant to refer to the observation of the Andhra Pradesh High Court in Karamsad Investments Ltd. v. Nile Ltd. [2002] 108 Comp Cas 58 wherein the court has observed (page 81): "The expression 'sufficient cause' occurring in the proviso to Sub-section (2) of Section 111 A of the Act takes within its sweep not only those contingencies contemplated under Sub-section (3) but, there can also be circumstances and reasons other than those contemplated under Sub-section (3) which might require the company to refuse to register the transfer of shares and as such a refusal would be refusal for 'sufficient cause'. Thus there can be various reasons, though it is not possible to enumerate all of them and it is to be decided on the facts of each case which could constitute 'sufficient cause' for a company to refuse a registration of transfer of shares". Similarly, in Finolex Industries Ltd. v. Anil Ramchand Chhabria [2000] 37 CLA 278, the Bombay High Court has held (page 292) : "Remedy provided in Section 111A(3) is in addition to the remedy provided in Section 111(4). It is, therefore, held that the remedies of appeal and rectification are available to all kinds of shares held in a public company under the proviso to Section 111A(2) and Section 111A(3) read with Sub-section (7) of Section 111A which would make applicable the provisions of Section 111(1), (2) and (4) by virtue of Section 111(5)". It further held that (page 293) : "restriction contained in Sub-section (14) of Section 111 would not apply to transfer and ownership of the shares of the public company held in the form of share certificates". In both these cases, the shares involved were those of listed companies and the courts have held as above. In view of the fact that Section 111A was inserted in the Act pursuant to the enactment of the Depositories Act which is applicable to listed companies, I am of the view that in case of unlisted public companies, all the provisions as are applicable to a private company should also be applicable. If so, then the term "sufficient cause" in the proviso to Sub-section (2) of Section 111A should receive the same construction as in Section 111(4).
14. According to Shri Sarkar, since this petition is for rectification of the register of members, this petition should be treated as one filed under Section 111(4) of the Act. This submission appears to have been made on the basis of the prayer in the petition for rectification. It is true that the petition suffers from clarity and the intention of the petitioners is not clear. A strict construction of the prayer would indicate that the registration is sought in the names of both the petitioners but during the hearing it was indicated that the name of Vijaya should be recorded first and thereafter, in its place, the name of Vijaya is to be recorded. In the written submissions it is indicated that the petition is by Vijaya and by way of abundant caution, the name of Projects has been included. Whatever it may be, the grievance of the petitioners relates to the refusal of registration and in terms of the proviso to Section 111A(2), the petitioners can seek for a direction for registration in terms of this Section. Any way I have already held in the previous paragraph that in case of unlisted public companies, provisions of Section 111 are also applicable.
15. This petition is a joint petition by Projects and Vijaya with the prayer, as indicated during the hearing is, to direct registration of the name of Projects first and thereafter Vijaya in the register of members of Peerless. The prayer relating to Projects is based on the scheme sanctioned by the High Court and the prayer relating to Vijaya is on the ground that it had paid consideration for the shares and that necessary transfer documents had been executed by Projects in favour of Vijaya. It is on record that the name of Projects has not been entered on the register of members of Peerless and as a matter of fact, the prayer of Projects in this proceeding is that Peerless should be directed to enter Projects name in the register. According to Projects, since the impugned shares had been vested in it by virtue of the order of the High Court, it can transfer the shares even without its name being in the register of members of Peerless. As pointed out by Shri Sarkar referring to Vasudev Ramchandra Shelat's case, , the vesting order by the court gives the right to the shares and the right to get on the register of members and the transferee becomes a legal owner only on registration. It is also contended that the order of the court being an order in rem, it binds every one and the entry in the register is only a ministerial act. Even assuming, even though contested by Peerless, that the shares had been vested in Projects, it is a settled law that a company cannot recognise a transfer of shares unless the transferor is a member of the company in respect of the shares so transferred. In terms of Section 41 of the Act, a member is a person who has agreed in writing to become a member and his name is entered in the register of members. In other words, only a member is capable of transferring the shares in respect of which his name is in the register of members. The only exception, as pointed out by Shri Sarkar is provided in Section 109 of the Act. This Section reads "Transfer by legal representative : A transfer of the share or other interest in a company of a deceased member thereof made by his legal representative shall, although the legal representative is not himself a member, be as valid as if he had been a member at the time of the execution of the instrument of transfer". This Section would indicate that in other cases, the transferor should be a member at the time of execution of the instruments of transfer in respect of the shares so transferred. In the present case, the admitted position is that Projects name had not been entered in the register of members of Peerless at the time when Projects had executed the instruments of transfer in favour of Vijaya. In other words, Projects was not a member of Peerless in respect of the shares transferred. Therefore, any instrument of transfer executed by Projects before entry of its name in the register of members, would be invalid and cannot clothe the transferee with any right to seek registration in the name of the transferee and as such Peerless cannot be directed to enter the name of Vijaya in its register of members on the basis of the instruments of transfer lodged with the company. Learned counsel for the petitioners referred to North Western Bank Ltd.'s case [1891] 2 Ch D 599 to urge that since there is no other claimant for the shares other than Vijaya, Peerless cannot refuse registration. I have already held that in respect of the shares of an unlisted public company, registration of transfer can be refused on sufficient cause, which may cover instances of undesirability of the transferee or that the investment is not for bona fide purpose, etc. Further, in the present case, at the time of execution of instruments of transfer, the name of Projects was not on the register of members. In the light of the foregoing, that Peerless cannot be directed to register the impugned shares in favour of Vijaya, I am not examining the various grounds that have been noted by the board in its minutes at the time of refusing registration in favour of Vijaya.
16. In so far as the entry of the name of Projects in the register of members of Peerless is concerned, the main argument of Projects is that it acquired the impugned shares by virtue of the scheme sanctioned by the High Court and as per the scheme the shares stood transferred and vested in Projects without any further action or deed as the transfer is by operation of law. When the application was made to the company for transfer/transmission of the impugned shares in favour of Projects/ Peerless sent a communication stating "After having considered various relevant factors connected with the issue, it has been decided to reject transmission/transfer of the subject shares". No details as to the grounds on which Peerless had decided to reject the request for transfer/transmission in favour of Projects was stated in that communication. On my direction to file a copy of the board minutes wherein the decision to reject transmission/transfer of shares was taken, the company filed an affidavit dated July 4, 2003, enclosing therewith copies of the board minutes. It is seen from the minutes that the board had refused to register transmission of the shares in favour of Projects on the following grounds :
(a) Since the company was informed earlier that Poddar Projects Limited had sold the shares in question to Vijaya Finance Corporation and requested to transfer the shares in the name of Vijaya Finance Corporation, they could no longer ask for recording of their names in the company's register of members by virtue of the scheme of amalgamation.
(b) The shares in question had not been lodged either by the transferor or the transferee and thus there had been non-compliance of Section 110(1) of the Companies Act, 1956.
(c) The bonus shares issued in 1995 could not be transferred in view of the order of the hon'ble Supreme Court of India.
(d) The ultimate alleged transferee in respect of the subject shares was Vijaya Finance Corporation Ltd., in which Mr. Parasmal Lodha, an ex-director of the company, and his wife Mrs. Madhu Lodha, held substantial interest. The said Mr. Parasmal Lodha, his father Mr. M.M. Lodha, Bhagwati Developers Pvt. Ltd. and other associated companies/association of persons who were close associates of Mr. Parasmal Lodha and initiated and/or caused to be initiated a series of mala fide and frivolous litigations against the company since 1991. Therefore, the subject shares had been allegedly acquired not for bona fide investment but with the oblique motive and ulterior object of destabilizing the management of the company. In the circumstances, it would not be desirable in the interest of the company to admit the ultimate transferee, that is, Vijaya Finance Corporation Ltd., to the benefits of membership.
17. In the reply to the petition also, more or less the same grounds have been adduced for refusal. The petitioners have doubted the genuineness of the minutes. Considering the fact that more or less same grounds have been taken in the reply to the petition for refusal and that the petitioners were given inspection of the original of the minutes book, I do not doubt the genuineness of the minutes especially when the minutes indicate the presence of a number of independent directors in the said board meeting. The contention of the petitioners is that when the shares had been transferred to and vested in Projects by an order of the High Court, Peerless has no powers to refuse registration of transfer and it cannot insist on compliance with the requirements of Section 108. In other words, according to the petitioners, the shares have been vested in Projects by operation of law and an order under Section 391/394 being an order in rem, is binding on all. Whether the order of the High Court sanctioning a scheme is binding on third parties is an issue under examination by me in another case, wherein some decisions have been cited, which I feel would be relevant to refer in this order. In most of the cases cited by counsel in the present case and in the other case, the scope of an order under Section 391/394 was examined with reference to the provisions of either the Stamp Act or Rent Control Act in which the issue, whether, the transfer of properties by an order under Section 391/394 is by operation of law or by a contractual/consensual arrangement, has also been discussed. In General Radio's case , the Supreme Court has held that transfer of properties in terms of an order under Section 391/394 is not an involuntary transfer by operation of law, but a transfer of the interest of the tenant company on the basis of their application made before the High Court. However, in the matter of Gemini Silk Ltd., the Division Bench of the Calcutta High Court has held : "The consistent view of this Court has been that the transfer of assets and liabilities of the transferor company to the transferee company was by operation of law in view of the provisions of Sub-section (2) of Section 394 of the aforesaid Act, and apart from complying with the provisions of Sub-section (2) of Section 394, nothing further was required to be done in order to complete the transfer of liabilities and assets of the transferor company to the transferee company". In this case, the issue was whether an order under Section 394 was a conveyance or instrument in terms of Section 2(10) of the Indian Stamp Act. The Bombay High Court has also taken a similar view in Sadanand S. Varde v. State of Maharasthra "There is overwhelming authority of precedents suggesting that when an amalgamation takes place, the transfer of assets takes place by the force of the company court's order and/or by operation of law; it ceases to be a contractual or a consensual transfer". However, in Hindustan Lever v. State of Mahatrashtra the Supreme Court has held (page 766) : "The scheme of amalgamation has its genesis in an agreement between the prescribed majority of shareholders and creditors of the transferor company with the prescribed majority of shareholders and creditors of the transferee company. The intended transfer is a voluntary act of the contracting parties. The transfer has all the trappings of a sale. The transfer is effected by an order of the court (para. 9)". In Singer India Ltd. v. Chander Mohan Chadha [2004] 122 Comp Cas 468 (SC) : [2004] SCCL.com 705, the Supreme Court has referred to the decision in General Radio's case wherein it was held that the order of amalgamation was made by the High Court on the basis of the petition filed by the transferor company in the company petition and therefore it cannot be said that this is an involuntary transfer effected by the order of the court. These decisions would indicate that there are diverse views expressed in the context of issues before the courts either in relation to the Stamp Act or Rent Control Act. But one matter that is clear from all these decisions is that the courts have held that the High Court order is binding on all the shareholders and creditors of the transferor and transferee companies including those who had expressed dissent to the scheme. In none of these judgments it has been held that the scheme is binding on third parties. As a matter of fact, a reading of the judgments of the Supreme Court in General Radio's case and Singer India case [2004] 122 Comp Cas 468 (SC) : [2004] SCCL.com 705 would indicate the same. In both the cases, the transferor companies were lessees of certain premises. When these companies were merged with transferee companies, by orders of the High Courts, the leased premises were also transferred to the transferee companies. In terms of the provisions of the relevant Rent Control Acts, the owner of the leased premises was entitled to recovery of possession if the same was sublet or assigned or possession was otherwise parted with without the permission of the owner. A contention was raised that when the leased premises were transferred by an order of the High Court in terms of Section 391/394, the provisions of the Rent Control Act were not applicable. The Supreme Court negatived the contention in both the cases. These decisions would indicate that the rights and obligations of third parties are not affected by the order of the High Court in terms of Section 391/394. This being the case, in the instant case, Peerless has the right to refuse registration on sufficient cause notwithstanding the transfer being by a scheme sanctioned by the High Court.
18. According to the petitioners, the grounds which were not considered by the board at the time of rejection of registration and those which had not been communicated to the petitioners, cannot now be advanced by Peerless. Even though this contention appears to be valid, yet, Supreme Court has held otherwise in Thalayar Tea Co. Ltd. v. Union of India [1992] Supp 3 SCC 38. In that case, the company had refused to register the transfer of certain shares. The aggrieved shareholder moved the Company Law Board under Section 111 of the Act. Since the company had not given any reason for the refusal, the Company Law Board directed the company to register the transfer. The High Court also upheld the decision of the Company Law Board. But the Supreme Court, setting aside the orders of the Company Law Board/High Court, held that the company should have been given an opportunity to state its reasons before the Company Law Board/High Court. This decision makes it clear that this Board has to consider the reasons stated by the company for its refusal to register the transfer, even if those reasons were not communicated to the petitioners. As far as the grounds noted in the board minutes as indicated in the earlier paragraphs for refusal to register the transfer are concerned, I do not find much justification. As far as the ground at (a) is concerned, when Peerless had refused registration in favour of Vijaya, the board could not have taken the stand that since the shares had been sold to Vijaya, the name of Poddar cannot be entered in the register of members as by this decision the right of both the petitioners had been sought to be defeated. As far as the ground at (b) is concerned, in terms of the sanction by the High Court, Projects had become the transferee and therefore it has the right to apply for registration of its name. In so far as the ground at (c) is concerned, the board was right to take the said view in so far as bonus shares were concerned, which incidentally accounted to more than 90 per cent, of the shares lodged for registration. As far as the ground at (d) is concerned, at the time of registration of the name of a transferee, the board is not concerned with what the transferee would do after registration of its name as a member in the register of members and in case the transferee further transfers the shares to a third person, then only, the company has the discretion either to register the shares in the name of the other transferee or refuse registration on sufficient cause. Thus none of the reasons adduced by Peerless, other than the one relating to bonus shares could be considered to be a sufficient cause to refuse registration. However, during the hearing, learned Counsel for Peerless raised two legal objections in so far as Projects is concerned, the objection being on legal grounds, they have to be necessarily dealt and decided by this Bench.
19. The first legal ground relates to the scope and ambit of a scheme sanctioned by the High Court in terms of Section 391/394. The issue is whether, execution of further transfer instruments is necessary when a property is transferred by a scheme sanctioned by the High Court under Section 391/394. I have already dealt with the cases cited by learned Counsel in the earlier paragraph. According to Shri Sarkar, relying on General Radio's case , which has been referred to in Hindustan Lever's case , transfer of properties from the transferor company to the transferee company in terms of an Order under Section 391/394 is a voluntary act and not by operation of law. If it is a voluntary transfer, then, according to learned Counsel, for transfer of shares, procedure prescribed under Section 108, which is mandatory, has to be followed. Since this Section provides for instruments of transfer signed by the transferor to be lodged with the company, Projects should have obtained transfer instruments from Udyog. Section 394(2) specifically provides "where an order under this Section provides for transfer of any property or liabilities, then, by virtue of the order, that property shall be transferred to and vest in, and those liabilities shall be transferred to and become the liabilities of the transferee company". Further, the order of the High Court also specifically stipulates "with effect from the transfer date, the PCS shall, in pursuant to Section 394(2) of the Act and without any further act or deed be transferred and to vest in and be deemed to have been transferred to and vested in Poddar Projects Ltd." Thus, on passing of an order by the High Court, the shares had been vested in Projects. In General Radio's case , the Supreme Court has also held that "the order of the court under Section 391/394 of the Act is an instrument which transfers the property". For the proposition that even for transfer of properties in terms of an order under Section 391/394 of the Act, execution of instruments of conveyance is necessary, the decision of the Kolkata High Court in Albion Jute Mills' case 100 Cal LJ 70 has been relied. In Gemini Silk Ltd.'s case, the Division Bench of the Calcutta High Court has overruled this decision. Therefore, as far as transfer of shares is concerned, the order of the court itself has to be construed as an instrument of transfer and as such there is no need for separate or fresh instruments of transfer as contemplated under Section 108 of the Act. In view of this, it is immaterial as to whether, the transfer is by operation of law or by contractual/consensual arrangement. Application for mutation, with a copy of the court order, is sufficient to get the name of the transferee company entered in the register of members. Therefore, the contention of Peerless that compliance with the provisions of Section 108 is necessary is not sustainable.
20. The next legal issue raised by counsel for Peerless relates to limitation. According to Peerless, the petition by Projects is barred by limitation. According to it, the right of Projects to get its name registered in the register of members accrued when the High Court sanctioned the scheme and therefore, limitation would start on the day of the said order. Since there is no period of limitation prescribed in the Act for registration, the provisions of Article 137 of the Limitation Act would apply, by which the period of limitation is three years. Therefore, Peerless can refuse to register the shares in the name of Projects as time barred and as such the Company Law Board cannot direct Peerless to do something which is barred by limitation. However, according to learned Counsel for the petitioners, if at all limitation is applicable, it would be only from the date on which the refusal was communicated to the petitioners as the right to apply to the Company Law Board would accrue only from that date. As far as limitation is concerned, if a statute prescribes any time limit within which a particular act is to be done, then, for doing that act, the limitation will be the period prescribed by that particular statute. Therefore, first we have to examine whether there is any time limit prescribed in the Companies Act, within which a transferee should apply for registration. Section 108 of the Act does provide the time limit within which instruments of transfer have to be lodged with a company for registration of transfer. In terms of Section 108(1A)(b), in respect of quoted shares, the instruments of transfer completed in all respect should be delivered to the company within 12 months from the date of presentation to the prescribed authority or at any time before the date on which the register of members is closed whichever is later, and in other cases, within two months of such presentation. This provision would indicate that in case of transfer of shares, the lodgment should be within a particular time, but the Central Government has the power to extend the period in cases of hardship. The time limit in that Section relates to cases wherein there are instruments of transfers signed by the transferor and the transferee. But, in the present case, the transfer had taken place by virtue of the order sanctioning a scheme under Section 391/394 of the Act and therefore, it is to be examined whether the same time limit could be applied in the present case also. I am of the view that once it is clear from the provisions of Section 108(1A)(b) that time for lodgment after execution of instruments cannot be indefinite, then, whatever may be the other mode of transfer, the transferee should apply, if not within the period provided in that Section, but definitely within a reasonable period of time of the transfer. Even though learned Counsel for the petitioners contended that the provisions of the Limitation Act are not applicable to the proceedings before the Company Law Board, in Bombay Dyeing case [2001] 107 Comp Cas 535, when the question of condonation of delay in terms of Section 5 of the Limitation Act was raised, after detailed examination of various cases, this Board has held that the provisions of the Limitation Act were applicable in a proceeding under Section 111A. According to the petitioners, in terms of Article 137, the right to apply to the Company Law Board accrued only when Peerless refused registration and not on the date of the High Court order. Even though this contention is sound, yet, if this contention is accepted, it is likely to result in unintended consequences. For instance, lodgment could be made after 15 years and when a company refuses registration, it can be claimed that the right to apply had accrued only after refusal. Then, lodgment can be deferred indefinitely and when refusal is communicated, means the right to move the court and not the right to lodge the shares with Peerless. Any way, presently, I am considering the period of limitation only with reference to the provisions of Section 108(1A)(b) of the Act and not the period of limitation in terms of Article 137 of the Limitation Act. The only issue for consideration is, since there is inordinate delay of over four years in applying for registration in the name of Projects after the High Court order, whether the delay could be condoned. In the Bombay Dyeing case [2001] 107 Comp Cas 535, this Board observed (page 556) : "In regard to the application of this Section, the settled law as propounded by the Supreme Court in a number of cases is that the term 'sufficient cause' in Section 5 must receive liberal construction so as to advance substantial justice and, generally, delays in bringing the appeal are required to be condoned in the interest of justice, where no gross negligence or deliberate inaction or lack of bona fides is imputable to the parties seeking condonation of delay : (G. Ramegowda v. Special Land Acquisition Officer ). In the present case, since other than pleading that the petitioner ought to have had the knowledge of the acquisition beyond 5 per cent, earlier than June 28, 2000, the respondents have not established that the company had the knowledge earlier to that date or that the delay in filing the petition is deliberate or due to gross negligence. Therefore, even in regard to condonation of delay, there is justification for the same and, accordingly, we do so". In the present case, from the sequence of events, it appears that Projects had been under the erroneous impression that since the shares had been transferred and vested in Projects, there was no need to have its name registered in the register of members of Peerless and therefore it had not applied for registration in its name earlier. In other words, there was no deliberate inaction or lack of bona fide on the part of Projects part to get its name registered earlier. Even though there is no formal application by Projects for condonation of delay, I am of the view that in the interest of justice, the delay should be condoned and accordingly I do so. However, it is an admitted position that more than 90 per cent, of the impugned shares comprise of bonus shares, the transfer of which has been prohibited by the Supreme Court in 1995 itself, that is much before the High Court sanctioned the scheme, and the matter is sub judice before the Supreme Court. Therefore, the prayer of Projects for registration of all the shares cannot be granted. Accordingly, Peerless will register only those shares which are not bonus shares within a month of fresh lodgment of the relevant share scrips by Projects. I make it abundantly clear that this direction does not cover bonus shares.
21. The petition is disposed of in the above terms.