Company Law Board
Indian Bank vs Kiran Overseas Exports Ltd. And Ors. on 3 August, 2000
Equivalent citations: [2001]104COMPCAS320(CLB)
ORDER
K.K. Balu, Member
1. This is a petition filed under Section 111A of the Companies Act, 1956 ("the Act"), against Kiran Overseas Exports Limited ("the company") and others seeking directions of this Bench to transfer 44,49,300 equity shares of the company impugned in the petition, in favour of the petitioner.
2. According to Shri Krishna Srinivasan, counsel appearing on behalf of the petitioner, the petitioner had extended various credit facilities in favour of the third respondent, which are secured, inter alia, by the pledge of impugned shares belonging to the fourth respondent. The fourth respondent had pledged the shares on May 13, 1996, in favour of the petitioner. The third respondent had committed default in repayment of the advances availed of from the petitioner and consequently the petitioner had initiated recovery proceedings against respondents Nos. 1, 3 and 4 before the Debt Recovery Tribunal for the outstanding amount. In the circumstances, the petitioner had forwarded the impugned share certificates together with duly stamped and executed instruments of transfer to the second respondent, the share transfer agent of the company, for effecting the transfer in the name of the former. However, the second respondent had refused to register the transfer of the impugned shares in favour of the petitioner, for the reasons that the impugned shares were already under lien in favour of the petitioner and that the fourth respondent would be negotiating for repayment of the loan. Accordingly the second respondent returned the share certificates along with the instruments of transfer. The act of the second respondent at the behest of the first respondent refusing to effect the transfer of shares in the name of the petitioner is totally unjustified and for motivated reasons. The reasons adduced by the company for such refusal are mala fide, arbitrary and unjustified. The company has not acted in the interests of the company, but with an oblique view and have a collateral purpose. Hence this petition.
3. Respondents Nos. 1, 3 and 4 opposing the petition contended the following :
(a) The petitioner does not come under any category of persons specified in Section 111A so as to maintain the petition. The petition does not meet the requirements of Section 111A, wherein rectification can be sought provided the transfer of shares is in contravention of any of the provisions of the Securities and Exchange Board of India Act, 1992, or regulations made therein or the Sick Industrial Companies (Special Provisions) Act, 1985. The facts of the present case do not attract the provisions of Section 111A.
(b) The instruments of transfer are not duly completed. The amount of consideration is left blank. The transfer not supported by any consideration is prima facie invalid.
(c) The instruments of transfer bearing a stamp of just Rs. 10 are not adequately stamped.
(d) The impugned share certificates Nos. 9 to 14 comprising 30 lakh shares of the company are subject to the lock-in period up to December 29, 1995 ; share certificates Nos. 19 and 24 comprising 9,49,300 shares and share certificate No. 25 with five lakh shares are under lock-in period up to December 29, 1997 and February 2, 1998, respectively. The pledge of impugned shares before expiry of the lock-in period is not valid in law.
(e) Section 111(3) stipulates a period of two months from the date of refusal by which time a petition before the Company Law Board should be presented. Whereas in the present case, the petitioner has come before the Company Law Board beyond the period of limitation especially when the refusal by the company was by its letter dated December 23, 1997, and the, second respondent by its letter dated December 24, 1997. The petition filed beyond the period stipulated under Section 111A is barred by time.
(f) The petitioner had presented the instruments of transfer before the Registrar of Companies on March 29, 1995 and December 17, 1995, but they were executed only on December 4, 1997, and March 15, 1998, respectively beyond 12 months from the date of presentation before the ROC and hence the transfers are hit by the provisions of Section 108(1A)(b)(i) of the Act.
(g) Though the impugned shares are pledged in favour of the petitioner, the petitioner is not vested with any right to get the impugned shares transferred in its favour.
(h) The impugned shares cannot be sold for the dues of the company and the petitioner has no right to sell the shares merely because they are pledged as security in favour of the petitioner. The petitioner has already initiated recovery proceedings for the outstanding amount before the Debt Recovery Tribunal. The petitioner is not entitled to appropriate the pledged shares for the dues of the third respondent. By filing the suit, the petitioner has given up his right to realise the security of shares. The petitioner has to pursue the proceedings either before the Debt Recovery Tribunal or the Company Law Board.
(i) The letter of undertaking to pledge the impugned shares was given by the fourth respondent without his free consent and was signed due to the compelling circumstances, at the time of availment of credit facilities attracting the doctrine of "economic duress" and "unequality as of bargaining," recognised by the Supreme Court in Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly [1986] 60 Comp Cas 797 ; AIR 1986 SC 1571 and Delhi Transport Corporation v. DTC Mazdoor Con-dress, AIR 1991 SC 101 ; [1991] .79 FJR 1.
(j) The petitioner has not given any statutory notice as required under Section 176 of the Indian Contract Act and the transfer is invalid. It amounts to fraud and breach of trust committed by the petitioner in respect of the shares lodged as security by the fourth respondent.
4. According to Shri Balasubramanian, the authorised representative appearing for the second respondent, the petitioner has forwarded the impugned share certificates in favour of the second respondent to effect the transfer in favour of the petitioner. The second respondent had sought approval of the fourth respondent with regard to the transfer of impugned shares, upon which the fourth respondent instructed the second respondent not to effect the transfer in favour of the petitioner. The company had also advised the second respondent not to register the transfer in favour of the petitioner. Accordingly, the second respondent had refused to effect the transfer in favour of the petitioner.
5. We have considered the pleadings and submissions made on behalf of the petitioners as well as respondents. The issue that arises for our consideration is whether the company is bound to register the transfer in respect of the impugned shares in favour of the petitioner on the facts and circumstances of the case.
6. Before going into the claim and counter-claim of either of the parties, it is necessary to examine whether the impugned shares can be pledged during the lock-in period, which has a bearing on the main issue of directing" the company to register the transfer in favour of the petitioner. A perusal of photocopies of the share certificates bearing certificates Nos. 9 to 14 (pages 15 to 18 of the petition) comprising three lakhs of shares reveals the following endorsement :
"These shares will not be sold/transferred/hypothecated until December 29, 1995."
7. Photocopies of the share certificates bearing certificates Nos. 19 and 24 (pages 19 and 20 of the petition) comprising 9,49,300 shares and share certificate bearing No. 25 (page 21 of the petition) comprising five lakhs shares contain similar endorsement of lock-in period up to December 29, 1997, and February 2, 1998, respectively. However, the endorsement appearing on the impugned share certificates is not in consonance with the guidelines issued by the Securities Exchange Board of India. According to the SEBI guidelines for Disclosure and Investor Protection, the share certificate issued to promoters, friends, relatives and associates, etc., should carry the inscription, "not transferable". Thus, going by spirit of the SEBI guidelines, there is no bar for pledging the impugned shares. The endorsement, restrictive in nature, as inscribed on the impugned share certificates not being valid is not binding on the company. We, therefore, now proceed to deal with other contentious issues as under :
8. It is observed that the petitioner had extended credit facilities in favour of the third respondent which are secured, inter alia, by pledge of the impugned shares belonging to the fourth respondent. The fourth respondent had pledged the shares on May 13, 1996. The third respondent had committed default in repayment of the advances availed of from the petitioner upon which the petitioner had forwarded the impugned share certificates together with instruments of transfer to the second respondent, the share transfer agent of the company for effecting the transfer in the name of the petitioner. Section 111A(2) provides that the shares of a public limited company shall be freely transferable. However, if a company without sufficient cause refuses to register transfers of shares, the transferee may appeal to the Company Law Board for registration of the transfer of shares. The petitioner, being a pledgee is entitled to invoke the proviso to Sub-section (2) of Section 111A.
9. A perusal of copy of the instrument of transfer dated December 4, 1997 (page 22 of the petition) shows that consideration of the shares is mentioned in figures and not in words. The other instrument of transfer dated March 15, 1998 (page 24) of the petition does not furnish the consideration of the shares either in figures or in words. The transfer cannot be questioned on the ground that the instruments of transfer are not duly completed ; that the amount of consideration is left blank and that the transfer is not supported by consideration, especially, when the third respondent had availed of credit facilities from the petitioner being the consideration for the pledge effected by the fourth respondent. Moreover, the consideration is required to be mentioned in the instrument of transfer in order only to determine the stamp duty.
10. The petitioner, being a nationalised bank is not required to pay stamp duty on value of the shares by virtue of Notification No. S. O. 2705, dated November 7, 1960, as amended by Notification No. S. O. 5118, dated November 13, 1971, and hence the plea of the company that the instruments of transfer are not adequately stamped has to fail. Though the instruments of transfer were executed beyond 12 months from the date of presentation to the ROC, the transfer cannot be impugned in view of the exemption enjoyed by the petitioner, being a nationalised bank.
11. The plea with regard to the claim- of the petitioner that the petition is barred by time does not hold good, especially when we have in several cases relying upon the decisions of the High Courts and Supreme Court held that the law of limitation is not applicable in the proceedings before the Company Law Board. Moreover, it is observed that the delay on the part of the petitioner is hardly a month which, in our view is not unreasonable. The petition, cannot therefore be, hit by the plea of limitation. The other plea of the company that the petitioner has no right to get the impugned shares transferred in its favour that the petitioner has no right to sell the shares on account of the pending recovery proceedings before the Debt Recovery Tribunal and that the impugned shares were pledged by the fourth respondent without his free consent are not tenable in view of the fact that the shares were duly pledged by the fourth respondent. The case laws cited in this behalf of by the respondents are not applicable to the facts and circumstances of the present case. There is also no requirement of any statutory notice before the pledgee enforcing its right for effecting transfer of shares in favour of the petitioner, especially when the shares have not been sold and the shares will be retransferred to the pledger on settlement of the dues.
12. Taking into consideration the facts and circumstances of the case, and also the fact that the plea of the defendants is not tenable, we are convinced that the company should register the transfer of impugned shares in favour of the petitioner. Accordingly, we hereby direct the company to transfer the impugned shares in favour of the petitioner within 30 days of lodging of the share certificates together with instruments of transfer by the petitioner.'
13. No order as to costs.