Company Law Board
Subhash Chandra vs Vardhman Spinning And General Mills ... on 12 November, 1993
Equivalent citations: [1995]83COMPCAS641(CLB)
ORDER
1. This is a petition filed by Shri Subhash Chandra, A-79, Swasthya Vihar, Vikas Marg, New Delhi-92, under Section 111 of the Companies Act, 1956, praying for rectification of the register of members of the respondent-company, in order to restore 50 equity shares in the name of the petitioner which has been registered in the name of one Shri R. K. Malhotra without any sufficient cause and for consequential orders. The respondent in this petition is Vardhman Spinning and General Mills Ltd., Chandigarh Road, Jamalpur Awana, Ludhiana-141011 (hereinafter referred to as "the company").
2. The brief facts of this case are that the petitioner by a letter dated February 10, 1990, requested the company to change his specimen signatures in the records of the company. In the meanwhile, on February 8, 1990, the company received an application for transfer of 50 equity shares owned by the petitioner along with an instrument of transfer executed on January 23, 1990, Since the signatures of the petitioner tallied with the specimen signatures available in the records, the transfer of the 50 shares was registered in the books of the company on February 24, 1990, Thereafter, on March 8, 1990, the petitioner instructed the company to stop all transfers of shares registered in his name since he has reported that his share certificates have been lost along with transfer deeds. He also made available to the company on March 16, 1990, a copy of an FIR dated March 14, 1990, regarding the loss of the share certificates. The company by a letter dated March 10, 1990, had intimated that 50 shares of the petitioner have been already transferred in favour of Shri R. K. Malhotra and a photocopy of the transfer deed was also sent by the company to the petitioner, in this connection.
3. It is the contention of the petitioner that :
(a) the company has registered the transfer in spite of intimation from the petitioner regarding change in the specimen signature well before the transfer was effected ;
(b) the transfer is void since the transfer deeds have not been duly stamped as per the Indian Stamp Act. The company has ignored the legal infirmity in the instrument of transfer and has mala fide transferred the shares in the name of R. K. Malhotra.
(c) the company's contention that the transferor has executed the transfer deed on January 23, 1990, is wrong as the petitioner has not actually executed the deed but lost the blank transfer deeds before January 23, 1990.
(d) though the company might have registered the transfer on February 24, 1990, the share certificate was not despatched till July, 1990, and having come to know about the loss of the share certificates the company could have reversed its decision.
4. In this case, there is only one respondent, namely, the company. The transferee, namely, one R. K. Malhotra, though a relevant party has not been impleaded as a party. However, a copy of the petition was endorsed to the transferee. A reply on his behalf was filed. During the initial hearing it was noticed that the transferee has not been impleaded as a party. The petitioner also did not press for impleading the transferee as a party though we allowed him opportunity for the same and hence the reply on behalf of the transferee was not taken into consideration.
5. The two issues which arise in this case are :
(1) Whether the company was justified in registering the transfer and delivering the share certificates to the transferee.
(2) If the company is not justified, whether a rectification can be ordered.
6. Shri Ashish Makheeja, chartered accountant, appearing on behalf of the petitioner submitted that even on March 24, 1990, the company had not registered the transfer as it had written on that date to the transferee to clarify the position since they have received a letter from the petitioner about the loss of the share certificates. According to the authorised representative, the company had also stated in the letter that for the time being the registration was being kept pending. Therefore, the company's contention that the shares were already transferred on February 24, 1990, is incorrect and the company is in collusion with the transferee. Shri Makheeja also contended that the company should not have registered the shares as the transfer deed was not "duly stamped" when the provisions of Section 108 of the Companies Act are mandatory and have to be complied with. Non-compliance with Section 108 makes the registration null and void. In this connection, he cited the decision of the Supreme Court in Mannalal Khetan v. Kedarnath Khetan [1977] 47 Comp Cas 185. He also cited the case of Nuddea Tea Co. Ltd. v. Asok Kumar Saha [1988] 64 Comp Cas 775 (Cal) to state that an instrument though bearing adhesive stamps but not cancelled in the manner as contemplated in the Indian Stamp Act, 1899, cannot be said to be duly stamped. In such cases the only remedy is to submit a fresh instrument duly executed and stamped. He also submitted the judgment of Shri P. B. Menon, Member, Company Law Board in Tara Prasad Chakravarti v. Orissa Textile Mills Ltd. (Appeal No. 6 of 1970) in support of his contention.
7. Shri Mahesh Arora, secretary of the company, submitted that while considering the registration of the transfer on February 24, 1990, the company had no intimation about the loss of the share certificates. The only intimation was to change the specimen signature and that too was received on February 11, 1990, while the transfer deed for the 50 shares was already executed on January 23,1990. The transfer deed was complete in all respects and the company had no valid reason to refuse the transfer. He further stated that in order to avoid inconvenience to the investors the company had been cancelling the stamps as a matter of practice in the past before registering the transfer. This is purely a technicality and the deficiency if any in this regard is curable. Once the defect is cured it validates the document from the date of its execution. In this connection, he cited the decision of Shri S. M. Dugar, Member, Company Law Board, in the matter of Shri Bhailal Hargovinddas Thakkar and Smt. Taramati Bhailal Thakkar v. Nagri Mills Co. Ltd. (Appeal No. 11 of 1978). It was submitted on behalf of the company that these shares have already passed to third parties who have purchased them in good faith from the transferee. In view of the involvement of third parties including the transferee and since the transaction was a direct one without any broker in between we suggested the two parties came to a compromise and allowed time for the same. Since no communication was received from the parties in this regard up to the time allowed and even thereafter, we have to decide the case on the merits.
8. The facts in this case as supported by relevant papers indicate that the company received the relevant documents for registration of the transfer on February 8, 1990, and the transfer was approved on February 24, 1990. The notings in the transfer deed as well as the relevant registers produced by the company before us clearly establish the above fact. The company has also conceded that though the transfer was registered on February 24, 1990, the share certificate was despatched only on June 2, 1990. During this period from February 24, 1990, to June 2, 1990, the company has also obtained a clarification from the transferee who is a retired senior army officer that he has purchased the impugned shares through a proper deal. Thereafter, the share certificates were despatched by the company to the transferee. The substance of the submissions made by the petitioner is that he has lost the share certificates and the blank transfer deed and, therefore, the transferee does not get a good title as he has not obtained the same in good faith and for valid consideration. In order to establish this case, the petitioner should have impleaded the transferee as a party and should have put him to strict proof. On the other-hand, the petitioner declined to avail of the opportunity to implead the transferee as a party. The company is not expected to suspect the genuineness of the transaction merely on the ground of a shareholder seeking to change his specimen signatures. By the time the company was cautioned about the loss of share certificate the registration of the transfer has been already done. Yet the company attempted to verify the genuineness of the transaction from the transferee who has confirmed that he has obtained the shares through a proper deal. The allegation of the petitioner regarding the genuineness of the letter dated March 24, 1990, from the company to the transferee wherein it is purported to be stated that the registration is kept pending, is also without any substance. The petitioner has filed a plain copy of the alleged letter dated March 24, 1990, without any authenticity whereas the company has filed a duly certified file copy with the proper reference number (which appears to be the practice in all the company's correspondence) wherein there is no reference to the company keeping the registration of the shares pending. Therefore, the allegation that the shares were not transferred till March 24, 1990, is not substantiated either from the correspondence or records produced before us.
9. As regards the allegation that the transfer deeds were not duly stamped, as required under Section 108 of the Companies Act, 1956, and, therefore, the registration is illegal, we have considered this question in detail. The petitioner in this connection has cited the case of Mannanal Khetan v. Kedarnath Khetan [1977] 47 Comp Cas 185 (SC). In this case, the main issue before the Supreme Court was not the cancellation of the stamp but the absence of instrument of transfer. Though we do recognise that a valid instrument of transfer is a legal requirement, in the present case the main issue is whether the instrument is duly stamped or not. The case cited does not help in deciding the issue of stamping of the instrument. The petitioner has also cited the judgment of the Calcutta High Court in Nuddea Tea Co. Ltd. v. Asok Kumar Saha [1988] 64 Comp Cas 775 (Cal). In that case, the company had refused registration on the plea of non-cancellation of the stamps. The stamps had remained uncancelled even at the time of hearing. In such a situation the court cannot compel the company to register the transfer in spite of this infirmity. This would be forcing a company to do something illegal. In the present case, however, the stamps have been cancelled but the defacing has been done by the company before the registration of transfer. The company admits that it has done the defacing before the registration of transfer only to avoid inconvenience to investors and this has been the practice of the company in the past as well. In this connection a close reading of Section 12 of the Indian Stamp Act is relevant :
" 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 adhe'sive 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.
10. The objective of the section is evident from the words "cancel the same so that it cannot be used again", which indicates that the purpose is to ensure that the stamps are not reused. According to the company, this has been ensured with the cancellation of the stamps. Ultimately, when the board considered the transfer deed it has been duly stamped and as such the requirement of law is fulfilled.
11. As regards the cases cited by both the parties decided by the Company Law Board, in the case cited by the petitioner, namely, Appeal No. 6 of 1970, the transfer deed did bear adhesive stamps but they had not been cancelled and the company contended that the instruments were not duly stamped. In the case before us the stamps have been cancelled when the board considered the transfer and hence the two situations are not comparable. In the other case cited by the respondent, namely, Appeal No. 11 of 1978, the appeal was allowed since the infirmity has been subsequently rectified. In the present case, the facts are different. In view of this these two cases are not relevant to the facts of the present case.
12. It is a fact admitted by both the parties that the instruments of transfer were delivered and the adhesive stamps were not cancelled at the time of delivery of such instruments. The manner of cancellation of the adhesive stamps and time of cancellation have been spelt out in Section 12 of the Indian Stamp Act, 1899. The Companies Act not having defined the term "duly stamped" under Section 108 of the Act and as such term having been specifically defined under Sub-section (ii) of Section 2 of the Indian Stamp Act, 1899, read with Section 12 of that Act, in interpreting Section 108 the provisions of the Stamp Act have to be interpolated. This had been the view taken by various courts while dealing with cases under Section 108. Hence, the stand of the company that the stamps were cancelled by them before the board considered the transfer cannot be upheld. Admittedly, the fact remains that a delivery of the instrument of transfer duly stamped as contemplated under Section 108 has not been done. It has been already held by various courts including the Supreme Court of India that the provisions of Section 108 are mandatory and as such the company cannot register the transfer of the shares in violation of the mandatory provisions of the Act. As such we hold that the registration of the transfer by the company was against the mandatory provisions of Section 108 of the Companies Act.
13. Having held the registration of the transfer as not valid we have now to deal with the prayer of the petitioner to rectify the register of members of the respondent-company. While considering this prayer we note that the transferee has not been made a party despite our affording an opportunity to the petitioner for impleading the transferee. It has also been learnt from the company that these shares have been further transferred and the same registered in the books of the company. We are conscious of the powers under Sub-section (7) to decide any question relating to title of any person. However, for doing so such person should be necessarily a party to the petition. In view of the facts, we cannot order rectification of the register of members which will affect adversely the interest of third parties, without hearing all the parties. Accordingly, the petitioner is at liberty to implead all the parties to whom the shares have been transferred. The company will furnish to the petitioner full details of the various transfers of the impugned shares within 30 days of receipt of this order.
14. The petition is disposed of accordingly. There is no order as to costs.