Company Law Board
Mathew Michael And Anr. vs Teekoy Rubber And Tea Co. Ltd. on 7 July, 1993
Equivalent citations: [1994]79COMPCAS370(CLB)
ORDER
1. These are two appeals preferred by the appellants herein under Section 111(3) of the Companies Act, 1956 (hereinafter referred to as "the Act") (before the 1988 amendment), against the decision taken by the respondent company in refusing the transfer of 3,800 and 3,100 shares covered under these two appeals respectively. Since the issues and facts are common in both the appeals, we are disposing of these appeals by this common order.
2. The facts of the cases are that the appellants lodged with the company two transfer forms on July 16, 1987, and the company refused to register the transfer and informed the appellants about the refusal on September 15, 1987. The appellants filed these appeals against the refusal on October 26, 1987, i.e., within the prescribed time as provided in the statute. According to the appellants, the company did not disclose any reason for the refusal and, therefore, the appellants asked for the following reliefs :
(a) to call upon the company under Sub-section (5A) of Section 111 of the Act to disclose the reasons for refusal ;
(b) to direct the company to register the transfer ; and
(c) pass such other incidental and ancillary orders as may be just and proper.
3. On receipt of the appeal papers, the Bench Officer issued notices to the company calling for certain information including the reason for refusal on December 23, 1987. The company filed a petition under Article 226 of the Constitution of India in the High Court of Kerala at Ernakulam, seeking to quash the notice of the Bench Officer on the ground that only the Company Law Board had the powers to call for the reasons and not the Bench Officer. The contention of the petitioner was upheld by the court. Thereafter, the Bench Officer again issued another notice to the company on August 3, 1988, with certain modifications which was again questioned by the appellant in O. P. No. 6840 of 1988 in the High Court of Kerala which was dismissed by a single judge holding that the Bench Officer had issued the notice not in his individual capacity but as a ministerial officer by an order of the Company Law Board. The respondent company went on appeal against this order before the Division Bench in Writ Appeal No. 170 of 1991. This was also dismissed by the Division Bench on June 3, 1991, after going through the files of the Company Law Board and observing that the then Member had applied her mind before calling for the reasons.
4. In view of the dismissal of the appeal by the Division Bench, the company filed its reply on the appeals already before us praying for dismissal of the same on various grounds. The appeals were heard on March 22, 1993.
5. Shri Jagadischandran Nair, learned counsel for the appellants, reiterated the contentions in the appeals and sought for issue of a direction to the company for registration of the shares in the appellants' name. According to the appellants, the company, being a listed company, is bound by Section 22A of the Securities Contracts (Regulation) Act, 1956, according to which there are only four grounds under which a transfer can be refused. He also averred that the company has relied on the powers vested in the board of directors under Article 24 of the articles of association of the company, which the company, being a listed company, cannot avail of and rely upon. He further refuted the contention of the respondent company that since the transfers had been refused as early as in 1980, and which has been upheld by the Kerala High Court--both on the original side as well as on the appellate side--and as no fresh cause of action has arisen for re-submitting the transfer form in 1987 the appeal should not be considered. According to learned counsel for the appellants, every fresh lodgment gives him a fresh cause of action and this right of the appellant cannot be denied. According to him, when he lodged the transfer documents in 1987, Section 22A of the Securities Contracts (Regulation) Act, 1956, had come into force and since the company has refused the transfer on some grounds other than those prescribed under that section, he has a right to appeal against the decision of the board of directors under Section 111(3). He prayed for the issue of a direction to the company for registration of shares in the name of the appellants as the grounds for rejection are not covered under any of the four clauses of Section 22A of the Securities Contracts (Regulation) Act, 1956. He also questioned the plea of the company that as early as in 1985, the company has written to the stock exchange for delisting the company's shares. According to him, the company has no right under the listing agreement to seek delisting of the shares, more so just by intimation. He also contended that there are decisions of the Company Law Board holding that a second lodgment is a fresh lodgment.
6. Shri Markos Vellapally, learned counsel appearing on behalf of the respondent company, opposing the grant of relief sought for by the appellants, prayed for outright dismissal of the appeals on the principles of estoppel by election and res judicata. According to him, the remedies available under Sections 155 and 111 are alternative remedies and once an aggrieved person has chosen to avail of one remedy in which he has failed, he cannot seek the alternative remedy under another section. He cited Mathew Michael v. Tekoy Rubber (India) Ltd. [1990] 69 Comp Cas 145 (Ker) and also Harinagar Sugar Mitts Limited v. Shyam Sunder Jhunjhunwala [1961] 31 Comp Cas 387 (SC) wherein it was held that since the remedy available under Sections 155 and 111 are alternative remedies, the function of the Central Government under Section 111 would be judicial as that of Section 155 as applicable to High Court. He also relied on [1988] KLT 724 (sic), wherein it was held that if a person has chosen one remedy then he must be deemed to have waived the other remedy. Giving a background of this case, Sri Vellapally stated that originally in 1979, when the transfer instruments in respect of these shares were lodged with the company, the company relying on its powers under Article 24, rejected the request for registration of transfers and informed the appellants accordingly. The appellants questioned the powers of the company and the validity of Article 24 in the Kerala High Court. This case was heard by a single judge in C.P. Nos. 79, 80, 82 and 84 of 1979 and by a common judgment dated March 30, 1981, the learned single judge upheld the validity of Article 24 and the right of the company to refuse the transfers. The appellants went on appeal to the Division Bench and the Division Bench also confirmed the decision of the learned single judge. The orders of the Division Bench were issued on April 10, 1987. The appellants, instead of going on appeal against these orders, if they so desired, re-lodged the same transfer instruments in 1987, by getting the transfer instruments revalidated by the Registrar of Companies, Kerala, and when the company once again refused to register the transfer, the appellants have sought to establish a second cause of action and have now come under Section 111(3) which is nothing but abuse of the process of law. The appellants have already exhausted the alternative remedy under Section 155 and the claim of the appellants that with every lodgment they get a fresh cause of action is untenable and if accepted would never give any finality to any litigation. In this particular case, there could not have been any fresh cause of action, inasmuch as, when the company refused registration in 1979, the cause of action which arose came to an end with the disposal of appeal by the Division Bench of the High Court and the same transfer document can never be used again. Under these circumstances, the second lodgment of the same transfer documents was wrong and the company was fully justified in refusing to entertain the transfer on the ground that the registration had already been refused earlier and this action of the company had been upheld by the High Court also. Even assuming that the appellants had exercised their right of coming on appeal under Section 111, then the principle of res judicata should be squarely applicable in the sense that the subject-matter, facts and issue of Section 155 petition and Section 111 appeal and the parties thereto are all common and the High Court has finally decided the issue. Now, it is not open for a subordinate forum like the Company Law Board once again to adjudicate. This is a fit case for application of the principles of res judicata and on this ground alone the appeals should be dismissed.
7. He further stated that issues like whether the company was a listed company or not during the relevant period or whether the company continues to be a listed company, should be examined only after deciding the preliminary issue regarding the application of the principles of estoppel and res judicata. However, he hastened to add that this company having been incorporated in 1944, does not have a copy of the listing agreement nor was it able to gel a copy of the same from the stock exchange. The company had already informed the stock exchange about the decision taken to delist in 1985, and right from that time, the company has had no dealings with the stock exchange nor had the stock exchange asked the company to comply with any of the requirements of the listing agreement. The delisting was done as there has been no transfer of shares in the company for a long time. He suggested that once the preliminary issue is decided and if the Company Law Board decides to proceed further, then further details regarding the applicability of Section 22A of the Securities Contracts (Regulation) Act may be enquired into and opportunity be given to the company to argue on this.
8. We have carefully considered the arguments advanced by learned counsel for both parties. The admitted facts in this case are that the transfer instruments presented to the company in 1987 were the same that were submitted to the company in 1979, the transferor and the transferee and the shares involved being the same on both occasions. It is also an admitted fact that against the refusal by the company to register the transfer in 1979, the appellants moved the High Court under Section 155 of the Companies Act, 1956, and the case was decided in favour of the company both by the single judge as well as the Division Bench upholding the validity of the decision of the board of directors to refuse registration of transfer under the powers vested in them by Article 24 of the Articles of association of the company.
9. According to the appellant, his present cause of action has arisen on account of the company's refusal in violation of the provisions of Section 22A of the Securities Contracts (Regulation) Act, 1956, to register the shares when tendered in 1987. His contention is that the earlier Section 155 petition should not be mixed up with his present appeals as his appeals under Section 111 were against the company's failure to comply with the provisions of the Securities Contracts (Regulation) Act, 1956, even though according to the company it is no longer a listed company.
10. The questions that arise, therefore, for consideration, are (1) whether the instruments of transfer that have been refused for registration under the powers vested in the board of directors and the refusal of which has already been upheld by the competent appellate authority, viz., High Court, can be again re-submitted to the company ; (2) whether such lodgment would be covered by the provisions of Sub-section (10) of Section 22A of the Securities Contracts (Regulation) Act, 1956 ; (3) whether the application under Section 155 would be a bar to an appeal under Section 111; and (4) whether the principles of res judicata and estoppel are applicable in this case.
11. Taking the first issue for consideration it is to be kept in mind that the transfer documents consist of the share certificate, the instruments of transfer duly stamped with the signatures of the transferor and the transferee. The instrument of transfer is the most important document. When the company refuses to register a transfer, as was rightly pointed out by learned counsel for the respondent, the company refuses to recognise the transfer that has taken place between the transferor and the transferee. In this particular case, under the powers vested in the board of directors, the board had already decided not to register the transfer as early as in 1979. The same instruments without any change except revalidation by the Registrar of Companies were once again presented to the company in 1987, i.e., after eight years of execution of the instruments.
12. Section 108(1A)(b) prescribes the period within which the instrument of transfer is to be delivered/lodged with the company. No doubt, Sub-section (1D) of Section 108 provides that the period could be extended by the Central Government (delegated to the Registrar of Companies) such power is to be exercised to avoid hardship. In the present case, the instrument had already been lodged in the year 1979, and as such the question of granting extension of time for delivery/lodgment does not arise at all. However, it is seen that the Registrar of Companies has extended the period so as to enable the transferee to again submit the instrument in 1987. The spirit of the words "to avoid hardship" used in Section 108(1D) should be construed to mean to avoid hardship, in lodging the instrument for the first time with the company and as such according to us the Registrar of Companies has no powers to expend the validity of the currency of the same after such lodgment. The Registrar of Companies should have, before extending the validity, enquired into the circumstances which necessitated the transferor applying for extending the validity of the instrument after such a long time which he has obviously failed to do. Under the circumstances, the instruments of transfer themselves were invalid due to the efflux of time and the Registrar of Companies extending the validity would be of no avail.
13. As far as the second issue regarding the applicability of Sub-section (10) of Section 22A of the Securities Contracts (Regulation) Act, 1956, which came into force in 1985 is concerned, it is worthwhile to reproduce the sub-section : "For the removal of doubts, it is hereby provided that nothing in this section shall apply in relation to any securities the instrument of transfer in respect whereof has been lodged with the company before the commencement of the Securities Contracts (Regulation) Amendment Act, 1985". A strict interpretation of this sub-section would mean that the provisions of Section 22A would not be applicable in a case where lodgment had taken place before the commencement of the Amendment Act of 1985. In other words the coming into operation of this section does not give any right to a person to lodge the same instrument of transfer which had earlier been refused for registration by the company. In addition, it is also seen that the original transfer took place in 1979, while the second lodgment took place eight years later and two years after the coming into force of Section 22A. It is inconceivable that a transfer which has been refused could revive a cause of action eight years later under the plea of coming under a new enactment. Even assuming that there is no specific time limit provided in the Limitation Act yet a delay of eight years itself would extinguish whatever right the applicant may claim.
14. May be the appellant could not take any action during the pendency of his earlier appeal under Section 155. If that be the case, then the question of alternative remedies and application of estoppel and res judicata arises. Compared to Section 111, the provisions of Section 155 are wider in the sense, that, not only the transferor or transferee could seek remedy under this section, the company or any other person can also seek intervention for rectification of the register of members. The scope of powers under Section 155 is also wider. Therefore, once the transferor/transferee has chosen to avail of one of the remedies, we are of the firm view that he cannot agitate under the other section. However, in this case this may not be strictly applicable in the sense that in the earlier case under Section 155, this cause of action arose due to refusal to register the transfer under the powers vested in the board under the articles of association. In the present case under Section 111, the cause of action has arisen on the plea that the board of directors have not followed the provisions of Section 22A, though in both the cases, the cause of action is refusal to register the transfer. Likewise, the orders of the High Court upholding the decision of the board of directors was on the basis of the powers vested in the board by articles and the plea of non-compliance with Section 22A of the Securities Contracts (Regulation) Act, 1956, was not an issue in this appeal. However, in the present appeal, the main plea is failure to follow the provisions of Section 22A. Therefore, our decision in this case would be on a different footing than that of the High Court and as such the principles of res judicata as well as estoppel may not be applicable.
15. In view of our finding that the appellant cannot present the instrument of transfer for the second time and that Sub-section (10) of Section 22A of the Securities Contracts (Regulation) Act, 1956, is applicable in this case, we dismiss the appeals as not maintainable.