Gauhati High Court
Hemendra Prasad Barooah And Anr. vs Bahadur Tea Co. P. Ltd. on 24 January, 1991
Equivalent citations: [1991]70COMPCAS792(GAUHATI)
JUDGMENT Manisana, J.
1. This is an application under Section 156 of the Companies Act, 1956, to rectify the register of members of the respondent-company on refusal by the company to enter the names of the petitioners as members or shareholders.
Facts : Mrs. Premada Barooah, during her lifetime, was a shareholder or member of the respondent-company, the Bahudur Tea Company Pvt. Ltd. She died on March 31, 1978, leaving a will appointing her son-in-law, Mr. Hemendra Prasad Barooah, and her daughter, Mrs. Rosa Kamte, as the executors. In the will, her shares in the respondent-company were also included. The will had been probated. Thereafter, the executors made an application to the respondent-company for registering the fact of their becoming members of the company as executors or legal representatives of the deceased member, Premada, but the respondent-company refused to register their membership on the ground that a son-in-law or executor cannot be a member of the company under the memorandum of association and articles of association of the company, for short, "the articles".
2. Mr. D. N. Choudhury, learned counsel for the petitioners, has contended that the legal representative (the executor) of the deceased member applying for entering his name in the register of members cannot be refused. Mr. N. M. Lahiri, learned counsel for the respondent-company, contended that the petition is not maintainable under Section 111(1) of the Companies Act tead with the articles of the company.
3. Before dealing with the rival contentions of the parties, I feel it necessary to examine the relevant provisions of the Companies Act relating to transfer of shares. In Section 108, the mode of transfer of shares is provided. Section 108 provides, inter alia, that transfer of shares is to be made by a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee. Therefore, transfer under Section 108 is between living persons.
4. Section 109 states that 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. The clause "although the legal representative is not himself a member" shows that although the legal representative having become a member, or having become entitled to be a member, of the company by operation of law, he shall not be regarded as a member unless his name is entered in the register of members.
5. Under Section 110, an application for registration of transfer of the shares or other interest of a member in a company may be made either by the transferor or by the transferee. Section 111(1) provides that nothing in Sections 108, 109 and 110 shall prejudice any power of the company under its articles to refuse to register the transfer of, or the transmission by operation of law of the right to, any shares or other interest of a member in, or debentures of, the company.
6. The expressions "transfer" and "transmission" have been employed in Section 111. The word "transfer" is an act of .the parties or of the law, by which title to property is conveyed from one person to another. Inter vivos transfer is a transfer from one living person to another. It is a transfer of property during the lifetime of the owner and it is to be distinguished from testamentary transfer of succession where the property passes on death. Under Section 211 of the Indian Succession Act, the executor of a deceased person is the legal representative for all purposes, and all the property of the deceased person vests in him as such. On a reading of Sections 108, 109, 110 and 111 together, the word "transmission" has been used in Section 111 in contradistinction to the word "transfer". "Transmission" is referable to devolution of title by operation of law. It may be by succession or by testamentary transfer. As regards "transfer", it has been used to mean inter vivos transfer.
7. As already stated, the executor of a deceased person is his legal representative for all purposes, and all the property of the deceased vest in him as such. Therefore, the right to the shares or other interest of the deceased member in the company devolves on the executor of the deceased by operation of law as distinguished from inter vivos transfer. But the executors do not become members of the company unless their names are registered. In such a situation, on the death of Premada, her right to the shares or other interest as a member in the company devolved on the petitioners as executors and they are the legal representatives of the deceased, Premaada Barooah, i.e., the right to the shares or other interest in the company, of the deceased member, Premada, had been passed or transmitted to the petitioners as executors.
8. The question then is : could the company refuse to register the transmission by operation of law of the right to the shares. Under Section 111(1), if the articles so provide, the company can refuse to register the transmission by operation of law of the right to the shares, as already stated.
9. Let me now examine the relevant articles.
Article 7(a) provides :
"No transfer of any share except to a member or the persons referred to in Article 7(b), (c) shall be made to any person without the previous sanction of the directors who may without assigning any reason decline to give any such sanction."
Article 7(b) states :
"A shareholder may, at any time, transfer a share to his or her father, mother, wife or husband, son or daughter or to any one of the existing shareholders of the company, provided however that the transferee is not an insolvent or otherwise incapable of discharging his obligations."
10. On a reading of Article 7 (a) and (b) together, it appears that for the transfer of shares by a member of the company to his or her father, mother, wife or husband, son or daughter, or to any one of the existing shareholders of the company, no previous sanction of the directors is required. However, for transfer to other persons including a son-in-law, previous sanction will be required and the company, without assigning any reason, can decline to give any such sanction. In view of the above discussion, the word "transfer" occurring in Articles 7(a) and 7(b) denotes inter vivos transfer (between living persons). Therefore, the previous sanction for transfer of shares would arise when there was or is inter vivos transfer and not in the case of testamentary transfer. Therefore, Articles 7(a) and 7(b) are not applicable to the present case as the present is a case of testamentary transfer and not of inter vivos transfer. In my view, Article 7(c) is not relevant in this case.
Article 7 (h) runs :
"On the death of a member, and on a notice being received by the company of the said occurrence, his legal representatives shall be the only persons recognised by the company as having any title to the interest of the shares of the deceased."
11. Under Article 7(h), on the death of a member of the company, his legal representative shall be the only person recognised by the company as having become a member or as having become entitled to be a member, of the company by operation of law. However, the legal representative shall not have the status of a member unless his name is entered in the register of members, as already stated. On a perusal of the articles, I do not find any article under which the company can refuse transmission of the right to the shares by operation of law. In that view of the matter, the petitioners who are executors (legal representatives) of the deceased member, Pre-mada Barooah, are entitled to registration of their names as members of the company in respect of the shares held by the deceased member, Pre-mada Barooah, as executors. Therefore, the refusal was against the law.
12. The next question which arises for consideration is whether the appli-cation is maintainable. Shri N. M. Lahiri, learned counsel for the respondents, has contended that Section 155 is in respect of the power of the High Court to rectify the register of members, but it does not include such a refusal to register. Section 155(1)(b) provides that, if default is made or unnecessary delay takes place in entering in the register the fact of any person having become, or ceased to be a member, the person aggrieved may apply to the court for rectification of the register.
13. The meaning of the word "default" means "omission or failure to perform a legal or contractual duty", and the meaning of the word "refuse" is "declination of a request or demand", or "omission to comply with some requirement of law." Therefore, Section 155(1)(b) covers all cases of improper or illegal refusal. Therefore, the contention of Mr. Lahiri cannot be accepted.
14. For the reasons stated above, there was no justification for refusing to enter the names of the petitioners as executors in the register of members in place of the deceased, Premada Barooah.
15. In the result, the petition is allowed. Accordingly, it is ordered and directed that the respondent-company shall rectify the register of members of the company in the light of the observations made above. No costs.