Karnataka High Court
Smt. Kamalabai And Others vs Vithal Prasad Co. (Pvt.) Ltd. on 23 September, 1992
Equivalent citations: [1993]77COMPCAS231(KAR), ILR1992KAR3691
JUDGMENT Kedambady Jagannatha Shetty, J.
1. This is a company petition filed by the petitioner under section 155 of the Companies Act for rectification of the register of members of the respondent-company, directing the respondent-company to effect the transfer/substitute the name of petitioner No. 1 in place of her deceased husband Channabasappa and the declare that petitioner No. 1 is entitled to the benefits and profits of the company.
2. The facts of the case speak eloquently. The respondent is a company incorporated under the provisions of the Companies Act, 1956. It is a private limited company with the object of purchasing, selling or otherwise dealing in all kinds of oil, lubricants, petrol and petroleum products. The first petitioner's husband and the father or petitioners Nos. 2 to 7 Mr. Channabasappa was one of the director-members and a shareholder of the respondent-company. He died on August 16, 1988, leaving behind him the petitioners, the legal heirs. Petitioner No. 1 after the death of her husband, made an application on October 30, 1988, to the respondent-company for the transmission of his shares and other interest in her name. The true copy of the application is produced and marked as annexure-C. The petitioners were asked to comply with certain requirements by the company, such as production of the succession certificate. It was accordingly complied with and they have produced the succession certificate issued by the competent authority along with the application. The true copy of the same is produced and marked as annexure D. Petitioners Nos. 2 to 7 have given their no objection letter for transmission of shares in the name of petitioner No. 1. The copy of the said letter is produced and marked as annexure-E.
3. The petitioners had sent several reminders to the respondent-company for transmission of shares of the deceased Channabasappa but no action was taken in this regard. Ultimately, the petitioners have issued a legal notice, dated June 28, 1990, to the company for complying and considering the application. The said notice was produced and marked as annexure-F.
4. Petitioner No. 1 had received a letter dated February 21, 1990, from the respondent-company stating that the application will be placed before the next board of directors meeting. The copy of the said communication is produced and marked as annexure-G. Since then the application of the petitioner has not been considered by the respondent-company nor any steps taken to transmit the shares in the name of petitioner No. 1.
5. It is stated that the respondent-company has acted illegally and in contravention of the articles of association of the company and also the provisions of the Companies Act. It is stated that as per the articles of association, the company is bound to transmit the shares of the husband in her name. The matter was delayed for no reason and the petitioners have been illegally deprived of their rights to act as a member-shareholder and their right to recover the amount of dividend and other profits of the company. Thus, the petitioners have filed this petition seeking a direction to the respondent-company to transmit the shares of the deceased Channabasappa in the name of petitioner No. 1.
6. The respondent-company represented by its chairman appeared through counsel, Mr. Gururajan, and filed objection statement contending, inter alia, that the petition is not maintainable in law and on facts. It is stated that the articles of association do not provide for transmission of shares in the name of the first petitioner. It is further stated that the articles of association also provide for refusal to register the transmission of shares under article 16 of the articles of association. Further, it is stated that in the opinion of directors, no transfer can take place, assuming that it could be done in the light of the facts stated above. It is further stated that the second petitioner has taken away the books without any authority of law and there is a police case and as such, he was in the habit of acting against the interest of the company and in fact, he has rushed to the press by making false defamatory statements against the respondent-company. Apart from that it is also stated that the first petitioner is not well versed in these matters and the second petitioner is taking advantage of the situation. The petition lacks bona fides and, therefore, there is absolutely no ground made for interference at the hands of this court. It is denied that the respondent-company illegally and in contravention of the articles of association have refused to act as sought to be made out by the petitioner. It is further stated that the company is not bound to transfer the shares in favour of the first petitioner in the absence of any article available in the articles of association. It is further stated that the respondent is not depriving illegally the rights of the petitioners, as stated in their petitioner. The allegation of deprivation of dividends and other profits is also denied. Finally it was stated that there was no proper application for transfer of shares in the name of petitioner No. 1 as required under section 108 of the Companies Act. The application for transfer of shares was not in the proper form, no stamp affixed, and, as such the question of effecting a transfer of shares in the name of petitioner No. 1 or any one claiming to be the legal representative of the deceased member, Channabasappa, does not arise for section 108 of the Companies Act enjoins the company to reject any application for transfer of shares unless the procedural requirements are fully complied with.
7. Learned counsel for the petitioner contended that on the death of a member, his legal representatives are in effect entitled to be the shareholders, for the right has devolved on them through the death of the member whose name is still on the register. Referring to the second proviso to section 108 of the Companies Act, he submitted that it enables the company to register as shareholder a person to whom the right to share devolves which right has passed by transmission and that provision relating to transfer of shares do not apply to cases of transmission by operation of law, i.e., devolution of right by succession on the legal representatives of the deceased member. As such, there need be neither an instrument of transfer nor any payment of stamp duty. Learned counsel for the petitioner has further submitted that it is only transmission of shares from the deceased member to his legal representatives and, as such there is no sale of shares.
8. In support of this submission, he has relied on the decisions : Gulabrai Kalidas Naik v. Laxmidas Lallubhai Patel [1978] 48 Comp Cas 438; Nazamunnessa Begum v. Vidya Sagar Cotton Mills Ltd. [1963] 33 Comp Cas 36 (Cal); Indian Chemical Products Ltd. v. State of Orissa [1966] 36 Comp Cas 592 (SC).
9. Mr. Gururajan, learned counsel for the respondent-company has argued that the petition under section 155 of the Companies Act is not maintainable in as much as the power of the court is very much limited. Section 155(1) is meant only in case of mistake or misstatement, not otherwise. The legal representatives of the deceased member cannot be permitted to invoke the provision of section 155 as sought to be done in this case. Further, he argued that the articles of association provides for refusal to register the transfer of shares under article 16 of the articles of association, that petitioner No. 2 is not a responsible person to the satisfaction of the company, and petitioner No. 1 being a lady not well versed in company matters and the second petitioner is taking advantage of the situation and is trying to get the share transferred in the name of the petitioner. Lastly, he argued that the petitioner-transferee has not complied with the formalities in connection with the transfer of shares as provided under section 108 of the Companies Act. They are mandatory. The articles of the company provide that every instrument of transfer must accompany a certificate for the shares to be transferred. In this case, there is no application for registration of transfer of share made by complying with these requirements. As such, no instrument of transfer along with the share application and registration fee are delivered or left at the office of the company. That being so, no question of consideration by the directors of the transfer of shares arises in the matter.
10. Let me consider the controversy involved in the petition regarding the transfer/transmission of shares in the name of petitioner No. 1, the legal representative of the deceased Channabasappa, one of the director-members and shareholder of the respondent-company.
11. The undisputed facts are that the respondent-company is a private limited company incorporated under the Companies Act. Petitioner No. 1's husband and father of petitioners Nos. 2 to 7, Channabasappa, died on August 16, 1988. Petitioners Nos. 1 to 7 are the legal representatives of the deceased Channabasappa. They have produced the succession certificate and petitioners Nos. 2 to 7 have given their consent for transfer of shares in the name of petitioner No. 1 as per annexure B. The petitioners have produced the succession certificate to the effect that petitioners Nos. 1 to 7 are the legal heirs of deceased Channabasappa. Petitioner No. 1 gave an application on July 5, 1989 to the respondent-company to transfer the shares of the deceased Channabasappa in her name along with the consent of petitioners Nos. 2 to 7 stating that they have no objection for transfer/transmission of shares in the name of their mother, petitioner No. 1 As the respondent-company did not take any step for rectification of the register the petitioner issued a legal notice to the respondent-company on June 28, 1990. However, the respondent-company referring to one of the letters of the petitioners dated January 18, 1990 replied on February 21, 1990, stating that the application will be placed before the next board of directors meeting. Thereafter, in spite of issuing notice by the petitioners, dated June 28, 1990, neither was any action taken not the notice replied to by the respondent-company.
12. In view of the conflicting contentions and the facts, the questions involved in this application are :-
(1) Whether in a case of transmission of shares, by virtue of operation of law by death or otherwise by the order of the court, it is necessary to submit transfer forms in compliance with the requirements contemplated under sub-section (1) of section 108 of the Companies Act ?
(2) When a person becomes the owner of shares by virtue of succession due to the death of a member (whose name is in the register of members) and he is entitled to be recorded as a member of the company, and if the company refuses to record him as a member can he maintain an application under section 155 of the Companies Act ?
13. To answer the above questions, it is necessary to refer to the provisions of section 108 of the Companies Act and the articles of association of the respondent-company. The relevant section 108 reads as follows :-
"108. Transfer not to be registered except on production of instrument of transfer. - (1) A company shall not register a transfer of shares in, or debentures of the company, unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee and specifying the name, address and occupation, if any, of the transferee, has been delivered to the company along with certificate relating to the shares or debentures, or if no such certificate is in existence, along with the letter of allotment of the shares or debentures :
Provided that where, on an application in writing made to the company by the transferee and bearing the stamp required for an instrument of transfer, it is proved to the satisfaction of the board of directors that the instrument of transfer signed by or on behalf of the transferor and by or on behalf of the transferee has been lost, the company may register the transfer on such terms as to indemnity as the Board may think fit.
Provided further that nothing in this section shall prejudice any power of the company to register as shareholder any person to whom the right to any shares in, or debentures of, the company has been transmitted by operation of law."
14. Article 16 of the articles of association reads as follows :
"16. The directors may refuse to register any transfer of a share -
(a) Where the share is not fully paid up, or where monies due to the company are covered by the company's lien on the share;
(b) Without assigning any reason therefor where it is not proved to their satisfaction that the proposed transferee is a responsible person;
(c) Where the directors are of opinion that the proposed transferee is not a responsible person;
(d) Where the directors are of opinion that the proposed transferee is not a desirable person to admit to membership;
(e) Where the result of such registration would be to make the number of members exceed the limits set out above."
15. The contention of counsel for the respondent is that section 155 of the Act would come into operation in the present case, if the requirement of section 108 of the Act had been complied with by the petitioner and further argued that the request of the petitioner was rightly refused by the respondent because the proviso to section 108 was not followed since there was no proper instrument of transfer duly stamped and executed and delivered to the respondent-company. The respondent's counsel in support of his submission has relied on the decision of the Kerala High Court in P. V. Chandran v. Malabar and Pioneer Hosiery Pvt. Ltd. [1985] 57 Comp Cas 570. It is observed in the said decision (p. 578) that "it is a condition precedent for getting the shares transferred that the instrument should be executed by the transferor and the transferee, and it should be left at the office of the company to be registered along with the fee of Rs. 2. The directors are obliged to consider only a valid application filed in accordance with law under the articles of association. The petitioner has obviously not filed such valid application at all which is a condition precedent to enable the directors to consider the application and register the transfer of shares. On the short ground, the jurisdiction of this court under section 155(2) of the Companies Act itself is not properly or validly invoked by the petitioner nor attracted."
16. I am not satisfied that in the instant case, it was necessary for the petitioners either to send along with their letter or application for entering their names on the register of members with respect to the shares in this petition, which were owned by the deceased husband of petitioner No. 1 and father of petitioners Nos. 2 to 7, a transfer deed executed, attested and stamped or affixing the necessary stamp on the letter/application itself. As already indicated the shares of Channabasappa the deceased member devolved on his legal representatives (legal heirs) evidenced by the succession certificate filed by the petitioners. In cases like this, there could be no transferor to execute any instrument of transfer and get it attested and stamped. By operation of law, the shares of the deceased member get transmitted in favour of his legal heirs.
17. Thus, the only question, therefore, to be considered is - whether sub-section (1) of section 108 of the Act or the second proviso applies to the instant case.
18. As already noticed, this is not a case of transfer of shares by act of parties. It is a well laid principle of law that a "transmission by operation of law" is not a transfer. Transmission by operation of law takes place where a person acquires an interest in property by operation of law such as by right of inheritance or succession, while a transfer is effected by act of parties. Sub-section (1) of section 108 requires the instrument of transfer to be duly stamped, for it is an essential condition for registering a transfer of shares. The instant case is not covered by sub-section (1) of section 108 of the Act, but it would fall under the second proviso to sub-section (1) of section 108 which reads as follows :
"Provided further that nothing in this section shall prejudice any power of the company to register as shareholder or debenture-holder any person to whom the right to any shares in, or debentures of, the company has been transmitted by operation of law."
19. The petitioners' counsel has rightly contended that where title to the share has passed by operation of law, as in the present case, no further formalities have to be completed so that neither a duly stamped instrument of transfer nor an application in writing itself bearing the requisite stamp is necessary. But, however, learned counsel for the respondent-company, Mr. Gururaj, argued though this was a transmission by operation of law, and it may be that there cannot be an instrument of transfer duly stamped and executed, but even so the application or letter sent by the petitioner to the respondent-company requesting entry of their names on the register of members should have borne the stamp required for instrument of transfer as contemplated under sub-section (1) of section 108 of the Act. There is no merit in this contention. As already pointed out sub-section (1) of section 108 of the Act deals with the transfer by act of parties, requiring an instrument of transfer. 'In a transmission of shares' by operation of law by succession or inheritance, there could be no instrument of transfer. In the present case, the title to the shares having vested with the petitioners by virtue of the death of the member and inheritance by his legal heirs evidenced by the death certificate and succession certificate, it would not be justified in importing the condition as to stamp laid down in the first proviso to sub-section (1) of section 108 into the second proviso. The wording of the second proviso clearly establishes that nothing in section 108 which would include sub-section (1) as well as the first proviso to it, shall prejudice any power of the company to register as shareholder any person in whom the right to any shares in the company has been transmitted by operation of law. I do not think that the respondent-company could refuse to exercise its power under the second proviso by insisting on the petitioners complying with the provision of either sub-section (1) of section 108 or the first proviso to the same.
20. The next submission of the respondent-company was that the petitioners' application under section 155 is not maintainable for section 155(1) is meant only in case of mistake or misstatement. It was further argued that the articles of association provides for refusal to register the transfer of shares under article 16 of the articles of association. The petitioners' counsel has controverted this contention of the respondent's counsel and submitted that the application of the petitioners under section 155 is maintainable as the power of the company court is very wide under section 155, and the power of rectification is not confined only to correct the mistake or misstatement as contended by the respondent's counsel. Section 155 reads as follows :-
"155. Power of court to rectify register of members. - (1) If -
(a) the name of any person -
(i) is without sufficient cause, entered in the register of members of a company, or
(ii) after having been entered in the register is, without sufficient cause, omitted therefrom; or
(b) default is made, or unnecessary delay takes place, in entering on the register the fact of any person having become, or ceased to be, a member;
the person aggrieved, or any member of the company, or the company, may apply to the court for rectification of the register.
(2) The court may either reject the application or order rectification of the register; and in the latter case, may direct the company to pay the damages, if any, sustained by any party aggrieved.
In either case, the court in its discretion may make such order as to costs as it thinks fit.
(3) On an application under this section, the court -
(a) may decide any question relating to the title of any person who is a party to the application top have his name entered in or omitted from the register, whether the question rises between members or alleged members, or between members or alleged members on the one hand and the company on the other hand; and
(b) generally, may decide any question which it is necessary or expedient to decide in connection with the application for rectification.
(4) From any order passed by the court on the application, or on any issue raised therein and tried separately, an appeal shall lie on the grounds mentioned in section 100 of the Code of Civil Procedure, 1908 (V of 1908) -
(a) if the order be passed by a District Court, to the High Court;
(b) if the orders be passed by a single judge of a High Court consisting of three or more judges, to a Bench of that High Court.
(5) The provisions of sub-sections (1) to (4) shall apply in relation to the rectification of the register of debenture-holders as they apply in relation to the rectification of the register of members."
21. Petitioners' counsel in support of his submission has relied on the decision of the Gujarat High Court in Gulabrai Kalidas Naik v. Laxmidas Lallubhai Patel [1978] 48 Comp Cas 438, wherein it was observed as follows (at p. 442) :
"A bare perusal of section 155 on its own language does not indicate that the jurisdiction conferred by the section is one hedged in with a condition that it can only be exercised when relief can be granted in a summary manner. There is nothing in the language of section 155 which excludes decision of questions of title to shares that may arise in an application for rectification of register. On the contrary, the language of sub-section (3) makes it abundantly clear that in such an application, the court has power to decide any question relating to the title of any person who is a party to the application to have his name entered in or omitted from the register and the court would have further jurisdiction to decide the question of title even when it arises between members or alleged members, or between members or alleged members on the one hand and the company on the other. Sub-clause (b) of sub-section (3) further widens the jurisdiction of the court under section 155 when it permits or enables the court generally to decide any question which it is necessary or expedient to decide in connection with the application for rectification."
22. I am in full agreement with the opinion expressed by the High Court of Gujarat. The power of the company court under section 155 is very wide. It makes it clear that not only any member of the company, but also a "person aggrieved" may apply to the court for rectification of the register or members. In clause (b) of section 155(1) the words "the fact of any person having become a member" have been construed to mean "having become entitled to be a member" or having got the right of membership, as observed by the Calcutta High Court in Nazamunnesa Begum v. Vidya Sagar Cotton Mills Ltd. [1963] 33 Comp Cas 356 (Cal). In my view having regard to the principles enunciated in the above decision the company application of the petitioners filed under section 155 is maintainable.
23. Lastly, it was argued by the respondent's counsel that article 16 of the articles of association provides for refusal to register the transfer of shares, and the directors of respondent-company are, in fact, of the view that petitioner No. 2 is not a responsible person and petitioner No. 1 is a lady not well versed in company matters. It is contended by the petitioners' counsel that these allegations have now been belatedly made to justify their arbitrary action refusing to effect the transmission of shares in the name of petitioners. On October 30, 1988, an application was sent by petitioner No. 1 after the death of her husband. The respondent-company sent a reply as per annexure C. asking the petitioner to produce succession certificate. The succession certificate was produced and along with it the consent letter of petitioners Nos. 2 to 7 giving no objection for transfer/transmission of the shares in the names of the petitioners. The respondent-company thereafter in spite of several reminders, including notice calling upon it to effect the rectification of register of members showing the name of the petitioner as shareholder in place of her deceased husband, Channabasappa, did not take any action. However, the respondent-company by its reply letter dated February 21, 1990, stated that the matter will be placed before the next board of directors. There was no communication thereafter by the respondent-company either accepting or refusing transmission of shares in the names of petitioners. It is seen that the intimation for transmission of shares was given by the petitioners to the respondent-company, on October 30, 1988, the respondent-company has asked to produced succession certificate which was produced by the petitioners. Thereafter, the respondent-company by its letter dated February 21, 1990, intimated that it would place the matter before the board. But, till today no action was taken by the respondent either to accept or refuse the grant of transmission of shares in the name of the petitioners. Under section 111, the company has power to refuse registration of shares, in pursuance of power under articles of association, but such refusal shall be made within two months of the date of delivery of intimation of transfer/transmission of shares, and send the intimation of refusal to the person giving intimation of such transfer/transmission. In the present case, the respondent has not refused to register the shares, nor sent any intimation of refusal to register the shares within two months from the date of delivery of intimation for transmission of shares. Mere silence by the directors of company may not be acquiescence, but sub-section (2) of section 111 of the Act requires the company to notify the person delivering intimation of transmission of shares, within two months of the refusal to register. Therefore, if two months elapsed, it would be clear that the directors can no longer refuse to register/effect the transmission of shares. Since the respondent-company has not refused to effect transmission of shares, in pursuance of its power under its articles within two months from the date of delivery of intimation of transmission of shares by the petitioners, the directors of respondent-company cannot now refuse the transmission of shares in favour of petitioners.
24. It is pointed out by the petitioners' counsel that article 16 of the articles of association is inapplicable to the present case, as there was no transfer of shares falling under section 108(1) or first provision of the Act. It is a case of transmission of shares falling within the second proviso of section 108 of the Act, by devolution. In any event, since the power to refuse the transfer/transmission of shares, within two months from the date of intimation given by the petitioners, has not been exercised by the director of the company, it can no longer refuse to register.
25. In the result, I allow this petition and direct respondent-company, Vittal Prasad Company Pvt. Ltd., Athani, do rectify its register of members by entering the name of petitioner No. 1 in respect of the shares held by her deceased husband Channabasappa by deleting his name in respect thereof.
26. I further direct that the notice of this rectification be filed by respondent-company with the Register of Companies, within thirty days from today as required under section 156 of the Act. I further direct that respondent-company to pay the petitioner the cost quantified at Rs. 1,500.