Indian Kanoon - Search engine for Indian Law

11. On merits the respondent-company has admitted the exchange of correspondence regarding transfer of shares referred to in the petition between the petitioner and the respondent-company. It has reiterated its position taken by it in its correspondence. It is stated that the petitioner-company failed to comply with the provisions of Section 292 of the Act and other related issues and therefore was not entitled to the transfer of shares in its files. It has also been stated that the petition is premature inasmuch as the question of rectification of register of shares would arise only after the Board of Directors of the respondents-company considers the share transfer subsequent to the petitioner-company providing that such investments are not ultra vires of the memorandum and all other mandatory provisions of law.

13. Evidence was recorded. Petitioner produced Ashok Kumar Shetty P.W. 1 and the respondent produced A.S. Krishna Moorthy, Managing Director of the respondent company as R.W. 1. In their statements they have taken the same stand which has been taken by them in their respective pleadings. Cross-examination is also on the same lines.

14. Shares of the company registered under the Companies Act whose share are quoted at the stock exchange are freely transferable. A shareholder has a light to transfer his shares. Correspondingly, in the absence of any impediment in this behalf the transferee of shares in order to enable him to exercise the rights of a shareholder as against the company and third parties, is entitled to have the shares transferred in his name. In case a company refuses to transfer the shares it is entitled to have rectification of the register by registering therein as a registered shareholder of the shares transferred to him. The company whose shares have been purchased cannot refuse to register the shares arbitrarily or for any collateral purpose. It can be refused only for a bona fide reason in the interest of the company and the general interest of the shareholders. It is seen from the correspondence between the petitioner-company and the respondent-company that the respondent company has very evasively resisted admitting and effecting the necessary changes in the register of members on the ground that the application for registration of the transfer was in violation of the Act. Despite specific query on the aspect of the violation of the provisions of the Act, except to state that there was violation of Section 292 of the Act, no material particulars have been given regarding the violation. Supreme Court of India in Luxmi Tea Company Limited v Pradip Kumar Sarkar, considered the question regarding the rectification of shares register of a company under Section 155 of the Companies Act. It was held that transferee has a right to have the rectification carried out and the respondent-company could defeat the right if the rectification of the register only on specified bona fide grounds. It was observed:

"Having heard learned Counsels for the parties we are of the opinion that unless there is any impediment in the transfer of a share of a public limited company, such as the appellant, a shareholder has the right to transfer his share. Correspondingly, in the absence of any impediment in this behalf the transferee of a share, in order to enable him to exercise the rights of a shareholder as against the company and third parties, which is not possible until the transfer is registered in the company's register, is entitled to have a rectification of the share register of the company by inserting his name therein as a registered shareholder of the share transferred to him. To have such rectification carried out is the right of the transferee and can be defeated by the company or its Directors only in pursuance of some power vested in them in this behalf. Such power has to be specified and provided for. It may even be residuary but in that case too it should be provided for and traceable either in the Act or the Articles of Association. Even if the power of refusal is so specified and provided for the registration of a transferred share cannot be refused arbitrarily or for any collateral purpose, and can be refused only for a bona fide reason in the interest of the company and the general interest of the shareholders. If neither a specific nor residuary power of refusal has been so provided, such power cannot be exercised on the basis of the so-called undeclared inherent power to refuse registration on the ground that the company or its Directors take the view that in the interest of the company and the general interest of the shareholders, registration of the transfer of shares should be refused. Indeed making a provision in the Act or the Articles of Association etc. conferring power of refusal would become futile if existence of an inherent power such as claimed by the company in the instant case is assumed, for the simple reason that the amplitude of the so-called undeclared inherent power would itself take care of every refusal to register the transfer of share. Assumption of such a power would result in leaving the matter of transfer of share and its registration at the mercy and sweet will of the company or its Directors, as the case may be. In the absence of any valid and compelling reason it is difficult to comprehend such a proposition".

18. For the reasons stated above, we hold that the respondent-company acted illegally and was not justified in refusing to register the shares in the name of the petitioner-company. Petitioner company would be entitled to get the shares transferred in its name from the date of the purchase of the shares. Petitioner-company has, apart from claiming the rectification of the register of members to include the name of the petitioner-company in the shareholders of the respondent-company has also prayed for grant of such other and further relief as was just. In justness of the cause we feel that the petitioner-company is entitled to the dividend which may have accrued on the shares in question from year to year. It would be incidental and consequential to the transfer of the shares in favour of the petitioner-company. Offer made by the respondent-company that it is prepared to transfer the shares in the name of the company in future and that it is entitled to adjust the dividends due on the shares towards any sum payable by Sri T.K. Alva to the respondent-company, cannot be accepted. Respondent- company failed to pay the dividend pertaining to the shares in question even though a letter (Annexure-M) was written by the transferor of the shares to the respondent-company to pay the dividend to the petitioner- company. Despite this the respondent-company has not paid the dividend either to the petitioner or to the transferor. Claim of the respondent- company that it is entitled to appropriate the amount payable as dividend towards any of the amounts due to the company from its earlier Managing Director, Sri T.K. Alva is illegal and without any authority of law.