IN THE HIGH COURT OF GUJARAT AT AHMEDABAD O.J.APPEAL No. 57 of 2010 With O.J.APPEAL No. 58 of 2010 For Approval and Signature:
HONOURABLE MR.JUSTICE V. M. SAHAI HONOURABLE MR.JUSTICE A.J. DESAI =========================================
1 Whether Reporters of Local Papers may be allowed to see the judgment ? Yes
2 To be referred to the Reporter or not? No
3 Whether their Lordships wish to see the fair copy of the judgment? No Whether this case involves a substantial
4 question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder? No
5 Whether it is to be circulated to the civil judge?
No ========================================= HIREN ALUMINIUM LIMITED Versus DINESHCHANDRA N SHAH & ORS ========================================= Appearance :
MR S.N.SOPARKAR, LR. SR COUNSEL WITH AC GANDHI for Appellants RULE SERVED for Opponents No. 1 - 10,12 - 16, 22, RULE SERVED BY DS for Opponents No. 11,17 - 21, 23, ========================================= CORAM : HONOURABLE MR.JUSTICE V. M. SAHAI and HONOURABLE MR.JUSTICE A.J. DESAI Date : 17/02/2012 CAV COMMON JUDGMENT (Per : HONOURABLE MR.JUSTICE A.J. DESAI)
1 These two appeals are arising under Section-10 read with Section 10(F) of the Companies Act, 1956, challenging the Order dated 4th June, 2010, passed by the learned Company Law Board, Mumbai Bench at Mumbai in Company Petition No. 102/111/CLB/MB of 2008.
2 The Company Petition was preferred by the respondents No. 9 to 23 in O.J. Appeal No. 57 of 2010 and Respondents No. 2 to 16 in O.J. Appeal No. 58 of 2010.
3 Brief facts arising in both the appeals are as under:
3.1 That the appellants and respondents, who are real brothers, were carrying on business jointly till 31st March, 2003. For preparing the settlement of accounts of various companies, which were jointly run by five brothers, they appointed three persons as Conciliators on 28.6.2005. The Conciliators passed the Award on 2nd July, 2005 and advised the brothers about the broad terms of settlement among themselves. Accordingly, all brothers had jointly furnished a deed of undertaking to the Conciliators on 6.9.2006. As per the undertaking, the shares of appellant company M/s Hiren Aluminium Limited and others were to be transferred in the name of the appellants of O.J. Appeal No. 58 of 2010. The appellant – Hiren Aluminium Limited transferred the shares in the names of the appellants of O.J. No.58 of 2010 which was challenged by the respondents No. 9 to 23 in O.J. Appeal No.57 of 2010 and respondents No.2 of 16 in O.J. Appeal No. 58 of 2010.
3.2 Before the Company Law Board, Mumbai Bench at Mumbai, under Section 111 (4) of the Companies Act, 1956 (hereinafter referred to as “the Act”) the respondents challenged the action of the company transferring the shares in the name of appellants alleging that the company has committed breach of Section-108 of the Act. It is pertinent to note at this stage that along with the said Company Petition No.102 of 2008, several company petitions were filed before the Company Law Board, Mumbai Bench at Mumbai by respondents No.9 to 23 of O.J. Appeal No.57 of 2010 and respondents No.2 of 16 of O.J. Appeal No.58 of 2010 against other companies also which were jointly run by five brothers. It was alleged in the petitions that the company has transferred 33,46,319 shares in the name of respondents, who are members of one branch of five brothers.
3.3 The Company Law Board relying upon its own Order dated 22.6.2009 passed in the case of M/s Pankaj Aluminium Industries Private Limited arising out of the same family settlement, accepted the contention and the Board of Directors of Hiren Aluminium Industries Limited were directed to restore the said shares i.e. 33,46,319 in the names of the original petitioners.
3.4 Being aggrieved by the said order dated 4th June, 2010 of the Company Law Board whereby the Company Law Board has directed the company to restore the shares in the name of the original petitioners, the present appeals are filed by the company as well as one branch of the family members in whose favour the company had transferred the shares in accordance with the settlement arrived at between the brothers.
3.5 Since the registered office the companies are situated at Ahmedabad in Gujarat, as per Section-10 of the Companies Act, the High Court of Gujarat is having the jurisdiction to deal with the matters arising under the Act and, accordingly, the aforesaid appeals are filed in the High Court of Gujarat.
3.6 Initially, the notices were issued to the respondents- original petitioners of Company Petition, but they have chosen not to appear before this Court. Subsequently, by oral order dated 27th January,2011, the O.J. Appeals were admitted and notices of admission were also issued to the original petitioners which was made returnable on 23rd February, 2011. By the said order, the Division Bench confirmed the interim order passed in O.J. Civil Application No.424 of 2006. Though, the notices of admission have been served to the respondents/original petitioners, they have chosen not to appear before this Court and to file their counter in these appeals.
4 We have heard Mr. S.N. Soparkar, learned Senior Counsel assisted by Mr. A.C. Gandhi appearing for the appellants. Mr. Soparkar, learned counsel has taken us through the memo of appeals in which the details of the properties for which the settlement was arrived at between five brothers are demonstrated. It was contended by Mr. Soparkar, learned Counsel, that the Conciliators/ Arbitrators have clarified their issues of accounting matters by Arbitration Award dated 25.1.2008. It has been contended by the appellants in the memo of appeals that the Award passed by the Conciliators/Arbitrators have become final and there is no counter to the said aspect.
5 By way of these appeals, several legal contentions have been raised by the appellants challenging the decision of the Company Law Board. The first contention raised by the appellants is with regard to the finding of the Board that the company had committed breach of Section-108 of the Companies Act is not proper. It was argued that under Section-108 of the Act is required to be read along with Articles of Association of the Company - Hiren Aluminium Limited of which shares are transferred to appellants. Article No.59 of the said Articles of Association. Section- 108 of the Act and Article 59 of the Articles of Association of the Hiren Aluminum Limited read as under:
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 same, address and occupation, if any, of the transferee, has been delivered to the company along with the 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 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 to this section shall prejudice any power of the company to register as shareholder or debentures-holder any person to whom the right to any shares in, or debentures of, the company has been transmitted by operation of law.
1[(1A) Every instrument of transfer of shares shall be in such form as may be prescribed, and -
(a) every such form shall, before it is signed by or on behalf of the transferor and before any entry is made therein,be presented to the prescribed authority, being a person already in the service of the Government,who shall stamp or otherwise endorse thereon the date on which it is so presented, and
(b) every instrument of transfer in the prescribed form with the date of such presentation stamped or otherwise endorse thereon shall, after it is executed by or on behalf of the transferor and the transferee and completed in all other respects, be delivered to the company --
(i) in the case of shares dealt in or quoted on a recognized stock exchange, at any time before the date on which the register of members is closed, in accordance with law, for the first time after the date of the presentation of the prescribed form to the prescribed authority under clause (a) or within [twelve months]from the date of such presentation, whichever is later;
(ii) in any other case, within two months from the date of such presentation.] 1[1B) Notwithstanding anything contained in sub- section (1A), an instrument of transfer of shares, executed before the commencement of section 13 of the Companies (Amendment) Act, 1965 (31 of 1965), or executed after such commencement in a form other than the prescribed form, shall be accepted by a company, --
(a) in the case of shares dealt in or quoted on a recognized stock exchange, at any time not later than the expiry of six months from such commencement or the date on which the register of members is closed, in accordance with law, for the first time after such commencement, which ever is later;
(b) in any other case, at any time not later than the expiry of six months from such commencement.] (1C) Nothing contained in sub-sections (1A) and (1B) shall apply to -
(A) any share --
(i) which is held by a company in any other body corporate in the name of of a director or nominee in pursuance of sub-section (2), or as the case may be, sub-section (3), of section 49, or
(ii) which is held by a corporation, owned or controlled by the Central Government or a State Government, in any other body corporate in the name of a director or nominee, or
(iii) in respect of which a declaration has been made to the Public Trustee under section 153B, if --
(1) the company or corporation, as the case may be, stamps or otherwise endorses, on the form of transfer in respect of such share, the date on which it decides that such share shall not be held in the name of the said director or nominee or, as the case may be, in the case of any share in respect of which any such declaration has been made to the Public Trustee, the Public Trustee stamps or otherwise endorses, on the form of transfer in respect of such share under his seal the date on which the form is presented to him, and
2) the instrument of transfer in such form duly completed in all respects, is delivered to the --
(a) body corporate in whose share such company or corporation has made investment in the name of its director or nominee, or
(b) company in which such share is held in trust, within two months of the date so stamped or otherwise enforced; or
(B) any share deposited by any person with -
(i) the State Bank of India,or
(ii) any scheduled bank, or
(iii) any banking company (other than a scheduled bank) or financial institution approved by the Central Government by notification in the Official Gazette (and any such approval may be accorded so as to be retrospective to any date not earlier than the 1st day of April, 1966), or
(iv) the Central Government or a State Government or any corporation owned or controlled by the Central Government or a State Government, by way of security for the repayment of any loan or advance to, or for the performance of any obligation undertaken by, such person, if -
(1) the bank, institution, Government or corporation, as the case may be, stamps or otherwise endorses on the form of transfer of such share --
(a) the date on which such share is returned by it to the depositor, or
(b) in the case of failure on the part of the depositor to repay the loan or advance or to perform the obligation, the date on which such share is released for sale by such bank, institution, Government or corporation, as the case may be, or
(c) where the bank, institution, Government or corporation, as the case may be, intends to get such share registered in its own name, the date on which the instrument of transfer relating to such share is executed by it; and
(2) the instrument of transfer in such form, duly completed in all respects, is delivered to the company within two months from the date so stamped or endorsed.
Explanation – Where any investment by a company or a corporation in the name of its director or nominee referred to in clause (A) (i) or clause (A) (ii), or any declaration referred to in clause (A) (iii), or any deposit referred to in clause (B), of this sub-section is made after the expiry of the period or date mentioned in clause
(a) of sub-section (1B) or after the expiry of the period mentioned in clause (b) of that sub-section, as the case may be, the form of transfer, in respect of the share which is the subject of such investment, declaration or deposit, means the prescribed form; or
(C) any share which is held in any company by the Central Government or a State Government in the name of its nominee, except that every instrument of transfer which is executed on or after the 1st day of October, 1966, in respect of any such share shall be in the prescribed form.] 1[(1D) Notwithstanding anything in sub-section (1A) or sub-section (1B) [or sub-section (1C)], where in the opinion of the Central Government it is necessary so to do to avoid hardship in any case, that Government may on an application made to it in that behalf, extend the periods mentioned in those sub-sections by such further time as it may deem fit (whether such application is made before or after the expiry of the period aforesaid]; and the number of extensions granted hereunder and the period of each such extension shall be shown in the annual report laid before the Houses of Parliament under section 638.]
(2) In the case of a company having no share capital, sub-section (1) shall apply as if the references therein to shares were references instead to the interest of the member in the company.
(3) Nothing contained in this section shall apply to transfer of security effected by the transferor and the transferee both of whom are entered as beneficial in the records of a depository.] Article 59 of the Memorandum of Association of Hiren Aluminium Limited read as under:
“59. Subject to the provisions of these Articles any person becoming entitled to shares in consequence of the death, lunacy, bankruptcy or insolvency of any member or by any lawful means other than a transfer in accordance with these presents, may, with the consent of the Board of Directors (which the Board shall not be under any obligation to give), upon producing such evidence that he sustains the character in respect of which he proposes to act under the Act, or on his title, as the Board of Directors think sufficient, be registered as a member in respect of such shares, or may, subject to the regulations as to transfer hereinabove contained, transfer such shares. This clause is hereinafter referred to as “The Transmission Clause.”
6 By joint reading of these provisions, it has been argued by the learned Senior Counsel Mr. Soparkar that the company has not made any illegalities in transferring the shares. The shares were registered in the names of the appellants by transferring the same by lawful means. The shares were transferred to appellants as per the award passed by Conciliators/Arbitrators deciding the shares of each branch of five brothers.
7 Considering the aforesaid provisions together and looking to the facts of the present case, it transpires that the transfers were effected not pursuant to any application from the respective respondents, but, only on the basis of the award. The appellants admit that the concerned respondents had not signed any share forms nor authorized any of the appellants or the company to effect the said transfers in any manner. There are several authorities that hold that Section 108 does not apply to involuntary transfers. In the case of Unity Company v. D. Sugar Mills, reported at AIR 1971 Cal. 18, it was held that Section-108 of the Act would not apply in a case of forfeiture where the company sells the shares in exercise of its lien. However, the said decision was based on the second proviso to Section-108 of the Act. In our opinion, in absence of the second proviso to Section- 108 of the Act, the transfers would have been illegal as Section-108 of the Act is mandatory. The question, therefore, arises for consideration is whether in view of the second proviso to Section-108 of the Act, the Board of Directors were entitled to effect the transfer of the said shares in the names of the appellants only on the basis of the award passed by the Conciliators/Arbitrators in the absence of a transfer form.
8 It is pertinent to note at this stage that the words `transfer' and `transmission' have been used in Section-108 of the Act. The Legislature must be deemed to have ascribed to each of the terms a different meaning. In any event, the ambit of each of the terms `transfer' and `transmission' could not have been intended to be the same. The term `transmission' can also indicate a transfer of interest. If we peruse the `Blacks Law Dictionary, dictionary meaning of the terms as under:
“Transfer” (1) To convey or remove from one place or one person to another; to pass or hand over from one to another, especially to change over the possession or control of; (2) to sell or give.
“Transmission” - The passing of an inheritance to an heir.
“Transmit” - (1) To send or transfer (a thing) from one person or place to another. (2) To communicate.
If we peruse the “The Concise Oxford English Dictionary” dictionary meaning of the word “transmit” is “cause to pass on from place or person to another.”
9 From the aforesaid definitions, it is abundantly clear that the terms are used interchangeably. We therefore presume that the terms “transmit” or “transmission” can also imply a transfer between persons. However, the Legislature having used both the terms in the same Section as well as in the other provisions of the Act, must be deemed to have ascribed a different meaning to each of the terms and intended them to have a different ambit. Therefore, there is little doubt about the scope of the term `transfer' as it is used in Section–108 of the Act. It certainly refers to a transfer between persons pursuant to a voluntary act whereas on the other hand the term `transmission' is limited to involuntary acts such as in the case of inheritance.
10 The language of Section 108(1)of the Act indicates that the term transfer of shares applies to the voluntary act of both parties who are ad idem as to the agreement/transaction relating to the transfer. This is clear from the requirement of an instrument of transfer to be executed by or on behalf of the transferor and by or on behalf of the transferee. Presumably, a transferor or a transferee would execute an instrument of transfer only voluntarily.
11 On the other hand, the expression in the second proviso to Section 108 of the Act “transmitted by operation of law” indicates an act which is not necessarily based on or pursuant to the transferor and transferee being ad idem as to the agreement/transaction relating to the transfer. A transmission may well have the effect of transferring the share to the transferee but would still fall under the second proviso. Even in the case of a Will, the bequest by the testator and the acceptance thereof by the beneficiary may be voluntary acts but they are not pursuant to the parties being ad item as to any transaction. The beneficiary would be entitled to the inheritance irrespective of his volition. That he may relinquish the bequest is another matter altogether. This would also be so in the case of inheritance on account of intestacy. In fact, in the case of inheritance on account of intestacy, the beneficiary would clearly be entitled to the inheritance by operation of law.
12 This view is fortified by the provisions of Section 111(11) of the Act which reads as under:
“111 Power to refuse registration and appeal against refusal -
(11) In the case of a private company which is not a subsidiary of a public company where the right to any shares or interest of a member in or debentures of, the company is transmitted by a sale thereof held by a court or other public authority, the provisions of sub- sections (4) to (7) shall apply as if the company were a public company.
Provided that the (Tribunal) may, in lieu of an order under sub-section (5) pass an order directing the company to register the transmission of the right unless any member or members of the company specified in the order acquire the right aforesaid within such time as may be allowed for the purpose by the order, on payment to the purchaser of the price paid by him thereof or such other such as the (Tribunal) may determine to be a reasonable compensation for the right in all the circumstances of the case.” (Emphasis supplied)
13 The use of the terms “transmitted” and “transmission” used in the context of a sale held by a court or other public authority indicates the intention of the Legislature to accord to it a different meaning from the term “transfer”. It indicates the terms to apply to involuntary transfers.
14 The award of an arbitrator under the Arbitration and Conciliation Act, 1996 would fall within the ambit of “transmission by operation of law”. The transfer is, in such cases, not based upon the volition of the parties but by operation of law.
15 The question as to whether even in such cases the restrictions in Articles of Association of a Company would apply or not is another matter altogether. The Board of Directors may well refuse to register the transfer in accordance with the Articles of Association. The second proviso to Section-108 of the Act makes it clear that nothing contained in Section–108 of the Act would prejudice any power of the company to register as shareholder, any person to whom the right of any share in the company has been transmitted by operation of law. It permits the company to register a transfer falling within its ambit even in the absence of an instrument of transfer required in the main Section. The second proviso to Section 108 of the Act itself does not mandate the registration as shareholder, any person to whom the right of any share in the Company has been transmitted by operation of law. In other words, the second proviso itself does not prejudice the power of the company to refuse to register as shareholder, any person to whom the right to any share in the Company has been transmitted by operation of law.
16 In the facts and circumstances of the case, it is not necessary for this Court to decide whether in such cases the Board of Directors have the right in exercise of powers under the Articles of Association of the Company or otherwise to refuse to register the name of a person who has acquired the shares even by transmission by operation of law in view of the second proviso to Section-108 of the Act. The question pertains to the right of the Board of Directors/the Company.
17 In the present case, in our opinion, the Board of Directors have not exercised the right of refusing to register the transfers but has in fact exercised the right conferred by the second proviso to Section–108 of the Act by recognizing the transfer.
18 Mr. Soparkar, learned Senior Counsel, appearing for the appellants has drawn our attention to the judgment passed by the High Court of Judicature at Mumbai in Company Appeal No.59 of 2009 arising from Company Petition No.16 of 2008, which has been produced at Annexure-A to the appeal and submitted that the Bombay High Court has accepted the appeals filed by the present appellants challenging the order of the Company Law Board in the case of another company, namely, M/s Pankaj Aluminum Industries Private Limited. It is pertinent to note that the present appellants were also the beneficiaries of the shares as far as Pankaj Aluminum Industries is concerned and Conciliators have passed award in favour of the appellants with regard to the shares of said Pankaj Aluminum Industries Private Limited. Learned Company Board has relied upon the order passed by the High Court of Judicature at Mumbai in the case of said Pankaj Aluminium Industries Private Limited. While considering the case of the appellants, the High Court of Judicature at Mumbai has observed that registering the shares by the Board of Directors of the Company, pursuant to the Award of the Conciliators is neither contrary to the Section-108 of the Act nor to the Articles of Association of the company Pankaj Aluminum Industries Private Limited. The Article-23 of the Pankaj Aluminum Industries Private Limited is similar to the Article-59 of the present company – Hiren Aluminium Limited.
19 We have gone through the said judgment and are in complete agreement with the observations made therein by the Bombay High Court in the case of M/s Pankaj Aluminium Industries Pvt. Limited.
20 In the result, both the Appeals must succeed and are allowed accordingly. The Order dated 4th June, 2010 passed by the learned Company Law Bord, Mumbai Bench at Mumbai, in Company Petition No.102/111/CLB/MB of 2008 is hereby quashed and set aside. No order as to costs.
(V.M. SAHAI, J.) (A.J.DESAI, J.) pnnair