companies act
[2008] 81 scl 51 (cal.)
HIGH COURT OF CALCUTTA
Peerless General Finance
& Investment Co. Ltd.
v.
Poddar Projects Ltd.
Ashim Kumar
Banerjee, J.
ACO No. 215 of 2004
and APOT No. 743 of
2004
August 2, 2005
Section
111, read with sections 108 and 391, of the Companies Act, 1956 - Transfer of
shares - Power to refuse registration and appeal against refusal - Whether
shares of public companies are freely transferable between transferor and
transferee and company has nothing to do with same in case by virtue of
sanction of scheme by Court, certain shares are transferred from
transferor-company to transferee-company; in such a case, company is only
obliged to record such rectification once shares are lodged with it by person
who is lawful person to do so - Held, yes - Whether, in such a case,
docu-mentation contemplated in section 108 is required to be done - Held, no -
Whether once order of sanction is passed by Court and same is indicated to
company by way of application, company should not refuse registration on plea
of limitation - Held, yes
Section
111A of the Companies Act, 1956 - Transfer of shares - Rectification of
register on - Whether in terms of section 111A, in case of refusal of company
to register transfer without sufficient cause, transferee has to wait for two
months to approach CLB; however, such two months period is not an outer limit
contemplated in said section - Held, yes
Facts
Under a scheme
of arrangement sanctioned by the Court, a part of business division of company
‘U’, which was holding certain shares in appellant-company, was transferred to
company ‘P’ including the subject shares. Thereafter, ‘P’ sold said shares to
respondent No. 2. Respondent No. 2 lodged the shares with the appellant-company
for registration of transfer which, however, was refused. Shares were again
lodged for registration on behalf of ‘P’ and it was again refused without any
detailed reason having been assigned. Thereafter, ‘P’ and respondent No. 2
filed application under section 111A which was allowed and the CLB directed the
appellant-company to register original shares in favour of P; however, no
relief was granted to respondent No. 2. In the instant appeal, the appellant
contended that the order of sanction of scheme could not be termed as the
instrument of transfer and, therefore, ‘P’ should have lodged shares for
rectification within time stipulated under section 108 and even assuming that
order of sanction could be considered as instrument of transfer, the
application for lodgment of shares and the application before the CLB under section
111A, were barred by limitation.
Held
The law, as
it stands today on the amalgamation/compromise, is that the order of sanction
would bind the parties who were parties to the scheme. Even if the transfer is made
by operation of law, it cannot take away somebody else’s rights as against the
transferor or transferee who is not a party to the scheme. It also provides
that such scheme, even though binds all concerned by operation of law,
restricts transfer which is otherwise not permissible, in law, like tenancy,
etc. [Para 8]
Having
regard to the relevant sections and the various decisions of the High Court and
the Supreme Court, the order of sanction of compromise, as in the instant case,
although was binding between the class or persons being the shareholders of U
and P , once the same was effected and implemented by filing the certified copy
with the Registrar, the process was complete. Section 111A(2) clearly provides
that shares in public companies are freely transferable. When shares are freely
transferable between the transferor and the transferee, the company has nothing
to do with the same in the case of sanction of scheme by the Court. The company
is only obliged to record such rectification, once the shares are lodged with
it. It is to see that the person, who is lodging the shares, is the lawful
person to do so. Hence, by way of arrangement, when shares of U came to P, the
appellant-company did not have anything to oppose on that score. It was to
record such transfer by rectifying its shareholder’s register. It was true that
initial lodgment done on behalf of respondent No. 2 was irregular. However, the
second lodgment was perfect in law and the appellant did not have any plausible
reason to refuse such registration on the plea that there must be further
compliance with section 108 by lodging the relevant transfer deed duly executed
by U in favour of P. When the second application was made by P to record such
transfer, the appellant was obliged to record such transfer and its refusal on
the ground of non-compliance of section 108 was not tenable and the CLB was
right in rejecting such plea. Such application, although in technical sense,
was an application under section 108(1) second proviso, read with section 109.
The same was nothing but an intimation to the company of the scheme of
compromise, so that the company could rectify its register. The documentation
contemplated in section 108 was not required to be done and such plea of the
appellant was not tenable and the CLB rightly rejected the same. [Para 11]
Section 111
deals with shareholders of private companies and deemed public companies
wherein sub-section (3) provides for lodgment of shareholders within a
specified period. Although in section 111A, which was applicable in the instant
case, some of the sub-sections of section 111 were made applicable by
sub-section (7) of section 111A, sub-section (3) of section 111 has not been
included therein, meaning thereby the Legislators did not intend to put any restriction
on time period with regard to the lodgment of shares in respect of public
companies. It was never the intention of the Legislature to allow the company
to refuse rectification on the plea of limitation in the case of public
companies. It was urged that under section 108(1A), shares were to be lodged
within two months from the date of their presentation for stamping and
endorsement. This was possibly incorporated to avoid a speculation and other
illegal transaction. When a share is properly stamped and endorsed by the
appropriate authority, the same is to be lodged within two months from the date
of such stamping and/or endorsement. In the instant case, when the order of
sanction itself was not required to be endorsed or stamped (at the relevant time
there was no provision of payment of stamp duty in the West Bengal Stamp Act on
the order of amalgamation/compromise), the question of lodgment of shares
within two months from the date would not arise. The CLB was wrong in applying
the provisions of section 5 of the Limitation Act, 1963 which can only be
applied in the case of a proceeding before a Court of law or a judicial
Tribunal. Even if there is any time limit for lodgment of shares with the
company, the provisions of section 5 of the Limitation Act cannot have any
application therein and the CLB was wrong in applying the same in respect of
the lodgment of shares with the company. Sub-section (1A) had no application at
all in the instant case. Moreover, the intention of the Legislature, as would appear
from the said sub-section, was that it was the duty of the transferee to have
the deed of transfer duly stamped and endorsed by the appropriate authority
within a particular period stipulated therein. The second proviso to section
108(1) stipulates that nothing in section 108 would prejudice the board of the
company to register a share whose right has accrued by operation of law.
Reading all the provisions, it is clear that once the order of sanction was
passed by the Court and the same was indicated to the company by way of second
application, the company should not have refused registration on the plea of
limitation. [Para 13]
Second plea
was taken by the appellant that the application under section 111A was barred
by limitation before the CLB. The provisions of section 111A did not put any
time restriction on approaching the CLB. Moreover, on the day, when the CLB was
approached, P did not know the reason for refusal. The ground of refusal, as
stated in the minutes of the board of directors, was disclosed in the course of
hearing of the application before the CLB. Hence, it was not proper to say that
the application before the CLB was barred by limitation. The proviso to
sub-sections (2) and (3) of section 111A stipulates that if a company, without sufficient
cause, refuses to register the transfer within two months from the date of
lodgment, the transferee may approach the Tribunal for relief. Hence, the
transferee has to wait for two months to approach the CLB. Such two months
period is not an outer limit contemplated in the said section. [Para 14]
Hence, the
application before the CLB was also not barred by limitation and there was no
need of application of section 5 of the Limitation Act therefor. [Para 15]
The
ultimate decision of the CLB, whereby the appellant was directed to register
the shares in favour of P, was to be sustained and affirmed. The decision of
the CLB on the plea of limitation and application of section 5 of the
Limitation Act, was, however, quashed as being superfluous. [Para 16]