Civil Appeal Nos
1805 to 1808 of 1968
Appeal from the Judgment and Decree dated the 24th May 1963 of the Allahabad High Court in Special Appeals Nos
108 to 111 of 1963
RS Gae in CA
180568 and 1
John for the Appel lants in all the Appeals
Ex parte for Respondents in all the appeals
192 The Judgment of the Court was delivered by RAY CJ
These four appeals by certificate raise two questions
First whether the provisions of section 108 of the are mandatory in regard to transfer of shares
Second cana company having been served with notice of attachment of shares
register transfer of shares in contravention of the order of attachment
The appellant Mannalal Khetan and the respondents Kedar Nath Khetan and Durga Prasad Khetan are members belonging to two branches of the Khetan Family
The respondent Lakshmi Devi Sugar Mills Private Ltd is a private company
It was incorporated on 7 April 1934 under the Indian Companies Act 1913
The Khetan family held shares in the respondent company and in two other companies Maheshwari Khetan Sugar Mills Private Ltd and Ishwari Khetan Sugar Mills Private Ltd the shares stood in the names of 1 Ms Ganeshnarayan Onkarmal Khetan 2 Ms Sagarmal Hariram Khetan 3 Sri Mannalal Khetan and 4 Sri Radhakrishna Khetan
The members of the Khetan family did partnership business at various places
Civil Suit No 337 of 1948 was filed in the Bombay High Court for dissolution of the part nership and for taking the accounts
On 3 July 1953 the Official Receiver of the Bombay High Court was appointed Receiver of the properties of the partnership firms
There were large income tax arrears and other tax li abilities outstanding against the firms and individual partners
For the realisation of the income tax dues the Income Tax Department issued in 1950 a notice under section 465a of the Indian Income Tax Act 1922 requiring the respondent company to pay any amount due to the firm of Ganesh Narayan Onkarmal or its partners to that department
On 16 June 1953 a Receiver was appointed by the Collec tor of Bombay in execution of the tax recovery certificate issued by the Income Tax Officer section VI Central Bombay
Subsequently under orders of the Bombay High Court the Receiver appointed by the Collector of Bombay took over papers of the dissolved firm from the Receiver appointed by the Bombay High Court
The Receiver appointed by the Collector of Bombay also took possession of shares standing in the names of Ms Sagarmal Hariram Khetan Sri Mannalal Khetan and Sri Radhakrishna Khetan along with blank transfer deeds signed by them
The Additional Collector of Bombay issued to the Collec tor of Deoria two certificates under which on 8 March 1954 and 1831 October 1955 certain shares of the respondent company belonging to the Khetans were attached under Order 21 Rule 46 of the Code of Civil Procedure
On 31 July 1957 the members of the Khetan family entered into agreement among them for exchange of blocks of shares held by them in the respondent company and other
companies in settlement of their differences and disputes
These agreements provided for 193 transfer of shares in the respondent company and in the Maheshwari Khetan Sugar Mills Private Ltd belonging to Sugarreal Hariram and Ganesh Narayan Onkarnath groups to which the appellants belonged to the group of Kedarnath Khetan to which respondents 1 and 2 belonged
These trans fers were in lieu of shares in Ishwari Khetan Sugar Mills Private Ltd to be transferred by the group of respondents 1 and 2 to the group of the appellant
It is significant to notice that the agreements recited that the shares in the respondent company were under attachment of the Income Tax authorities and therefore they could not be immediately transferred
The agreement was that as soon as the transfer of the shares became permissible or if the Income Tax au thorities so permitted transfers as agreed and contemplated would be effective
On 8 April 1958 and 3 October 1959 the Board of Direc tors of the respondent company passed a resolution for transfer of the shares belonging to the appellant group to the group of respondents No 1 and 2
These resolutions were passed on the applications made on behalf of respond ents No 1 and 2 and others of their group
The shares were thereafter entered in the respondent company s register in the names of respondents No 1 and 2 and others of their group
On 14 January 1962 the appellant along with Kamla Prasad Khetan and Mataden Khetan gave notice to respondent No 1 and Durga Prasad Khetan that the shares of the Ishwari Khetan Sugar Mills Private Ltd which were under attachment of the Income Tax authorities had been sold by the Addition al Collector of Bombay on 23 September 1961
The notice stated that the agreements had become impossible of per formance and the consideration of reciprocal promises disap peared
The notice further stated that the powers of attor ney executed in favour of the respondent company by the appellant in respect of their shares in the Maheshwari Khetan Sugar Mills Private Ltd and Laxmi Devi Sugar Mills Private Ltd were revoked and cancelled
The notice con cluded by saying that the respondents had no right authori ty or power to act on behalf of or in the name of the appellants in pursuance of the said power of attorney
By another notice dated 14 January 1962 the appellants informed the respondent company that the transfer of shares in the company s register had been made illegally and with out authority because no proper instruments of transfer duly stamped and executed by andor on behalf of the appellants were delivered to the respondent company and that the shares were under attachment by the Collector of Deoria for recov ery of income tax arrears on the certificate issued by the Additional Collector of Bombay
The notice to the respond ent company also said that certain shares in blank transfer forms were in possession of the Receiver appointed by the Additional Collector of Bombay in the income tax recovery proceedings
The notice concluded by stating that the respondent company was informed that the alleged transfer of shares from the names of the appellants as well as the deletion of their names from the register was illegal and void
Respondent No 1 and Durga Prasad Khetan contended in answer to the notice that the appellant had no right title or interest in the 14 1458SCI76 194 shares mentioned in the notice that the shares had not been transferred but had been transmitted subject to the orders of the Income Tax authorities under section 465a of the Income Tax Act and that the shares of the Ishwari Khetan Sugar Mills Ltd were sold by the Additional Collector of Bombay in recovery of the income tax arrears in spite of
the protests lodged by the respondent and that the power of attorney in respect of the shares could not be cancelled by the appellant
The respondents denied that the transfers were illegal and without authority
In this background the appellant on 17 July 1962 filed a petition in the High Court of Allahabad under section 155 of the referred to as the Act against the respondents
The appellant contended first that the trans fers of all the shares in the respondent company s register were illegal because the transfers were without any proper instrument of transfer
The appellant also contended that the transfers were in contravention of the mandatory provi sions of section 108 of the Act and articles of the respond ent company
The second contention of the appellant was that no legal transfer of the shares in question should have been made because at the time of the alleged transfer the shares had been surrendered along with blank transfer forms to the Receiver appointed by the Collector of Bombay in execution proceedings for recovery of the income tax dues
The appellant also alleged that other shares had been attached by the Collector of Deoria in pursuance of the two certificates issued by the Collector of Bombay under Order 21 Rule 46 of the Code of Civil Procedure
The learned Single Judge directed the respondent company to  rectify the register of its members by remov ing the names of respondents No 1 and 2 and  to restore the names of the original share holders
The learned Single Judge rejected the contention of the respondents that it was a case of transmission of shares
The learned Judge said that the transmission of shares occurred only by operation of law and this was a case of transfer by voluntary act of the parties which could not amount to transmission
The learned Judge also held that although the transferees di vested themselves of all powers and control in respect of the shares in question by executing irrevocable powers of attorney in favour of the transferees mere transfer of control did not amount to transfer of possession
The learned Judge further held that the agreements to which reference has already been made were not instruments of transfer and the transfer of shares which were under attach ment in pursuance of the certificate issued by the Addition al Collector under Order 21 Rule 46 of the Code of Civil Procedure was illegal and void
The transfer of the shares which had been surrendered to the Receiver appointed by the Collector of Bombay was also held by the learned Judge to be bad on the same ground
The respondents preferred an appeal
The Division Bench of the High Court set aside the order passed by the Company Judge and dismissed the applications of the appel lant
The Division Bench held that the provisions contained in section 108 of the Act were directory and not mandatory
The Division Bench also held that the provisions of section 64 of the Code of Civil Procedure and Order 21 Rule 46 195 prevailed over the prohibitory order contained in Form 18 in Appendix E of Schedule I of the Code
The Division Bench held that the appointment of the
Receiver did not divest a party of his right to property and the mere fact that shares were handed over to the Receiver with blank in struments of transfer did not make any difference
The provision contained in section 108 of the Act states that a company shall not register a transfer of share s  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   has been deliv ered to the company along with the certificate relating to the shares or debentures   or if no such certifi cate is in existence along with the letter of allotment of the shares
There are two provisos to section 108 of
the Act
We are not concerned With the first proviso in these appeals
The second proviso states 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
The words shall not register are mandatory in character
The mandatory charac ter is strengthened by the negative form of the language
The prohibition against transfer without complying with the provisions of the Act is emphasised by the negative lan guage
Negative language is worded 10 emphasise the insist ence of compliance with the provisions of the Act
See State of Bihar vs Maharajadhiraj Sir Kameshwar Singh of Darbhanga  Ors1 M Pentiah  Ors
vs Muddala Veeramal lappa  Ors
2 and Additional District Magistrate Jabal pur vs Shivakant Shukla3
Negative words are clearly prohibitory and are Ordinarily used as a legislative
device to make a statutory provision imperative
In Raza Buland Sugar Co Ltd vs Municipal Board Rampur4 this Court referred to various tests for finding out when a provision is mandatory or directory
The purpose for which the provision has been made its nature the intention of the legislature in making the provision the general inconvenience or injustice which may result to the person from reading the provision one way or the other the relation of the particular provision to other provisions dealing with the same subject and the language of the provi sion are all to be considered
Prohibition and negative words can rarely be directory
It has been aptly stated that there is one way to obey the command and that is com pletely to refrain from doing the forbidden act
Therefore negative prohibitory and exclusive words are indicative of the legislative intent when the statute is mandatory
See Maxwell on Interpretation of Statutes 11th Ed
p 362 seq Crawford Statutory Construction Interpretation of Laws p 523 and Seth Bikhraj Jaipuria vs Union of India5
1  988 89
2   308
3 1976 Supp
SCR 172
4  5   893 94
196 The High Court said that the provisions contained in section 108 of the Act are directory because non compliance with section 108 of the Act is not declared an offence
The reason given by the High Court is that when the law does not prescribe the consequences or does not lay down penalty for non compliance with the provision contained in section 108 of the Act the provision is to be considered as directory
The High Court failed to consider the provision contained in section 629A of the Act
Section 629A of the Act pre scribes the penalty where no specific penalty is provided elsewhere in the Act
It is a question of construction in each case whether the legislature intended to prohibit the doing of the act altogether or namely to make the person who did it liable to pay the penalty
Where a contract express or implied is expressly or by implication forbidden by statute no court will lend its assistance to give it effect
See Mellis vs Shirley1
A contract is void if prohibited by a statute under a penalty even without express declaration that the contract is void because such a penalty implies a prohibition
The penalty may be imposed with intent merely to deter persons from entering into the contract
or for the purposes of revenue or that the contract shall not be entered into so as to be valid at law
A distinction is sometimes made between contracts entered into with the object of committing an illegal act and contracts expressly or impliedly prohibited by statute
The distinction is that in the former class one has only to look and see what acts the statute prohibits it does not matter whether or not it prohibits a contract if a contract is made to do a prohibited act that contract will be unenforceable
In the latter class one has to consider not What act the statute prohibits by what contracts it prohibits
One is not concerned at all with the intent of the parties if the parties enter into a prohibited contract that contract is unenforceable
See St John Shipping Corporation vs Joseph Rank
See also Halsbury s Laws of England Third Edition Vol 8 p141
It is well established that a contract which involves in its fulfilment the doing of an act prohibited by statute is void
The legal maxim A pactis privatorum publico juri non derogatur means that private agreements cannot alter the general law
Where a contract express or implied is expressly or by implication forbidden by statute no court can lend its assistance to give it effect
See Mellis vs Shirley LB Supra
What is done in contravention of the provisions of an Act of the Legislature cannot be made the subject of an action
If anything is against law though it iS not prohibited in the statute but only a penalty is annexed the agreement is void
In every case where a statute inflicts a penalty for doing an act though the act be not prohibited yet the thing is unlawful because it is not intended that a statute would inflict a penalty for a lawful act
Penalties are imposed by statute for two distinct pur poses 1 for the protection of the public against fraud or for some other object of public policy 2 for the purpose of securing certain sources of 1 2 197 revenue either to the state or to
certain public bodies
If it is clear that a penalty is imposed by statute for the purpose of preventing something from being done on some ground of public policy the thing prohibited if done will be treated as void even though the penalty imposed is not enforceable
The provisions contained in section 108 of the Act are for the reason indicated earlier mandatory
The High Court erred in holding that the provisions are directly
Some of the shares were attached by the Collector of Deoria pursuant to two certificates issued by the Collector of Bombay
Other shares were surrendered along with blank transfer forms to the Receiver appointed by the Collector of
Bombay in execution proceedings
Order 21 Rule 46 of the Code of Civil Procedure lays down that in the case of shares in the capital of a corpora tion the attachment shall be made by a written order prohib iting in the case of the share the person in whose name the share may be standing from transferring the same
In the present case in addition to the prohibition issued under Order 21 Rule 46 a separate prohibitory order was issued to the company in Form No 18 in Appendix E of the First Sched ule of the Code of Civil Procedure
Therefore the company by registering the transfer of shares was obviously permit ting the transfer and such action on the part of the company being in violation of the prohibition is contrary to law
Shares which had not been attached but had been surren dered to the Receiver appointed by the Collector of Bombay came from the possession of the Receiver in the partnership suit
The Receiver in the partnership suit took possession of the shares along with blank transfer forms in the year 1953
When the Receiver held the scrips and the transfer forms it was not open to the persons in whose names the shares originally stood to exercise rights of ownership in respect thereof or to transfer their ownership to anyone else
For the foregoing reasons we set aside the decision of the High Court
The order of the learned Single Judge dated 5 March 1963 is restored
There will be no order as to costs
PBR Appeal allowed


Summary:
Section 108 of the provides that a company shall not register transfer of shares 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 has been delivered to the company along with the share certificate
The appellants and the respondents were members of a family
The family held shares in a company and in addi tion the members were doing partnership business
To realise large sums of income tax dues from the firms and individual partners the Income tax Department issued no tices to the company to pay to that department any amount due to the firm or its partners
A receiver appointed by the Collector took possession of the appellants  shares along with duly signed blank transfer deeds
Later shares belonging to the family
in the company were attached under O 21 r 46 CPC
In the meantime the appel lants in settlement of their accounts with the respondents agreed for transfer of certain shares to the respondents as soon as the transfer became permissible
At the instance of respondents 1 and 2 however the company by a resolution transferred the appellants  shares to the respondents
The appellants gave notice to the respondents that the shares under attachment of the Incometax Department had been sold by the Collector and that the transfers were illegal and void
The respondents contended that it was not a case of transfer but one of transmission
In a petition under section 155 of the the appellants contended that tie transfer was in contravention of the mandatory provisions of section 108 and that the shares had been attached by the Collector under O 21 r 46 CPC A single Judge of the High Court held the transfer to be illegal and void
On appeal a Division Bench held that the provisions of section 108 were directory and not mandatory and that the provisions of section 64 CPC and O 21 r 46 pre vailed over the prohibitory order contained in Form 18 in Appendix E of Schedule I of the CPC but that the attach ment and appointment of Receiver did not divest a party of his right to his property
Allowing the appeal HELD The provisions of section 108 of the are mandatory and the High Court erred in holding that they were directory
197B 1a The words shall not register are mandatory in character
The mandatory character is strengthened by the negative form of the language which is used to emphasise the insistence of compliance with the provisions of the Act
Negative words are clearly prohibitory and are ordinarily used as a legislative device to make a statutory provision imperative
See State of Bihar vs Maharjdhiraja Sir Ka meshwar Singh of Darbhanga  Ors
at pp
988 89 M Pentiah  ors
vs Muddalal Veeramallappa  Ors  at p 308 and Additional District Magis trate Jabalpur vs Shivaknant Shukla 1976 Supp SCR 172 followed
195D E 191 b The tests for finding out when a provision is manda tory or directory are the purpose for which the provision has been made its nature the intention of the legislature in making the provision the general inconvenience or injus tice which may result to the person from reading the provi sion one way or the other the relation of the particular provision to other provisions dealing with the same subject and the language of the provision
Prohibition and negative words can rarely be directory
Negative prohibitory and exclusive words are indicative of the legislative intent when the statute is mandatory
195F G Raja Buland Sugar  Co Ltd vs Municipal Board Rampur  and Seth Bikhral Jaipuria vs Union of India  at pp
89394 followed
2 a In holding that section 108 is directory and not mandatory for the reason that non compliance with the sec tion was not declared an offence the High Court failed to consider the provisions of section 629 A of the Act which pre scribes a penalty where no specific penalty is provided in the Act
It is a question of construction in each case whether the legislature intended to prohibit the doing of the act altogether or merely to make the person who did it liable to pay the penalty
196B b A contract is void if prohibited by a statute under a penalty even without express declaration that the contract is void because such a penalty implies a prohibi tion
If a contract is made to do a prohibited act that contract will be unenforceable
If a contract is expressly or implied by prohibited by statute one has to see not what acts the statute prohibits but what contracts it prohibits
One is not concerned with the intent of the parties
196C E St John Shipping Corporation vs Joseph Rank 1957 1 QB 267 referred to
c The maxim a pactis privatorum publico juri non derogatur means that private agreement cannot alter the general law
What is done in contravention of the provi sions of an Act of Legislature cannot be made the subject of action
196F Mellis vs Shitlay LB referred to
d In every case where a statute inflicts a penalty for doing an act though the act be not prohibited yet the thing is unlawful because it is not intended that a statute would inflict a penalty for a lawful act
196G e If a penalty is imposed by statute for preventing something being done on some ground of public policy the thing prohibited if done will be treated as void even though the penalty imposed is not enforceable
197A In the present case in addition to the prohibition issued under O 21 r 46 a separate prohibitory order was issued to the company in Form 18 in Appendix E of the First Schedule of the CPC Therefore the company by registering the transfer of shares was obviously permitting the transfer and such action being in violation of the prohibition is contrary to law
97D 3 When the receiver held the scrips and the transfer forms it was not open to the owners to exercise rights of ownership or to transfer their ownership to anyone else
197F