IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated:-30-12-2004 Coram:- The Hon'ble Mr. Justice P. SATHASIVAM and The Hon'ble Mr. Justice AR. RAMALINGAM Civil Misc., Appeal Nos. 3188 and 3223 of 2004 and C.M.P.Nos. 17656 and 17925 of 2004 C.M.A.No. 3188/2004 1. M/s. Dove Investments Private Ltd., No.41, Nariman Bhavan, 4th Floor, 227, Nariman Point, Mumbai – 400 021 2. M/s. Maxworth Investments Private Ltd., No.112, Sterling Road, Nungambakkam, Chennai-600 034. 3. Mr. P.N. Mohan, Plot No. 490, 4th South Cross Street, Kapaleeshwar Nagar, Neelankarai, Chennai-600 041. .. Appellants/Respondents 2,3 and 4. Vs. 1. M/s. Gujarat Industrial Investment Corporation Ltd., Udyog Bhavan, 6th Floor, Block No.11 and 12, Sector No.11, Gandhi Nagar- 382 011. 2. M/s. Sterling Holiday Resorts (India) Ltd., Regd.Off.at No. 406, T.T.K.Road, Alwarpet, Chennai-600 018. ..1st Respondent. .. Respondents/Petitioner & Ist Respt https://hcservices.ecourts.gov.in/hcservices/ C.M.A.No. 3223/2004 M/s. Sterling Holiday Resorts (India) Ltd., Regd.Off.at No. 406, T.T.K.Road, Alwarpet, Chennai-600 018. ..Appellant/1st Respondent. Vs. 1. M/s. Gujarat Industrial Investment Corporation Ltd., Udyog Bhavan, 6th Floor, Block No.11 and 12, Sector No.11, Gandhi Nagar- 382 011. .. Petitioner. 2. M/s. Dove Investments Private Ltd., No.41, Nariman Bhavan, 4th Floor, 227, Nariman Point, Mumbai – 400 021 .. 2nd Respondent. 3. M/s. Maxworth Investments Private Ltd., No.112, Sterling Road, Nungambakkam, Chennai-600 034. .. 3rd Respondent. 4. Mr. P.N. Mohan, Plot no.490, 4th South Cross Street, Kapaleeshwar Nagar, Neelangarai, Chennai-600 041. ..4th Respondent. .. Respondents/Petitioner RR 2 to 4 Civil Misc., Appeals are filed under Section 10F of the Companies Act, 1956, against Order dated 23-08-2004 in C.P. 13/111A/SRB/2003 passed by Company Law Board, Southern Region Bench, Chennai. Mr. Alagiriswamy, Senior Counsel for Mr.S. Murugan:- For Appellants in CMA No.3188/2004 and for Respondents 2 to 4 in CMA 3223/04 Mr. P.H. Aravindh Pandian: For Appellant in C.M.A.No. 3223/2004 and for 2nd respondent in CMA 3188/04 Mr. Arvind P. Dattar, Senior counsel for Mr. Shivakumar:- For 1st Respondent in CMA Nos. 3188/2004 and 3223/2004. https://hcservices.ecourts.gov.in/hcservices/ COMMON JUDGEMENT (Judgment of the Court was delivered by P. Sathasivam, J.,) By consent of all the parties, the Appeals themselves have taken up for disposal. M/s. Dove Investments Private Limited, Mumbai-21; M/s. Maxworth Investments Private Limited, Chennai-34; and Mr. P.N. Mohan, partner of M/s. Sandhya Priya Investments, Chennai-41-respondents 2 to 4 in Company Petition N.13/111A/S.R.B of 2003 on the file of Company Law Board, Southern Region Bench, Chennai, aggrieved by the order dated 23-08-2004, directing M/s. Sterling Holiday Resorts-first respondent therein to register transfer of 22,93,000 shares in the name of the M/s. Gujarath Industrial Investment Corporation Ltd., petitioner therein within 30 days of receipt of the said order, have preferred C.M.A.No. 3188 of 2004 under Section 10F of the Companies Act, 1956. Questioning the very same order, M/s. Sterling Holiday Resorts, first respondent therein filed C.M.A.No. 3223/2004. Since both the appeals arise against the very same order of the Company Law Board, the same are being disposed of by the following common order: Brief facts: For convenience, we shall refer the parties as arrayed before the Company Law Board. M/s. Gujarat Industrial Investment Corporation Limited/petitioner is a Government of Gujarat Undertaking, filed Company Petition No. 13/111A/SRB of 2003 under Section 11A of the Companies Act, 1956 (hereinafter referred to as "the Act") against M/s. Sterling Holiday Resorts (India) Limited ("Company" in short) and three others, namely, M/s. Dove Investments Private Limited, M/s. Maxworth Investments Private Ltd., and P.N. Mohan before the Company Law Board, Southern Region Bench, Chennai to register the transfer of 22,93,000 shares of the company pledged by respondents 2 to 4 in favour of the petitioner. It is seen that the Gujarat Industrial Investments Corporation Ltd., a wholly owned Government of Gujarat financial institution advanced a loan of Rs.5 Crores in 1996 to the company for conduct of its business, for which the company offered the shares held in the name of respondents 2 to 4 being the Company's promoters and associates, by pledging the shares (A-2 to A-9). Since the Company committed default in repayment of the loan amount, the petitioner lodged with the Company, the original certificates of the pledged shares together with duly stamped and executed instruments of transfer for effecting registration of the transfer thereof in their name. It is the grievance of the petitioner that though the Company had registered the transfer of 2,99,800 shares pledged by respondents 2 and 3, failed to effect the registration of the transfer in respect of the remaining 22,93,000 shares. It is also the claim of the petitioner that in spite of repeated demands and lawyer's notice dated 29-7-2003, calling upon the company to https://hcservices.ecourts.gov.in/hcservices/ transfer the balance 22,93,000 shares in the name of the petitioner in demat form, the Company failed and refused to register the transfer of the pledged shares in favour of the petitioner. In order to circumvent the claim of the petitioner, the respondents 2 to 4 have filed Civil Suits in O.S.Nos. 3740, 3741 and 3742 of 2000 on the file of City Civil Court, Chennai for permanent injunction restraining the Company from effecting the transfer of the pledged shares in favour of the petitioner. The impugned shares are freely transferable and the conduct of the respondents in not effecting registration of the transfer of the pledged shares is with an oblique motive and without sufficient cause and, therefore, the petitioner being a pledgee is entitled for registration of shares in its favour on default committed by the Company. 2. The respondents 2 to 4 filed a common counter affidavit wherein it is stated that the petitioner failed to comply with the provisions of Sub-section (1C), according to which the instruments of transfer ought to have been stamped or endorsed by the petitioner and thereafter delivered them to the Company together with the share certificates for registration of the transfer within two months from the date so stamped or endorsed. The requirements of sub-section (1C)(B)(iv)(1)(c)(2), being mandatory have not been duly satisfied and therefore the Company is not under an obligation to effect the transfer of shares in the name of the petitioner. The Company cannot be compelled to register the transfer of shares until a proper instrument of transfer duly stamped and executed has been delivered to the Company. By virtue of the deed of pledge executed by the respondents 2 to 4, the petitioner could dispose of the pledged shares either by public auction or private contract and appropriate the sale proceeds towards the dues of the Company. Therefore, the petitioner does not have the right to get the shares transferred in its name without a corresponding reduction in loan obligations. 3. The petitioner filed a Rejoinder stating that the plea of non compliance with the requirements of section 108 (1C) has neither been raised before the Civil Court nor in the present proceedings. The Company has already given effect to the transfer of 2,99,800 shares. Further, the Company by letter dated 23-07- 2001 admitted that it is in the process of transferring and converting the balance of 22,93,000 shares into marketable lots. Their only grievance in the Civil Suit is that the petitioner is attempting to transfer the pledged shares in its favour at a value far below the market value. The Company has, therefore, waived its rights to enforce the requirements of sub-section (1C) of Section 108. The requirements of section 108 (1C) are only directory and not mandatory. The petitioner has every right to effect the transfer of the impugned shares in its favour, in view of the default committed by the Company. As against the loan amount of Rs.5 Crores availed in 1996, the present outstanding amount as on https://hcservices.ecourts.gov.in/hcservices/ August, 2003 payable by the Company comes to Rs.38,84,50,793/-. The Company is neither settling the dues nor giving effect to the transfer of the pledged shares in the name of the petitioner in terms of the loan agreement, thereby jeopardising the public interest, on account of the huge public money blocked in the subject transaction. Therefore, no sympathy should be shown to a chronic defaulter and the requirements of sub-section (1C) being only directory. The Company Law Board in exercise of Powers vested in section 111A may direct the company to effect registration of the transfer of the remaining pledged shares in the name of the petitioner. 4. In the light of the stand taken by all the parties and after considering the relevant provisions as well as judicial decisions thereon, the Company Law Board by the order under challenge after holding that compliance of Section (1C) is directory in nature and not mandatory and taking note of the conduct of the company having waived all the requirements of sub- section (1C), directed the Company to register the transfer of 22,93,000 shares in the name of the petitioner within 30 days of the receipt of the said order. Questioning the same, the Company as well as the investors have preferred the above appeals. 5. Heard Mr.Alagiriswamy, learned senior counsel for the appellants in C.M.A.No. 3188/2004, Mr. P.H. Aravindh Pandian, learned counsel for the appellant in C.M.A.No. 3223/2004 and Mr. Arvind P. Datar, learned senior counsel for the first respondent/Gujarat Industrial Investment Corporation Limited. 6. After taking us through the Company Petition, counter, rejoinder, the details regarding Civil Suits, impugned order of the Company Law Board and relevant provisions of the Companies Act, Mr.Alagiriswamy, learned senior counsel for the investors, and Mr. P.H. Aravindh Pandian, learned counsel for the Company, have raised the following contentions: i) Whether the Company Law Board was correct in holding that the provisions of Section 108, except sub-section (1) of the Companies Act, 1956 are only directory and not mandatory in nature? ii) Whether the Company Law Board was right in arriving a conclusion that the share transfer has to be registered by the appellant in spite of the fact that certain provisions of law has not been duly complied with by M/s Gujarat Industrial Investment Corporation Limited/petitioner before the Company Law Board. 7. On the other hand, Mr. P. Arvind Datar, learned senior counsel appearing for the Gujarat Industrial Investment Corporation / petitioner, would submit that Section 108 (1C) of the Act is directory and not mandatory. Even otherwise, according to https://hcservices.ecourts.gov.in/hcservices/ him, in view of the conduct of the company and also of the fact that transfers would complete only if procedural formalities were complied with, the conclusion and ultimate direction of the Company Law Board cannot be faulted with. 8. We have carefully considered the claim of both parties with reference to the materials placed and the statutory provisions applicable to them. 9. Before considering the rival contentions, it would be useful to refer the relevant provisions of the Companies Act, 1956 applicable to the case on hand: "Transfer not to be registered except on production of instrument of transfer. Section 108. (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 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 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 or debenture-holder many person to whom the right to any shares in, or debentures of, the company has been transmitted by operation of law. "Section 108 (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 https://hcservices.ecourts.gov.in/hcservices/ 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 endorsed 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 recognised 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. (1B) xx xx (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 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 https://hcservices.ecourts.gov.in/hcservices/ 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 endorsed; 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, https://hcservices.ecourts.gov.in/hcservices/ duly completed in all respects, is delivered to the company within two months from the date so stamped or endorsed. Explanation: xx xx (1D) xx xx " Among the above mentioned provisions, we have to see whether the entire Section 108 including (1C) is mandatory or 108 (1) alone is mandatory. We have already referred to the fact that the petitioner before the Company Law Board is the Government of Gujarat Undertaking registered under the Companies Act and that the provisions of State Financial Corporations Act, 1951 are made applicable to it. It is not in dispute that the Company, namely, Sterling Holiday Resorts (India) Limited had availed a loan of Rs.4.5 Crores during the year 1996 and as per the security for the same, the investors had pledged their respective shares in the petitioner Corporation to the extent of 25,92,800 in favour of Gujarat Industrial Investment Corporation Limited. Since the Company had failed to repay the loan, the petitioner had exercised its powers under the pledged Agreement and Power of Attorney duly executed by the respondents and requested them to transfer those shares in its name. Since there is no response from the Company even after repeated registered notices and reminders, the petitioner had filed a petition under Section 111A of the Companies Act before the Company Law Board. It is the claim of the Company that the provisions contained in Section 108 (1C) of the Act are mandatory, and without strict compliance of which, the petitioner cannot seek for the relief of the registration of the remaining 22,93,000 shares in favour of the petitioner though it had effected transfer of 2,99,800 shares. On the other hand, it is the claim of the petitioner that the provisions of Sub-Section (1C) of Section 108 of the Act are only directory and not mandatory, and that more over the requirement of which is waived by the Company by way of effecting the transfer of 2,99,800 shares out of 25,92,800 pledged shares in the name of the petitioner. sub-section (1) of Section 108 provides that a Company shall not register a transfer of shares in 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 has been delivered to the company. Sub-section (1) provides that a company shall not register a transfer of shares in the company, unless a proper instrument of transfer duly stamped or executed by or on behalf of the transferor and by on behalf of the transferee has been delivered to the company. Though several decisions have been cited on either side, the decision of the Apex Court in Mannalal Khetan v. Kedar Nath Khetan, reported in (1977) 47 Company Cases 185 is relevant wherein the Supreme Court held that the provisions contained in Section 108 (1) are mandatory. By heavily relying on the said decision, it was contended that therefore the Company cannot be compelled to register the transfer https://hcservices.ecourts.gov.in/hcservices/ of shares until the mandatory requirements of law are complied with. As per Section 108 (1A) (a) every instrument of transfer, before it is signed by or on behalf of transferor, and before any entry is made therein, be presented to the 'prescribed authority', who shall stamp or otherwise endorse thereon the date on which it is presented to him. After an instrument is duly dated by the prescribed authority and completed in all respects, it shall be delivered to the company for registration of the transfer, together with related certificate of shares or the letter of allotment, within the time limit specified in clause (b) of sub-section (1A). In sub-section (1A) and sub-section (1C) two months time limit has been prescribed for presentation, stamping or compliance of all other conditions. It is the categorical claim of the Company and the investors that sub-section (1C) has not been fulfilled since the instrument is not duly stamped by the prescribed authority and not presented within the time prescribed. There is no obligation on the part of the company to register the transfer of 22,93,000 shares in the name of the petitioner as directed by the Company Law Board. At the foremost, Mr. P.H. Arvindh Pandian, learned counsel appearing for the Company, by relying on a decision in Union of India v. International Trading Company, reported in 2003 AIR SCW 2828, would contend that merely because the Company had registered the transfer of 2,99,800 at the first instance, it cannot be compelled to commit a wrong action. The following statement of law made in para 14 of the said decision has been pressed into service: (para 14) "14.....A party cannot claim that since something wrong has been done in another case, direction should be given for doing another wrong. It would not be setting a wrong right, but would be perpetuating another wrong. In such matters there is no discrimination involved. The concept of equal treatment on the logic of Art. 14 of the Constitution of India, 1950 cannot be presented into service in such cases. What the concept of equal treatment presupposes is existence of similar legal foothold. It does not countenance repetition of a wrong action to bring both wrongs on par. Even if hypothetically it is accepted that wrong has been committed on some other cases by introducing a concept of negative equality respondents cannot strengthen their case. They have to establish strength of their case on some other basis and not by claiming negative equality." On going through the factual details in that case and considering the fact that in the present case the said objection was admittedly not raised before and that a portion of the shares have been transferred and registered in the name of the petitioner without any objection, we are of the view that the principle referred above is not applicable to the case on hand. https://hcservices.ecourts.gov.in/hcservices/ 10. Regarding compliance of sub-Section (1C) as well as fulfilment of certain conditions "within the prescribed time", Mr. P.H. Aravindh Pandian has heavily relied on the following decisions: i) AIR 1935 Privy Council 85-MAQBUL AHMAD v. ONKAR PRATAP. ii) AIR 1972 Mysore 50-THIPPASWAMY v. M.R.A.TRIBUNAL iii) AIR 1953 Nagpur 81-Miss CAMA v. BANWARILAL. iv) AIR 1961 SC 1107-M.PENTIAH v. VEERAMALLAPA. v) AIR 1928 Privy Council 273-ARSECULERATNE v. PERERA. vi) AIR 2003 SC 511-BHAVNAGAR UNIVERISITY v. PALITANA SUGAR MILL PVT. LTD., vii) AIR 1991 SC 754-ROHIT PULP AND PAPER MILLS LTD. v. COLLECTOR OF CENTRAL EXCISE,BARODA. viii) (1995) All England Law Reports 367-WANG v. COMMISSIONER OF INLAND REVENUE. In AIR 1935 Privy Council 85 (supra), it is stated that while interpreting Statutes, when an Act which in some limited respects gives the Court a statutory discretion, there cannot be implied in the Court, outside the limits of the Act, a general discretion to dispense with its provisions. 11. The decision reported in AIR 1972 Mysore 50 (supra) speaks about time limit i.e., 30 days prescribed for filing appeal. The said decision is not helpful to the case of the company. In that case, the Appeal has to be filed within 30 days after the receipt of communication and factually it was found that the appeal has not been filed beyond 30 days. Even if there is any doubt about the matter, the Court should lean in favour of the person who is given the right of appeal. 12. In AIR 1953 Nagpur 81 (supra), a learned Single Judge of Nagpur High Court has given explanation for the expression "at any time" stipulated in Section 428 (1) of City of Nagpur Corporation Act, 1948. According to him, the words "at any time" made it clear