IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.R.RAMAN & THE HONOURABLE MR. JUSTICE P.R.RAMACHANDRA MENON MONDAY, THE 11TH JANUARY 2010 / 21TH POUSHA 1931 Co.Appeal.No. 9 of 2008 & CROSS OBJECTION NO.58 of 2009 CP.13/2005 of COMPANY LAW BOARD, SOUTHERN REGION BENCH, CHENNAI .................... APPELLANT/ PETITIONER IN THE CLB / (RESPONDENT IN THE CROSS OBJECTION) DR.S.KRISHNA SARMA, S/O.LATE S.SIVARAMAKRISHNA AIYAR 'SRIPATHI', VEERABHADRA GARDENS, PATTOM PALACE P.O., THIRUVANANTHAPURAM – 695 004. BY SENIOR ADV. SRI.SANKARANARAYANAN BY ADV. SRI.K.B.PRADEEP RESPONDENT/RESPONDENT IN THE CLB/ CROSS OBJECTOR KANTIMATHY PLANTATIONS PRIVATE LIMITED, PLAMOODU JUNCTION, PATTOM P.O., THIRUVANANTHAPURAM, REP. BY ITS MANAGING DIRECTOR. BY SENIOR ADVOCATES SRI. ARAVIND DATTAR & SRI. MURARI BY ADV. SRI.A.AHZAR FOR R1 THIS COMPANY APPEAL HAVING BEEN FINALLY HEARD ON 18/11/2009 ALONG WITH CROSS OBJECTION, THE COURT ON 11.01.2010, DELIVERED THE FOLLOWING: P.R.RAMAN & P.R.RAMACHANDRA MENON, JJ. ------------------------------- Company Appeal No.9 of 2008 & Cross Objection No.58 of 2009 ------------------------------- Dated this the 11th day of January, 2010 J U D G M E N T Raman, J. This is an appeal arising out of the order passed by the Company Law Board in C.P.No.13 of 2005, filed by the appellant herein. The said petition was filed under Sections 111 (2), (5) and (6) of the Companies Act, 1956 (hereinafter referred to as 'the Act' for short), seeking the directions against the respondent, M/s.Kantimathy Plantations Private Limited (hereinafter referred to as 'the Company' for short), to register the transfer of 28,370 shares, which are impugned, in favour of the petitioner and to rectify the register of members in respect of the impugned shares by substituting the name of the petitioner in the place of the respective transferors for the reasons set out therein. The Company Law Board eventually, after hearing the Co.App. 9/2008 and Cross Objection 58/2009 2 parties and after consideration of the matter, dismissed the petition, against which the present appeal is preferred. 2. The Cross Objection was filed, with a petition for condonation of delay, by the respondent in the appeal, seeking to support the order, as also challenging the certain findings rendered against the cross appellant. The very maintainability of the cross objection is challenged by the appellant. We shall consider the maintainability of the cross objection later. 3. The facts in brief necessary for the disposal of this appeal and the cross objection are as follows. The appellant's grandfather, Late Divan Peshkar Dr.N.Subramonya Iyer, had owned a rubber plantation known as 'Kanthimathy Estates'. Later, the father of the appellant, Late Sivaramakrishna Iyer, incorporated Peninsular Plantations Limited, which has three subsidiaries, viz., Kanthimathy Plantations, Braemore Estates and Vardhini Plantations. Subsequently, all these companies were de-subsidiarised. Thus, the respondent Company which was originally a subsidiary of a Public Limited Company, was also de- Co.App. 9/2008 and Cross Objection 58/2009 3 subsidiarised. On 19.9.2000, the appellant's father expired. Before that, on the eve of his retirement, as desired by him, the appellant was co-opted to the Board of Directors and appointed as the Managing Director of the Company. After the death of the father, litigations started between the brothers and some of them approached the Company Law Board. The appellant vacated the post of Managing Director of the Company and continued to be the Director, as per the proceedings issued by the Company Law Board. 4. The Company Petition was accordingly disposed of, against which the appellant preferred M.F.A.No.1200 of 2002 before this Court. This Court, by its judgment, dated 15.1.2004, disposed of the appeal setting aside the decision of the Company Law Board regarding the cancellation of the transfer of shares in the three companies to the second appellant in the said appeal, viz., Dr.S.Krishna Sharma, and remanded the matter to the Company Law Board to decide that question alone afresh. That appeal was preferred against the order of the Company Law Co.App. 9/2008 and Cross Objection 58/2009 4 Board in a petition filed under Sections 397 and 398 of the Act. The application which was filed before the Company Law Board was mainly questioning the transfer of shares in the three companies to the second appellant therein. A Special Leave Petition was also filed from the Judgment of this Court in the aforesaid M.F.A., which was also dismissed by the Apex Court. 5. Now the present dispute relates to the transfer of shares in the respondent Company by some of the share holders of the appellant. According to the appellant, he was holding 37,600 equity shares of Rs.10/-. His wife holds 100 shares and his son also holds 100 shares, thus, holding a total of 37,800/- shares in the Company. The appellant purchased 10,620 equity shares from S.Gangammal, 2750 shares from Smt.Vardhini and 15,000 shares from S.Ramakrishna Sarma. The vendors are respectively the sister, niece and brother of the appellant. The entire sale consideration was paid to the transferors and the appellant got the share transfer deeds duly executed by the respective vendors. The appellant also Co.App. 9/2008 and Cross Objection 58/2009 5 purchased 1500 shares from Mrs.Anandavalli, an existing member, and share transfer deeds in respect of those shares are not received. The appellant presented 28,370 shares for registration of transfer in his favour. It is alleged that the respondent Company did not receive the documents from the appellant and finally it was sent by registered post. Thereafter, the Company, by letter dated, 22.6.2005, refused to register transfer of shares on the grounds enumerated therein, and which is re-iterated hereunder for the purpose of convenience. “a. That the petitioner had usurped the post of Director and Managing Director and drew remuneration contrary to the Articles of Association. b. That the petitioner had failed to maintain the minutes book of Board of Directors meeting properly and permitted invalid resolutions to be recorded. c. That the petitioner had appropriated the shares held by the Company in other companies. d. That the petitioner even after failing in the election held on 27.6.2001 insisted to continue as Managing Director and refused to hand over the documents of the company. Co.App. 9/2008 and Cross Objection 58/2009 6 e. That the petitioner made a settlement proposal and used the proposal to gain time to acquire the shares in question and then unilaterally withdrew the proposal of settlement. f. That the petitioner had abused the position of Director when being inducted at the instance of the Honourable Bench with a view to settle the matter amicably and threatened the directors. g. That the management of the company was best only after the petitioner was stripped of the post of Managing Director. h. That the acquisition of the proposed shares would destabilize the present management of the company.” 6. It is contended that the grounds stated for refusal to effect transfers are absolutely false and unsustainable in law. According to the appellant, in view of Articles 14 and 15, which are relevant Articles in the context of transfer of shares, the Board cannot refuse a transfer on any other grounds. According to him, none of the grounds under Article 15 has been attracted against the appellant for refusing registration of transfer of shares. It was in those circumstances that he approached the Co.App. 9/2008 and Cross Objection 58/2009 7 Company Law Board under the relevant provisions, as referred to above. 7. It is further contended that the order of the Company Law Board is unsustainable on facts and in law; that the Company Law Board ought to have directed the respondent to effect transfer of shares in the Register of the Company, as the order of refusal does not qualify in terms of Article 15 of the Memorandum and Articles of Association; that the interpretation of Company Law Board on Articles 13 and 14 is unsustainable; and that Article 28 cannot be interpreted in isolation, but has to be understood by reading the same with the earlier Articles 13, 14 & 15, and the interpretation given by the Company Law Board to Article 28 in the impugned order would virtually delete Article 13 to 17 and even Article 29. 8. In the Cross Objection filed by the respondent Company in the appeal, it is urged that the Company Law Board erred in holding that the word 'hereinafter' employed in Article 28 is erroneously employed and that the same should read as Co.App. 9/2008 and Cross Objection 58/2009 8 “aforementioned”, and the Company Law Board ought to have seen that such finding would amount to re-writing the Articles, which cannot be done in a petition under Section 111 of the Act; that the Company Law Board while arriving at such finding erroneously concluded that the word “hereinafter” would be related to Article 29, which was the lone article succeeding Article 28, in the matter relating to shares, and that since the same was of no relevance, the word “hereinafter” was erroneously employed; and also that the finding of the Company Law Board that Article 28 would be subject to Article 13 and 14 is therefore erroneous. In the affidavit filed in support thereof, it is averred that the delay in filing the cross objection is neither wilful nor wanton, and in any event, since the same relates to the interpretation of the Articles, which the Company is seeking to do in the present appeal, no prejudice would be caused by such cross objection being considered. 9. It is contended by the appellant that the cross objection by the respondent Company is highly belated and filed Co.App. 9/2008 and Cross Objection 58/2009 9 even beyond the maximum period prescribed for filing the appeal, and this Court cannot condone the delay beyond 60 days, as per the proviso, even if it had been filed as a regular appeal. In this connection, appellant has referred to Section 10F of the Act, which is the provision for appeal to his Court, against the order passed by the Company Law Board, which inter alia provides that an appeal could be filed to this Court within 60 days from the date of communication of the decision or order of the Company Law Board to him, on any question of law arising out of such order. As per the proviso to Section 10F of the Act, this Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days. It is contended that even if an appeal is preferred beyond 120 days from the date of the order, this Court could not have condoned the delay as it is beyond the power of condonation conferred under the proviso to Section 10F of the Act. Being a statutory appeal, it is further contended that Section 5 of the Limitation Act has no application. No doubt, going by the proviso Co.App. 9/2008 and Cross Objection 58/2009 10 to Section 10F, the power to condone the delay is upto a period of 60 days only, and if an appeal is preferred with a delay of more than 60 days, this Court has no power to done the delay and to entertain the appeal. 10. While interpreting a similar provision, the Apex Court in Commissioner of Customs and Central Excise v. Hongo India (P ) Ltd. (2009 (236) E.L.T. 417 (SC) held that if, on examination of the relevant provisions, it is clear that the provisions of the Limitation Act are necessarily excluded, then the benefits conferred therein cannot be called in aid to supplement the provisions of the Act. Even in a case where the special law does not exclude the provisions of Sections 4 to 24 of the Limitation Act by an express reference, it would nonetheless be open to the Court to examine whether and to what extent, the nature of those provisions or the nature of the subject matter and scheme of the special law exclude their operation. In that case, under the relevant provisions of the Central Excise Act, the appeal and reference to High Court to be made within 180 days, Co.App. 9/2008 and Cross Objection 58/2009 11 as is clear from language used in Sections 35, 35B, 35EE, 35G and 35H of the Central Excise Act. The language used in other provisions make it clear that Legislature intended the appellate authority to entertain appeal by condoning the delay upto 30 days. The question that arose for consideration was as to whether the High Court in the reference application under Section 35H(1) of the unamended Act, has power under Section 5 of the Limitation Act, 1963, to condone the delay beyond the period prescribed under the main statute, i.e., the Central Excise Act. It was held that the High Court has no power to condone the delay in filing the reference. In Paragraph 19 of the judgment, it was observed that 'the language used in Sections 35, 35B, 35EE, 35G and 35H makes the position clear that an appeal and reference to the High Court should be made within 180 days only from the date of communication of the decision or order. In other words, the language used in other provisions makes the position clear that the legislature intended the appellate authority to entertain the appeal by condoning the delay only upto 30 days after expiry of 60 days which is the Co.App. 9/2008 and Cross Objection 58/2009 12 preliminary limitation period for preferring an appeal. In the absence of any clause condoning the delay by showing sufficient cause after the prescribed period, there is complete exclusion of Section 5 of the Limitation Act.” 11. In the light of the abovesaid decision, the position is very clear that on the clear language of Section 10F read with the proviso, if the cross objection was filed as a regular appeal by the respondent, this Court could not have entertained the same as it would be beyond the prescribed period. 12. But then according to the cross appellant, cross objection would be governed by the provisions contained under Order XLI Rule 22 of the Code of Civil Procedure. According to him, under Order XLI Rule 22, a cross objection could be filed within 30 days or within such further time as the Appellate Authority may deem fit to allow. It is also pointed out that as per Rule 6 of the Companies (Court) Rules, 1959, except as provided by the Act or the Rules, the practice and procedure of the Court and the provisions of the Code so far as applicable, shall apply to Co.App. 9/2008 and Cross Objection 58/2009 13 all proceedings under the Act and these Rules. As per Section 2 (4) of the said Rules, the Code means the Code of Civil Procedure, 1908. 13. It is true that in all statutory appeals, unless there is any express provision governing the procedure to be followed, it is the procedure as contemplated under Order XLI of Code of Civil Procedure that is followed, in so far as it may apply. Therefore, even though there is no specific provision under the Act providing for filing any cross objection, by virtue of Order XLI Rule 22 of CPC, a cross objection may lie. But then the question would be whether a long delay of 305 days is liable to be condoned, before a cross objection is entertained. Even as per Order XLI Rule 22, the normal period within which a cross objection has to be filed is 30 days from the date of receipt of notice in the appeal. Though in terms of Rule 22 of Order XLI, a cross objection filed even beyond that period could be entertained, provided this Court deems it fit to allow such cross objection on reasons being shown. In this case, absolutely no Co.App. 9/2008 and Cross Objection 58/2009 14 reasons are stated for the delay in filing the cross objection. In the circumstances, we would have dismissed the cross objection as highly belated. However, it is only academic whether such a cross objection is maintainable in the present case, since even the grounds urged in the cross objection are regarding the interpretation of the various provisions of Articles of Association of the Company, pointing out that the interpretation posed by the Company Law Board is not correct. Since the cross appellant who is the respondent in the main appeal is entitled to support the order, not only on the reasons as stated by the Tribunal, but also on any other grounds, practically, the appellant is not prejudiced and the cross objection itself is filed only as an abundant caution. 14. Taking note of the various grounds urged in the appeal and after hearing both sides, we, therefore, proceeded to formulate the following questions of law for consideration in the appeal. Co.App. 9/2008 and Cross Objection 58/2009 15 (1) Whether in the facts and circumstances of the case and in the light of the provisions contained under Articles 13 to 15 read with Section 28 of the Articles of the Association of the Company, the action of the company in refusing to register the transfer of shares is correct, and (2) Whether the interpretation of the Company Law Board on Articles 14, 15 and 28 is correct in law. 15. The relevant Articles for the purpose of consideration in this appeal are Articles 13, 14, 15, 28 and 29. They are re-produced as follows:- “Article 13 “Subject to the provisions of section 108 of the Act and the rules prescribed thereunder, a share may be transferred by a member or other person entitled to transfer to a existing member selected by the transferor to The Peninsular Plantation Ltd., or any nominee of the Peninsular Plantations Ltd., but save as aforesaid and except as provided in Article 14 hereunder, no share may be transferred to any person, except with the prior approval of the Board of Directors both as to the proposed transferee and the proposed transfer to him specifying the number of shares so permitted to transferred. Co.App. 9/2008 and Cross Objection 58/2009 16 Article 14: A shareholder may by way of gift or for or without any pecuniary consideration, transfer any share in the capital of the Company to his/her wife, husband, son, daughter, father, mother, grandson, grand- daughter, brother, sister, nephew or niece; or the wife or husband of any person standing in such relationship to the transferring member a above mentioned. And any share of a deceased member may, subject to the restrictions set forth in these presents, be transferred by his executers, or administers to any person to whom such deceased member may have specially bequeathed the same, such person standing to one of the following relationships to such deceased member, namely widow or widower, son, daughter, father, mother, grandson, grand- daughter, brother, sister, nephew or niece, or the wife or husband or any person standing in any such relationship to the deceased member. Article 15: The Directors may refuse to register any transfer of shares:- (a) Where the share is not fully paid up; (b) when the Company has a lien on the share; (c) Without assigning any reason therefore where it is not proved to their satisfaction that the proposed transferee is a responsible person. (d) Where the Directors are of opinion that the proposed transferee (not being Co.App. 9/2008 and Cross Objection 58/2009 17 already a member) is not a desirable to admit to membership; or (e) Where the result of such registration would be to make the number of members exceed the limits set out in Art.3 above. But clauses (c) & (d) of this Article shall not apply where the proposed transferee is already a member. Article 28: 28(a) Regulation 21 of Table 'A' shall not apply (b) Subject to the provisions of Section (1) 11 of the Act and subject as hereinafter mentioned, the Board may, at its own absolute and uncontrolled discretion and without assigning any reasons, decline to register or acknowledge the transfer or any share to any person, whom it shall not approve as transferee but in such case it shall, within two months from the date on which an instrument of transfer lodged with the Company, send to the transferee and the transferor notice of the refusal to register such transfer. Article 29: Where in the case of parly paid shares an application for registration is made by the transferor, the Company shall give notice of the application to the transferee in accordance with the provisions of Section 110 of the Act. Co.App. 9/2008 and Cross Objection 58/2009 18 16. As per Article 13, subject to the provisions of Section 108 of the Act and the rules prescribed thereunder, a share may be transferred by a member or other person entitled to transfer to a existing member selected by the transferor or any nominee of the company, but except as provided under Article 14, no shares can be transferred to any person except with the prior approval of the Board of Directors both as to the proposed transferee and the proposed transfer to him specifying the number of shares so permitted to be transferred. Admittedly, the appellant is an existing member selected by the transferor. As per Article 14, it permits the share holder may by way of gift, or for or without any pecuniary consideration, transfer any share in the capital or the Company to his/her wife, husband, son, daughter and any other relatives, specifically referred to therein. Then comes, Article 15, the power of the Directors to refuse to register any transfer of shares, as per which, the Directors may refuse any transfer of shares on any of the reasons enumerated under clause (a) to (e). What is relevant for our purpose is clause (c), which states that the Board of Directors may refuse Co.App. 9/2008 and Cross Objection 58/2009 19 registration without assigning any reasons thereof. But clause (c) and (d) are specifically excluded in its application, where the proposed transferee is already a member. Therefore, in the case of the appellant, who is already a Director and a share holder, clauses (c) and (d) have no application. Then, the only other provision which is relevant in the matter of refusal to register a transfer in the context is Article 28(b), as per which the Board may, at its own absolute and uncontrolled discretion and without assigning any reasons, decline to register or acknowledge the transfer of any share to any person, whom it shall not approve as transferee but in such case it shall, within two months from the date on which an instrument of transfer was lodged with the Company, send to the transferee and the transferor notice of the refusal to register such transfer. It is contended by the respondent that Article 28 is a residuary power uncontrolled by Articles 14 and 15 of the Articles of Association of the Company. Therefore, even in the case of an existing member, the Board could exercise its residuary power and refuse to register the transfer. Co.App. 9/2008 and Cross Objection 58/2009 20 17. As rightly held by the Company Law Board in the impugned order, there is apparent ambiguity in Article 13, in view of the recitals contained forming part thereto to the effect that a share may be transferred to an existing member selected by the transferor to TPPL or any of its nominees. Once an existing member is selected by a member for the purpose of effecting transfer in terms of this Article, there is no question of transferring shares to TPPL or any of its nominees of TPPL. Therefore, Article 13 ought to be read as follows:- “.... ..... a share may be transferred by a member or other person entitled to transfer, to a existing member selected by the transferor or to the Peninsular Plantation Ltd. or any nominee of the Peninsular Plantations Ltd” Thus, the word “or” now inserted in between the words “transferor” and “to The Peninsular Plantation Ltd.” could only be