Case: M/S. Dove Investments Pvt.Ltd Vs. M/S. Gujarat Industrial Inv.Corpn

The Appellant herein took a loan of a sum of Rs.4.5 crores from Respondent No.1 in the year 1996. By way of security, Respondent Nos. 2 to 4 pledged 25,92,800 shares in favour of Respondent No.1. Respondent No.1 on or about 02.01.2001 lodged the said share certificate pledged by Respondent Nos. 2 to 4 along with the share transfer forms with the Appellant for transferring the said shares in its name on the ground that there had been delay in repayment of the said loan. A winding up petition also came to be filed by Respondent No.1 against the Appellant in terms of Section 434(1)(a) and 439(1)(b) of the Companies Act, 1956 (for short,) in the High Court of Judicature at Madras. Respondent Nos. 2 to 4 had also filed suits being O.S. Nos. 3742, 3740 and 3741 of 2003 respectively for permanent injunction restraining the Respondent No.1 and the Appellant from effecting the transfer of the equity shares in favour of Respondent No.1.It is not in dispute that upon compliance of the requisite formalities, as envisaged under Section 108 of the Act, Respondent No.1 was to present the said shares with the Appellant by 08.12.1999. However, it did so only on 02.01.2001. Respondent No.1 raised a grievance that the Appellant although had registered a transfer of 2,99,800 shares pledged by Respondent Nos.2 to 4, but failed to effect registration of transfer in respect of the remaining 22,93,000 shares. According to Respondent No.1, the saide freely transferable and the conduct of the Appellant in not effecting registration thereof is mala fide and without sufficient cause. Respondent No.1 filed an application before the Company Law Board. The Company Law Board by a judgment and order dated 23.08.2004 allowed the said application holding :i) The civil suits filed by the Respondents 2 to 4 in the absence of any restraint order against the Appellant and Respondent No.1 for not giving effect to the transfer of shares, do not have any bearing on the prayer made by Respondent No.1 herein.ii) The other averments raised in the counter statement are neither argued nor found to be germane to the issue in question.iii) The Appellant is hereby directed to register the transfer of 22,93,000 shares in the name of Respondent No.1 herein within 30 days of receipt of this order.

Reasoning:
A company may refuse to register shares for various reasons. In this case, however, the shares being freely transferable refusal for transfer can be made only on limited grounds. Some such grounds may be that the transfer is mala fide or transferee is not a bona fide investor or transfer is not permissible in terms of one or the other provisions of the Articles of Association or the same is otherwise prohibited in law e.g. sub-section (3) of Section 22A of the Securities Contract (Regulation) Act, 1956. However, before the company can be asked to perform its duties in terms of the said provisions, the procedural requirements contained in Section 108 are required to be complied with. Section 108 requires the applicant desiring to obtain the registration of transfer of shares in its favour to comply with the provisions contained therein. It is, therefore, ordinarily for the applicant to comply with all formalities. If it does not do so it cannot make the company bound to effect the transfer, unless sufficient and cogent reasons are assigned. The time is specified in the aforementioned provisions for filing of such an application in the prescribed form and upon complying with the requirements prescribed therein.