Case: John Tinson and Co. Pvt. Ltd and others Vs. Mrs. Surjeet Malhan and Another

2. These appeals by special leave arise from the judgment of the Division Bench of the High Court of Himachal Pradesh, made on November 14, 1996 in RFA Nos. 230 and 231 of 19853. The admitted position is that the respondents, Mrs. Surjeet Malhan and Mr. B. K. Malhan, wife and husband respectively, laid two suits for declaration and permanent and mandatory injunction. The learned single Judge of the High Court dismissed the suits. But on appeal, the Division Bench has decreed the suits. Thus, these appeals by special leave4. The first respondent, Mrs. Surjeet Malhan, held 1500 shares in total - 900 in her name and 600 in the name of other relatives - and 10 preferential shares. The second respondent, B. K. Malhan, had held 2230 ordinary shares and 64 preferential shares. It would appear that there was an agreement between B. K. Malhan and Shri R. D. Bhagat, the appellant for transfer of the shares and completion of the transaction to put on rails the company which was running in losses. It would appear that as per the agreement, subsequent transactions were to be completed and in furtherance thereof, it appears that the shares, admittedly, were entrusted to Mr. Bhagat with a blank transfer form. Thereafter, the disputes arose between them. In consequence, the suits came to be laid by the respondents against the appellants.

Court's reasoning:
6. There should be consensus ad idem for a concluded contract and it is seen that Section 25(1) of the Contract Act contemplates that when a transfer is without consideration, it is a void contract. It is an admitted position that there is no concluded contract between Smt. Surjeet and Bhagat. The acquiescence did not amount to consent unless Smt. Surjeet Malhan expressly authorised her husband to transfer her shares. The transfer as contemplated in this case is only for a sum of Re. 1/-. As a consequence, in the eye of law, there is no consideration and, therefore, the transfer agreement is voidIt is an admitted position that she had not given authority by any letter in writing otherwise to her husband to transfer her shares in favour of Mr. BhagatWe find no force in the contention. The transaction was between the broker and the purchaser. After the broker purchased the shares on behalf of the company with blank transfer forms, the shares were entrusted. It was, therefore, concluded that the moment the shares were entrusted, being movable property, the contract was complete and, therefore, it was a valid transfer. In this case, there was no direct transaction between Mrs. Surjeet Malhan and Mr. Bhagat. It is not even the case of the appellant that Mr. Malhan had been authorised to entrust those shares and blank transfer forms to Bhagat. Under these circumstances, without any specific authority by the owner of the shares, i.e., Mrs. Surjeet Malhan in favour of third party, including her husband, he gets no right to transfer her shares; nor Bhagat gets and right and title in the shares held by Mrs. MalhanIt is now well settled legal position that Article of Association of a private company is a contract between the parties. Clause (8) reads that No transfer of any share in the capital of the company shall be made or registered without the previous sanction of the Directors. It is an admitted position that no previous sanction has been obtained from the Directors for transfer of the shares held by Mr. MalhanWe are unable to agree with the learned counsel. The concept of previous sanction of the Directors connotes that there should be a written resolution accepting the transfer from Mr. Malhan in favour of Bhagat and such previous sanction should be preceded by handing over of the shares. In this case, such an action was not done and, therefore, even the transfer of the shares held by Mr. Malhan in favour of the appellant is not valid in law. The Division Bench of the High Court, therefore, was right in granting the decree as prayed for.