N. K. Agarwal v. Hanuman Mills P. Ltd — 1972 DIGILAW 533 (ALL)

JUDGMENT H.N. Seth, J. - This is an application under Section 155 of the Companies Act, 1956 praying for an order for rectification of the membership register of the Hanuman Mills Pvt. Ltd. by entering the name of the applicant as a share-holder in respect of 342 shares. It is said that in execution of a decree, these shares were attached and sold at a public auction held on July 18, 1963, and were purchased by the applicant. 2. According to the applicant, the executing court issued a certificate at dated July 31, 1965 certifying that the applicant had become the owner of those shares. It also directed the Company to substitute applicant's name in place of Sri Damodar Das. In spite of aforementioned intimation about transmission of shares, the Company defaulted in rectifying its membership register, and it became necessary for the applicant to approach this Court for obtaining necessary relief. 3. Prayer made in this application has been contested by the Company. Sri S. S. Agarwal the Managing Director of the Company, has filed the objection on its behalf. The objector neither admits that the petitioner owns the shares in dispute nor that he is entitled to have his name brought on the register of members. In paragraphs 5 and 23 it raised an objection that in the circumstances, the present application for rectification of register is not maintainable under Section 155 of the Companies Act. 4. As the application was contested, it was decided to try it as a suit and on 11th September 1972 five issues, including the issue whether the petition is not maintainable as alleged in paragraph Nos. 5 and 23 of the counter affidavit were framed. 5. When the case came up for hearing, learned counsel for the parties urged that issue No. 1 viz. "Whether the petition is not maintainable as alleged in paragraphs 5 and 23 of the counter-affidavit", be tried as a preliminary issue and that for this purpose it would not be necessary to produce any further evidence in the case. I accepted this request and before requiring the parties to produce further evidence in the case, heard their arguments on this issue. 6. Undisputed facts relevant for the decision of this issue, are that the petitioner claimed that he purchased the shares in dispute in execution of a decree dated 14-12-1959 on 18-7-1963. I accepted this request and before requiring the parties to produce further evidence in the case, heard their arguments on this issue. 6. Undisputed facts relevant for the decision of this issue, are that the petitioner claimed that he purchased the shares in dispute in execution of a decree dated 14-12-1959 on 18-7-1963. The sale in his favour was ultimately confirmed on 30-1-1965. Information about the sale was communicated by the Court to the Directors of the Company for necessary action but when they did not take any steps to rectify the register of members, the present application was moved before this Court on 11th May, 1972. 7. Learned counsel for the objector relies on Section 155 of the Companies Act, 1956 which runs as follows : - "(1) If- (a) the name of any person - (i) is without sufficient cause entered in the register of members of a company, or (ii) after having been entered in the register is, without sufficient cause omitted therefrom, or (b) default is made, or unnecessary delay takes place in entering on the register the fact of any person having become, or ceased to be a member, the person aggrieved or any member of the company, or the company, may apply to the court to rectification of the register. The person aggrieved, or any member of the company may apply to the court for rectification of the register. (2) ............................ (3) On an application under this section, the Court - (a) may decide any question relating to the title of any person who is a party to the application to have his name entered in or omitted from the register whether the question arises between members or alleged members on the one hand and the company on the other hand, and (b) generally may decide any question which it is necessary or expedient to decide in connection with the application for rectification. (4) ........................... (4) ........................... (5) ..........................." and contends that an application for rectification of membership register under Sec. 155(1) can be moved only if, (1) the name of any person is without sufficient cause entered in the register of members of a company or (2) After the name of a person has been entered in the register it is without sufficient cause omitted there from or (3) a default is made by the Company or unnecessary delay takes place in entering on the register the fact of any person having become or ceased to be a member, the aggrieved may apply to the court for rectification of the register. According to him an application for rectification of membership register under Sec. 155(1) (b) can be moved only when the name of a person who has become a member of tire Company is not entered in the register, Sec. 41 of the Companies Act defines the expression `Member' as follows : - 41. "Member". (1) The subscribers of the memorandum of a company shall be deemed to have agreed to become members of the company and on its registration, shall be entered as members in its register or members. (2) Every other person who agrees in writing to become a member of a company and whose name is entered in its register of members, shall be a member of the company. In this case, the applicant was not one of the subscribers of the memorandum of the Company. Accordingly he could not become a member under Section 41 (1) of the Act. Since his name has yet not been entered in the register of members of the company he has not become a member under Sec. 41(2) of the Act, either. So long as he has not become a member, he cannot maintain an application under Sec. 155(1)(b) of the Act. He also invited my attention to Section 110 of the Indian Companies Act, which provides that an application for registration of a transfer of shares or other interest of a member of the Company, has to be made either by the transferor or by the transferee. He also invited my attention to Section 110 of the Indian Companies Act, which provides that an application for registration of a transfer of shares or other interest of a member of the Company, has to be made either by the transferor or by the transferee. According to Section 108 a company is not to register transfer of shares unless a proper instrument of transfer, duly stamped and executed by or on behali of the transferor and by or on behalf of the transferee specifying the names, addresses and occupation, if any or the transferees has been delivered to the company along with the certificate relating to the shares. As, admittedly, no proper instrument of transfer, duly stamped and executed on behalf of the transferor and the transferee, as required by this section along with the share scripts was delivered to the Company, no question of its registering the transfer of shares in the name of the applicant ever arose. The applicant could not become a member of the Company unless he took steps to comply with the provisions of Sec. 108. Further, Sec. 108(1-A) (b) (i) requires that an instrument of transfer of shares shall be in such form as may be prescribed and presented to the prescribed authority before it is signed by or on behalf of the transferor and the prescribed authority shall stamp or otherwise endorse thereon the date on which is so presented, and in case of shares dealt in or quoted on a recognised stock exchange, it shall be delivered to the Company 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 and in any other case within two months from the date of such presentation whichever is later. As no instrument of transfer has been executed and the same has not been presented for registration before the Company within two months as required by Section 108 of the Act the claim for registration of transfer of shares is also not within time. Moreover, Sec. 111 provides for an appeal to the Central Government in a case where the Company refuses to register any such transfer or commits a default making such registration. Moreover, Sec. 111 provides for an appeal to the Central Government in a case where the Company refuses to register any such transfer or commits a default making such registration. In case the petitioner was aggrieved by the action of the Company in not registering his name, he should have gone up in appeal to the Central Government as provided in this section. Since he did not pursue the procedure prescribed in the Act for getting the transfer of shares registered, he did not become member of the Company and cannot maintain the present application. 8. Aforesaid arguments proceed on the assumption (1) that the application for rectification of register can be made only by a person who is a member as defined in Section 41 of the Act and whose name finds place in the register of members. (2) Before making an application under Section 155 of the Act, the applicant is bound to get the transfer made in his favour registered by following the procedure prescribed in Section 108 to Section 111 of the Companies Act. (3) The procedure provided in Section 108 to Section 111 of the Act for registering transfer of shares applies also to non-voluntary transfers like that made in the present case. 9. I find it difficult to accept the submission that an application for recfication of register can be moved by a person only after his name has been brought on the register of members in accordance with Secs. 108 to Sec. 111. Sec. 155 (1) (b) provides that if default is made or unnecessary delay takes place in entering on the register the fact of any person having become, or ceased to be a member, the person aggrieved or any member of the company or the company itself may apply to the court for rectification of the register. This sub-section obviously contemplates a case where a person has become a member of the Company, but his name has not been brought on the register of members and he seeks, to get the membership register rectified accordingly. This sub-section obviously contemplates a case where a person has become a member of the Company, but his name has not been brought on the register of members and he seeks, to get the membership register rectified accordingly. If the interpretation of the expression `having become a member' as placed by the learned counsel for the objector is accepted, it will bey difficult to visualise any case where an application for rectification can be moved by a person on the ground that although he has become a member but the Company has defaulted in including his name on the membership register, as in every such case where the name of a person has not been brought on the register to has not become member of the company as defined in Section 41 of the Act. It, therefore, follows that the expression `having become member', as used in this section does not contemplate that the name of the person, who seeks rectification, must already be there in the register of members before he can move an application for rectification. It obviously refers to a case where a person claims that he is entitled to be brought on the register of the company as a member and the Company commits a default in bringing his name on the register. 10. In the case of Indian Chemical Products Ltd. v. State of Orissa, AIR 1967 S.C. 253 Maharaja of Mayurbhanj held a number of shares of the Indian Chemical Products Ltd. In due course these shares stood vested in the State of Orissa by operation of law. The State of Orissa requested the Company to register the name of the secretary to the State Government as holder of the shares, in place of the Maharaja. The company however refused to register the transfer. State of Orissa, accordingly, filed an application under Sec 38 of the Indian Companies Act, 1913, which corresponds to Section 155 of the Indian Companies Act, 1956 claiming rectification of the membership register by entering its name as holder of the shares in place of the Maharaja. It may be noticed that in that case also, name of State of Orissa was not included in the membership register, when it moved the application under Section 38 of the Indian Companies Act. It may be noticed that in that case also, name of State of Orissa was not included in the membership register, when it moved the application under Section 38 of the Indian Companies Act. 1913 still the Supreme Court held that the application for rectification had been properly made and observed as follows : - "The Maharaja of Mayurbhanj had ceased to be the owner of the shares. The State of Orissa is now their owner and has a legal right to be a member of the Company and is entitled to say that the company should recognise its membership and make an entry in the register of the fact of its having become a member and its predecessor-in-title having ceased to be a member. The name of the State of Orissa has, without sufficient reason been omitted in the register and there is default in not entering in the register the fact of the Maharaja having ceased to be a member. The Court's jurisdiction under See. 38 is therefore attracted. The High Court rightly ordered the edification in the exercise of its summary powers under Sec. 38. The jurisdiction conferred by Section 38 is very beneficial and should be liberally exercised and we see no reason why the Court should deny the applicant relief under Sec. 38." 11. These observations clearly make out that according to the Supreme Court, a person who claims to have become a member but whose name has not been brought on the register of members, is entitled to maintain an application under Section 155 for rectification of register. 12. In this connection a reference may also be made to the case of Mst. Nazimunnisa Begum v. Vidya Sugar Cotton Mills Ltd., AIR 1962 Cal. 380 , where a learned Judge of the Calcutta High Court observed as follows:- "It is true that Sub-sec. (2) of Section 41 of the Act provides that every person (apart from the subscribers of tire memorandum) who agrees in writing to become a member of the Company and whose name is entered in the register of members shall become member of the Company. It seems to the expression any person having become a member in Section 155 (1) (b) of the Act. This expression means to my mind having become entitled to be a member or having got the right oi membership. It seems to the expression any person having become a member in Section 155 (1) (b) of the Act. This expression means to my mind having become entitled to be a member or having got the right oi membership. Alternately the word `become' means `come to be'. If a person has come to be a member then every qualification prescribed by Section 41 is not necessary for him. Unless the words `having become a member' are given one of the meanings suggested by me. Sec. 155 (1) (b) cannot be reasonably construed. I, therefore overrule the contention of the learned counsel for the company that the application does not come within the scope of See. 155." 13. I fully agree with the aforementioned observations, made by the leraned Judge of the Calcutta High Court. I am, accordingly of opinion that the first assumption on the basis of which the learned counsel for the objector raised his preliminary objection is not well founded. 14. Even the second and the third assumptions made by the objector are, in my opinion, ill founded. In the case of Sadashiv v. Gandhi Seva Samaj, AIR 1958 Bom. 247 it has been held that Section 155 is not dependent upon Sec. 111. On the contrary it appears that Section 155 is the controlling section ana gives to court an over-riding power notwithstanding any previous order of the Central Government. It would be meaningless to give to the court a general power in decide any question including any question relating to the title of a person as is given by Section 153 (3) and then indirectly cut off that power by giving to the Central Government the saw power to decide that question in appeal first. 15. Similarly in the case of Nizimun Nisa Begum v. Vidya Sagar Cotton Mills Co., AIR 1962 Cal. 380 it was observed that Section 155 has not been enacted subject to Sec. 111. Sec. 111 may have given a speedy remedy in cases which normally should not come to court but power of the court to order rectification of the register under Section 155 remained unaffected by Sec. 111. Indeed Sub-sec. (3) of Section 111 provides that the party may appeal to the Central Government. It is not incumbent upto the party to prefer an appeal and may very well choose to come directly to the court. 16. Indeed Sub-sec. (3) of Section 111 provides that the party may appeal to the Central Government. It is not incumbent upto the party to prefer an appeal and may very well choose to come directly to the court. 16. In the case of Hari Nagar Sugar Mills v. Shyam Sunder, AIR 1961 S.C. p. 1669 it was observed by their Lordships of the Supreme Court that a power to refuse to register transfer of shares without assigning any reason, or in (he Director's absolute and uncontrolled discretion, is often found in the articles of association of a company. A person aggrieved by the refusal to register transfer of shares has, since the enactment of Companies Act 1956, two remedies for seeking relief under the Companies Act. (1) To apply to the Court for rectification of the register under Section 155 and; (2) To appeal against the resolution refusing to register the transfer under Sec. 111. It also observed that in the exercise of the power under Section 155 the court has to act judicially; to adjudicate upon the right exercised by the Directors in the light of powers conferred upon them by Articles of Association. 17. This clearly shows that merely because a person has not followed the procedure leading up to appeal to the Central Government under Section 111 of the Companies Act, his right to move the Court under Section 155 is not taken away. The two remedies are in the alternative and the remedy by way of an application under Section 155 of the Companies Act is not taken away merely because the applicant has not initiated proceedings under Section 108 to Section 111 of the Act and has not approached the Central Government. 18. So far as the question, whether the prohibition contained in Section 108 (1) viz. 18. So far as the question, whether the prohibition contained in Section 108 (1) viz. that a company shall not register a transfer of shares unless proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee specifying the name, address and occupation of any of the transferee has been delivered to the company along with the certificate relating to share also applies to a transfer where the right in the share has come to be vested in the transferor in pursuance of an auction sale held by a court is concerned, it has been considered by a Bench of the Madras High Court in the case of T. A. K. Mohiuddin Pohai Taranagar v. Tinnevaliy Mills Co. Ltd., AIR 1928 Madras 571, in connection with the provisions in Articles of Association regarding registration of transfer of shares. While dealing with this question, the learned Judges of the Madras High Court brought out that there is a clear distinction between the expression transfer of shares and transmission of the shares and observed as follows : - "To begin with it must be pointed out that the expression `transfer' by itself is not altogether appropriate to indicate a sale in invitum by the Court. No doubt the expression 'transfer' has been used in such collection as transfers by operation of law, but at the same time the expression transfer is undoubtedly more appropriate to indicate what is effected or brought about by the will of the person in whom the property is vested as in the Transfer of Property Act. Apart from these articles of association beginning with 28 are headed as 'shares transaction' as contrasted with share transfers which is the heading given to Art. 19 to 27. The expression transmission is undoubtedly more appropriate than the word 'transfer' for indicating assignment effected by some agency other than the transferor." 19. Similary it was pointed in the matter of Wahid Bus v. Mailsi Transport Co., Multan, AIR 1949 Lahore 6 that there is a clear distinction between transfer and transmission of shares. Transfer is by voluntary act of parties whereas transmission is by operation of law. A court sale is not a transfer. Similary it was pointed in the matter of Wahid Bus v. Mailsi Transport Co., Multan, AIR 1949 Lahore 6 that there is a clear distinction between transfer and transmission of shares. Transfer is by voluntary act of parties whereas transmission is by operation of law. A court sale is not a transfer. An article of Association which gives the Directors absolute and unrestricted discretion to refuse to register a proposed transfer of shares has no application to a court sale and the Directors cannot refuse to register a transfer of shares affected by a court sale. To the same effect are the following observations made by the Calcutta High Court in the case Mahadeo Lal Agarwal v. The New Darjeeling Union Tea Co. Ltd., AIR 1952 Cal. 58 "Where there is nothing in the Articles of Association forbidding a sale by court of the shares held by a member, the sale by a court has the effect of transferring the shares to the purchaser. An Article of Association requiring that a transferor can obtain mutation of the name only on the basis of a letter signed jointly by the transferor and the transferee cannot be applied to an auction sale but is confined to private transfer. The language of Sec. 34(3) clearly shows that it applies to transfer by act of parties and does not apply to sales held by the Court." 20. I am, accordingly of opinion that the restrictions contained in Section 108 do not apply to a case where the property in the shares is vested in the applicant as a result of a court auction and the last two assumptions contained in argument of the learned counsel for the objector are also without any substance. As soon as the applicant claims that he is entitled to be recorded as a member of the Company and the Company has without any sufficient cause refused to record him as a member, he can maintain an application under Section 155 of the Indian Companies Act. Such an application cannot be thrown out on the ground that the applicant has failed to avail of the procedure provided under Section 108 to 111 of the Act. Such an application cannot be thrown out on the ground that the applicant has failed to avail of the procedure provided under Section 108 to 111 of the Act. However, the question whether the petitioner has actually acquired the rights to the shares in dispute and whether he rightly claims to have become a member of the Company and also other matter arising in the case will be decided after the evidence on remaining issues has been adduced by the parties. 21. In the result the preliminary objection raised on behalf of the objectors is overruled. Under issue No. 1 it is held that the objection that the application is not maintainable for the reasons given in paragraphs 5 and 23 of the counter-affidavit is not correct The issue is decided in favour of the f applicant and against the objector.