Kothari Industrial Corporation … vs Lazor Detergents Private Ltd. And … on 20 October, 1993

ORDER

1. Kothari Industrial Corporation Ltd., hereinafter called “the company”, has filed 11 petitions under Section 111(4) of the Companies Act, 1956 (hereinafter referred to as “the Act”), praying for rectification of its register of members. Since the circumstances and the cause of action in respect of all these petitions are similar, these petitions are disposed of by this single common order.

2. Respondents Nos. 1 to 11 herein are respondent No. 1 in the respective petitions and they are all corporate entities. These companies, during the months of June, 1991 ; June, 1992 and September, 1992, lodged with the company, transfer instruments in respect of a large number of shares and the company registered these transfers as per the details indicated below :

Sl. No.

Name of the company

Number of shares transferred

I.

Mikantra Trading P. Ltd.

61,030

2.

Maxwell Dyes and
Chemicals P. Ltd.

42.920

3.

Swadee Chemicals P. Ltd.

61,170

4.

Lazor Detergents P. Ltd.

64,430

5.

Saki Agencies P. Ltd.

26,710

6.

Alkelite Intermediates
P. Ltd.

44,680

7.

Skylab Detergents P.

Ltd.

37,750

8.

NavkStan Commercials
Ltd.

40,700

9.

Shruti Traders Ltd.

43,590

10.

Prolab Synthetic and
Detergents P. Ltd.

22,480

11.

Oscar Chemicals P. Ltd.

32,100

 

 

4.77,560

3. On January 25, 1993, the company lodged these 11 petitions seeking orders of the Company Law Board for deletion of the names of these respondent-companies from the register of members for reasons stated in the petitions. According to the petitioner-company, the company had erred in registering these transfers as most of the transfer documents were improper as the share transfer stamps affixed on these documents had not been cancelled at the time of execution as required by the Indian Stamp Act. Some of these transfer forms, according to the company, were cancelled by the employees of the twelfth respondent herein which is the second respondent in each petition, namely, Kothari Orient Finance Ltd., the share transfer agents. The number of uncancelled documents and the documents allegedly cancelled by the employees of the twelfth respondent and the number of shares covered therein are indicated in annexure I. It is also stated by the company that all these transfers, even though they were not duly stamped, and should not have been approved for transfer, were inadvertently and wrongly approved for registration by Shri D.B. Saxena, director, who functioned as the one man committee pursuant to a resolution of the board of directors meeting passed on November 11, 1974. No doubt, it has been stated, that some of the instruments relating to a few shares were sent back for rectification of certain defects/infirmities and some of such returned instruments were again lodged for transfer after rectification. It has been further averred that unfortunately all instruments which had not been cancelled were not returned for rectification but were approved for registration. Accordingly, the petitioner-company states that as the instruments are not duly stamped as per the provisions of the Indian Stamp Act and as the stamps are to be cancelled

prior to or at the time of execution of the documents, the registration of transfer was ab initio void and illegal. The provisions of Section 12 of the Indian Stamp Act have been violated and as the instruments of transfer with stamps not cancelled were not placed before the one man committee but the particulars of these shares were included in the register of share transfers placed before the committee which inadvertently and wrongly approved these transfers. Even the action of the employees of the twelfth respondent was illegal, improper and cannot make the documents proper, legal or valid. It is more so when the fact of cancellation by the twelfth respondent was not brought to the notice of the one man committee. The petitioner further states that the provisions of Section 108(1) of the Act are mandatory and no company could register transfer of shares unless a proper instrument of transfer duly stamped and executed is lodged with the company as provided in that section. Therefore, it is submitted that the respondents’ names have been entered in the register of members of the company in respect of such shares as indicated earlier without sufficient cause, and, therefore, it has prayed for rectification of the register of members as provided in Sub-section (4) of Section 111 of the Act since mutation has taken place in the register of members contravening the provisions of Section 108(1) of the Act read with Section 2(11) and Section 12 of the Indian Stamp Act.

4. It has been further stated in the petition that the company made a rights issue of partly convertible debentures (PCDs) by a letter of offer dated October 15, 1992, to all the shareholders of the company and accordingly all the respondent companies, being in the register of members of the company, have also been issued letters of offer. These respondent-companies have applied for both rights as well as additional rights as per annexure II. The rights issue was closed on December 15, 1992, and at the time of consideration of allotment of the rights, the board of directors noticed that the transfers that had taken place earlier in favour of these respondents were illegal and ab initio void and as such the respondents were not entitled to the offer of rights made to them.

5. Accordingly, the petitioner company has prayed that besides rectification of the register of members by deleting the names of all the eleven (11) respondents, directions should be issued to these respondents to refund the dividends paid on these shares so that these dividends could be paid to the transferors of these shares. The petitioner-company also prayed for interim orders directing the company not to do any act or deed in

pursuance of the letter of offer dated October 15, 1992, in regard to these respondents and also to restrain the company from allotting any PCDs; shares including bonus and rights to these respondents in relation to their alleged entitlement to shares in respect of the shares covered by these petitions.

6. In view of the interim relief sought by the petitioner-company, an urgent hearing was held on February 5, 1993, after giving notices to all the respondents. At the hearing, learned counsel for the petitioner-company, Shri Govind Swaminathan, reiterated the submissions made in the” petition. He submitted that on an overall basis, in respect of all the 11 respondent-companies put together, the percentage of shares in respect of which the stamps had not been cancelled at all, worked out to about 62 per cent. and the balance instruments were cancelled by the employees of the twelfth respondent. He argued that prima facie he has made out a case that the transfers were illegal as they were not duly stamped within the meaning of Section 10 read with Section 12 of the Indian Stamp Act and the mandatory provisions of Section 108 of the Act. He prayed for interim relief as indicated in paragraph 9 of the petition. This was strongly opposed by learned counsel for the respondents. The respondents’ counsel opposed granting any interim relief on the ground that even the maintainability of the petition on account of delay was questionable. Therefore, it was argued that instead of granting the prayer of the company, the rights PCDs could be allotted to the respondents with the stipulation that no third party interests would be created nor would they exercise any rights vested in these PCDs. Alternatively, it was also suggested that they should be allotted the rights entitlement keeping in abeyance their application for additional rights or they should be allotted both rights and additional rights in respect of 38 per cent. of the rights and additional rights pertaining to instruments which had been allegedly cancelled by the employees of the twelfth respondent. None of the above suggestions was acceptable to the petitioner-company.

7. Taking into consideration that a prima facie case had been made out, interim orders on the following terms were passed on February 5, 1993:

“The entitlement to rights issue/additional rights flows, from their being the members of the company. As the status as member itself is under consideration, it would not be appropriate to bestow them with rights/additional rights till the issue regarding their membership is decided. Therefore, the best course of action would be to maintain the status quo as of today, i.e., while the respondents would be entitled to all the rights

and privileges attached to the shares registered in their names as of today, allotment of rights PCDs and additional rights should be kept in abeyance till the disposal of the main petition. But, at the same time, the petitioner-company shall keep separately the ‘rights’ entitlement of the respondents and also entitled additional ‘rights’ without allotment to anybody else so that in case the decision in the main petitions goes in favour of the respondents they could be allotted all the PCDs that they would have been otherwise entitled.”

Liberty was also given to the respondents to inspect the original instruments of transfer and take copies thereof. The time schedule for filing of replies, rejoinders, etc., were fixed in the hearing.

8. As per our directions, the respondents filed their replies. They have refuted the submissions made by the petitioners in the petition stating that the petitioners cannot take advantage of their own omissions and commissions. It has also been pointed out that as per the admission of the petitioner, the company did find some mistakes in some of the instruments and returned them for rectification and if it is so, it is inconceivable that the company did not notice the defects in the instruments covered in the petitions. The respondents sought dismissal of the petitions on the ground that the petitioner-company had failed to follow the mandatory requirements of Section 22A of the Securities Contracts (Regulation) Act, 1956. According to the respondents, if the company had noticed the defects at the time of registration, it could have returned the instruments under Section 22A of the Securities Contracts (Regulation) Act. The company has not followed the time limits of two months under this Section as it has, in a surreptitious manner, presented these petitions for rectification after a considerable delay. It has also been contended that all the stamps had been cancelled and even assuming that some of them were not cancelled, it does not make the instruments void as the Indian Stamp Act provisions are only directory. All the instruments of transfer bear the correct stamp and the revenue to the State had been fully protected and accordingly, the respondents have prayed that the petitions be dismissed.

9. When the regular hearing commenced on March 23, 1993, Shri Zaiwala, learned senior counsel appearing for the petitioner-company, tried to establish a link between the respondent-companies and the Reliance group by citing the observation of the Supreme Court of India in Parthasarathy (N.) v. Controller of Capital Issues [1991] 72 Comp Cas 651 (SC), wherein four companies out of the eleven respondent-companies have been held to belong to the Reliance group.

10. He then presented a few transfer forms for perusal by the Bench to show that they have not been cancelled but learned counsel for the first respondent objected to such presentation without their being introduced in evidence. This was not acceptable to Shri Zaiwala as according to him the documents being not duly stamped were illegal and faulty in law and should not and cannot be produced in evidence. He also objected to the demand of counsel for the respondents that the Company Law Board should impound these instruments and send them to the Collector for adjudication on the ground that they are not being introduced in evidence. He then explained the background of the case and also cited various legal propositions to substantiate the contents of the petition.

11. Shri M.P. Amin, senior counsel appearing on behalf of the first respondent, questioned the very basis of the petition and also argued that without any oral or documentary evidence that the documents are not stamped or stamped after presentation to the company, these petitions cannot proceed. According to him, the provisions of the Indian Stamp Act are only to ensure that the Revenue is protected and nothing more. He referred to Section 35 dealing with the inadmissibility of instruments not duly stamped in evidence, Section 36 dealing with the provision relating to admission of instruments which are not to be questioned, Section 38 dealing with impounding of instruments and Section 42 dealing with endorsement of instrument on which duty has been paid. He advocated that once duty or penalty is paid the instrument becomes valid for all purposes and as such the best course of action would be to impound these documents and send them for adjudication so that the respondents could pay whatever amount may be adjudicated by the Collector. He once again reiterated the submission in the written reply that the company must have followed the provisions of Section 22A of the Securities Contracts (Regulation) Act by proper scrutiny of the instrument before registration. The petitioner-company either wantonly or otherwise had failed to do so and having registered the transfer cannot now go back on the same to take advantage of its own fault. He referred to Section 12(3) of the Indian Stamp Act to argue that by handing over the documents to the company for registration, the respondents have satisfied the provisions of this section relating to effective cancellation. According to him even assuming that instruments were not duly stamped, by payment of penalty under Section 63, the documents could be validated. Then he elaborated the provisions of Section 12 clause by clause and also the provisions of Sections 32 and 15. His further arguments, besides the Indian Stamp Act related to the affidavits by Shri Mohan Das and Shri Narayanaswamy on behalf of the twelfth respondent.

12. Shri K.S. Cooper, senior counsel representing the first respondent, presented a Miscellaneous Application No. 61 of 1993, on July 6, 1993, raising preliminary objections to the maintainability of the petitions and sought for either dismissing the petitions or staying the proceedings before us till the preliminary issues raised by him are decided. He elaborated the various grounds raised in the application and on our advice simultaneously argued on the main petition.

13. He contended that the petitions have been filed with mala fide intentions and with some ulterior motives. The company has fraudulently deprived the respondents of over Rs. 3.5 crores invested by them for the rights and additional rights by having obtained the interim restraint order from the Company Law Board. Having registered the shares in the names of the respondents, having paid them dividends, having registered them as members of the company and having given letters of offer for PCDs, it would be against equity now to represent that their recognition as members was based on faulty instruments of transfer. It is more so when the company could attain 90 per cent. subscription to PCDs only with the subscription made by the respondents.

14. Shri Cooper further stated that if the petitions succeed then the entire PCD issue would fail as in that case the mandatory minimum subscription of 90 per cent. would not be reached. It is very clear from the affidavits of Sarvashri Mohandas and Narayanaswami, he stressed, that great efforts had been taken by the company to discover infirmities in the transfer documents only with the view to deprive the respondents of their rightful claim to the PCDs. It is inconceivable, according to Shri Cooper, that the agents of the petitioner cancelled some documents and did not cancel the others. It is only when the board was to allot rights, that the entire bunch of old forms were searched with the ulterior motive to find out some mistakes to remove the names of the respondents from the register of members. There is no averment or assertion by the petitioner that in no other case the company has registered the shares in which stamps had not been cancelled, he pointed out. All instruments of transfer bore sufficient stamps and the interest of the Revenue had been protected. The motive of invoking “not duly stamped” is not for protecting the Revenue or for correcting a mistake but for using it as a tool to remove the respondents as members of the company.

15. Shri Cooper further argued that, if the company had been careful in scrutinising the instruments of transfer then all the forms should have been returned to the respondents without registration. The very fact that

they have raised the “not duly stamped” excuse a long period of time after registering the shares only shows that there has been a deliberate attempt to deny the PCDs. Learned counsel also questioned the bona fides of Shri Saxena pointing out that it was he who approved the registration of shares as a one man committee and it is he who has now come up with the petitions pleading ignorance/mistake in entertaining the transfer documents. It is contended by Shri Cooper that once the PCDs are denied to the respondent they would be allotted to those who are in the management of the company. Therefore, if the petitioner was to succeed, it would mean putting a premium on dishonesty he claimed. In this connection, he cited the case of Muniyamma v. Arathi Cine Enterprises P. Ltd. [1991] 72 Comp Cas 555 (Kar), under Section 155 of the Act, to state that where equities are not in favour of the petitioners, even if they make out a strong case for legal rights in them, the court may refuse to exercise its powers and leave it to the petitioner to approach the civil court by way of a regular
suit.

16. He further pointed out to the decision in Jagatjit Industries Ltd. v. Mohan Meakin Ltd. [1991] 2 Comp LJ 288 ; [1994] 80 Comp Cas 411 (CLB) that in determining an application for rectification, the court should consider the conduct of the parties seeking reliefs.

17. He further stated that a perusal of the transfer forms shows that on some of the forms the company has impressed the rubber stamp “not duly Stamped” with dates but on the same dates they have been approved for registration clearly establishing that the company was aware that some of the instruments had not been cancelled but took the conscious decision to approve registration. If the company had, as it did in a few cases, returned all the instruments for rectification of defects, to the respondents, they could have lodged the instruments later after rectification. This opportunity has been denied, Shri Cooper stressed, by wilful and deliberate action of the petitioner. This conduct of the petitioner alone is sufficient to dismiss the petition, he asserted.

18. Elaborating that failure to implead all the transferors as parties would be fatal to the petitions, Shri Cooper stated that once the names of the respondents are removed from the register, the names of the transferors would have to be put back on the register which would create rights and liabilities in these persons and as such it cannot be done without hearing them. In this connection, the decision in Jawahar Mills Ltd. v. Official Receiver, Sha Mulchand and Co. Ltd. [1949] 19 Comp Cas 138 (Mad) that “the court cannot order rectification of the register in the absence of third

parties whose rights will be affected by the rectification” was cited. This view was also sought to be supported by similar decisions in Greater Britain Insurance Corporation Ltd., Ex parte, Brockdorff [1927] AC 916 and Ontario Jockey Club Limited v. Mcbride (124 LT 194). “The transferor is not a party to the action and the order under reference to put the transferee’s name in the register is necessarily an order to take off the transferor’s name”. He also drew attention to Halsbury’s, volume 6, para 309, to say that the court cannot order rectification when third party
rights are involved without notice to these parties.

19. He pointed out that an anomaly would arise in the event of the removal of the names of the respondents as in that case the transferors whose names would be put back on the register would have to act as trustees indefinitely in respect of dividends, etc., as the respondents would be the beneficial owners of these shares. Besides, if any fresh stamp duty has to be paid then the liability/responsibility for payment of stamp duty is on the transferors as held in Jainarain Ram Lundia v. Surajmull Sagarmull, AIR 1949 FC 211 and G.R. Parry v. Union of India [1962] 32 Comp Cas 145 (P & H) and this would be unfair and unjust, Shri Cooper contended.

20. The next argument rested on the plea that the delay in filing the petition would make it inequitable to entertain the same. The delay, it is contended, is apparent on the face of the petitions. The instruments of transfer were lodged in June, 1991, and June, 1992, and the plea of irregular registration has been raised only in January, 1993, that too after closure of the rights issue and as such the petitioner is guilty of gross lapses and, therefore, is not entitled to seek any equitable or discretionary relief from the Company Law Board. In support of this argument, the decision in Cuddalore Construction Co. Ltd., In re : Somasundaram Pillai (T. V.) v. Official Liquidator [1967] 37 Comp Cas 440 (Mad) was cited where the court observed (at pages 443 and 444) :

“In considering an application for rectification, the court has always had regard to the lapse of time . . . The applicant cannot take advantage of his own laches . . . This doctrine of laches has a very great significance as otherwise such delay would be fatal to his application for rectification.”

Shri Cooper also contended that there is clear estoppel operating against the company in presenting these petitions as the company has already recognised the respondents as members and the respondents have also acted on such representation. The company has paid dividends to the respondents, offered rights PCDs and because of subscription by the respondents, the company could also reach the 90 per cent. mandatory minimum subscription. Shri Cooper contended that the petitioner has not only by its conduct and by the long lapse of time, raised the presumption of acquiescence and waiver but has in fact expressly affirmed the said right and, therefore, is estopped from now contending to the contrary.

21. It was also argued that proceedings under Section 111 being summary proceedings, complicated or disputed facts should not be decided but should be left to be agitated in a civil suit. To strengthen, a number of cases decided by various High Courts including the case of Public Passenger Service Ltd. v. M.A. Khadar [1966] 36 Comp Cas 1 ; AIR 1966 SC 489, were cited.

22. Arguing on the merits of the case, Shri Cooper prayed that the Company Law Board should take a practical view of the entire situation. According to learned counsel, the company is not in any way going to be affected with the outcome of these petitions but those behind the management may benefit with a decision in favour of the petitioner. The equitable considerations, he stressed, before and after registration are entirely different. He cited Cuddalore Construction Co. Ltd., In re : Somasundaram Pillai (T.V.) v. Official Liquidator [1967] 37 Comp Cas 440 (Mad) to indicate that the effect of rectification is exactly the same as if the name struck off was never put in the register and, therefore, the court has to exercise its discretion very carefully before correcting the register. This would, therefore, mean that “the name was not there” depriving the respondents of the rights PCDs. This is in spite of the fact that they have already, on the basis of offers made to them paid for the rights PCDs as well as the additional rights PCDs.

23. All these complications have arisen, learned counsel urged, due to the petitioner’s callous and indifferent attitude and inordinate delay in approaching this Bench. He pleaded that the Company Law Board should not allow the petitioner to take advantage of its own fault, delay and lapses in seeking the Company Law Board’s discretionary and equitable relief. He cited Walker (Lord), In re [1868] 6 Equ Cas 30 that “where there has been no default on either side, the register remains where it was, and when there is fault on both sides, the register also remains where it was”. It was, therefore, represented that in the present case, the respondents were at fault in not cancelling the stamps but the company was also equally at fault in registering the transfers. Therefore, there is fault on both sides and as per the above quotation, the register should remain as it is, he pleaded.

24. He raised the question as to what would be the effect if all the transferors on their own had raised the issue that the stamp had not been cancelled and as such asked for rectification of register. It would amount to the transferor’s taking undue advantage after receiving full consideration. He also raised the issue as to the third party rights if any had been created. He also further contended that lapse of non-cancellation is not a great defect and by payment of penalty, if at all there is any, these documents can be made good and this lapse as such does not give a right to the company to seek removal of the name of the respondents. He cited Paradise Motor Co. Ltd., In re [1968] 2 All ER 625 (CA) that non-compliance with the provisions of the Indian Stamp Act is merely a fiscal requirement and negligence of essential matters on transfer may not be fatal to the validity of the transfer but may amount to mere irregularity. According to Shri Cooper in the present case all the due stamp duty has been paid and that non-cancellation was only an irregularity. Even assuming it is a nullity Shri Cooper quoted Buchley “lapse of time coupled with recognition of the transferee as a shareholder may render the transfer incapable of being impeached. The registration of a defective transfer of shares may be regarded, after a long lapse of time as a mere irregularity and not a nullity”. In this case, according to him, the company put the names of the respondents on the register, paid dividends and also issued an offer for rights shares. There has also been a long delay in seeking rectification. Under these circumstances, the transfers have become incapable of being impeached.

25. Citing the decision in Hindustan Steel Ltd. v. Dilip Construction Co., AIR 1969 SC 1238, Shri Cooper argued that the Indian Stamp Act is a fiscal measure enacted to secure revenue for the State. It is not enacted to arm a litigant with a weapon of technicality to meet the case of the opponent. Once the object of the Revenue is secured according to law the party staking his claim on the instrument will not be defeated on the ground of the initial defect in the instrument. He asserted that it is not correct to agitate on the non-cancellation of the stamp as the documents were not really a nullity and were only defective which could be rectified by payment of penalty, if any. The idea of the petitioner is to settle some private issue and as such the non-cancellation should not be allowed to be raised to defeat the rights of a litigant, i.e., the right of the transferees to the shares. Even assuming that the instruments are a nullity, yet once the transfer has been completed equity arises and as such now the transfer cannot be cancelled. He cited Yamuna Das Kanoujia v. Behar Engineers and Contractors Ltd. [1944] 14 Comp Cas 163 (Pat) in which it was held “the transferor could not rely on the illegality of the transfer just because the instrument transferring certain shares in the company was not duly stamped but the transferee’s name was registered in the books of the company in place of transferor”. He stressed the point that since the respondents have paid the consideration and their names have been put on the register of members, the initial defect can never be considered null and void. The respondents were entitled to the rights PCDs. If they had been told about the defects earlier, not only could they have taken action to rectify the mistakes, they could have also got as a matter of rights, the rights offers from the transferors themselves. Striking off the names at this point of time would affect the rights of the respondents adversely not only with reference to the existing shares but also they would be deprived of the rights issue.

26. According to him, with the payment of stamp duty, the fiscal objective has been achieved, there is no question of infringement of any provisions of the Indian Stamp Act even though some irregularity relating to non-cancellation may be there. Since it is only a procedural irregularity, it does not make the instrument illegal or void.

27. Citing CIT v. Lakshmi Talkies [1984] 145 ITR 191 (Kar) and the provisions of Sections 35 and 36 of the Indian Stamp Act, he argued that once an instrument is validated, the validity will relate back to the original date and as such they are prepared to pay any penalty so that they would be entitled to the rights PCDs. The fiction of the Indian Stamp Act cannot be transported to the provisions of the Companies Act, he urged. Shri Cooper pointed out the provisions of Sections 62B, 63 and 12(2) of the Indian Stamp Act to highlight that “not duly stamped” and “unstamped” are two different propositions in the Stamp Act itself and since the Stamp Act provides for specific penalty for “unstamped” and “not duly stamped instruments” no other stigma can be attached to these instruments other than the payment of penalty. He also sought support from Life Insurance Corporation of India v. Escorts Ltd. [1986] 59 Comp Cas 548 (SC).

28. He further stated that Section 22A of the Securities Contracts (Regulation) Act provides for refusal of transfer when the documents are not in order. The petitioner-company was not prevented from refusal while considering the registration. If they had done so, notice would have been given to the transferors and the respondents and they could have remedied the defects. He complained that the petitioner-company, in violation of the interim order passed by this Bench withheld over Rs. 60 lakhs which should have been refunded to the respondents inasmuch as no additional

rights have been allotted beyond what has been approved by the stock exchange. He also stated the company has not issued PCDs in respect of offers renounced in favour of the respondents even though there is no restraint order in this regard. He accused the company of being guilty of fraud. He once again urged that the case involves complicated and complex issues which cannot be decided in a proceeding under Section 111 of the Act and can be decided only in a suit. Therefore, according to Shri Cooper the petition should be dismissed and the parties should be asked to resolve the dispute in a suit. In addition, according to Shri Cooper, the petition deserves to be dismissed on the well-established ground of mala fides, delay and intervention of other considerations like issue of rights PCDs, non-joinder of the transferors and requirement of oral evidence, etc.

29. Shri Zaiwala, senior counsel, appearing on behalf of the company, at the outset, questioned the allegations of various acts of frauds and mala fide as alleged by Shri Cooper. Shri Zaiwala stated that the main plea of Shri Cooper regarding equitable relief is based on totally wrong premises. The allegation of fraud by retaining the money of the respondents is totally unsustainable inasmuch as the entire money for the rights PCDs has been remitted through stock invest which has not so far been encashed by the company and as such there was no outflow of funds from the coffers of the respondents. It is also wrong to say, he asserted, that 90 per cent. subscription was achieved only through investments made by the respondents. Actually, the company reached 113 per cent. subscription even after eliminating the rights applied for by the respondents. Therefore, Shri Zaiwala pointed out these two so called strong grounds on which the respondents have relied have no basis. Reiterating his allegation that all the respondent companies belong to the Reliance group and they have attempted to take over the control of the company in a surreptitious manner, he pointed out that recently also the Reliance group have lodged a large number of shares for transfer. Therefore, he claims that this alone would merit the consideration that equity lies with the petitioner and not with the respondents. He advocated that had the petitioner-company known that these companies belong to a single group, they could have initiated action earlier under Section 22A of the Securities Contracts (Regulation) Act. He stoutly refuted the allegation that the petitioner-company searched for some infirmities in the instruments only with a view to deprive the respondents of the right to their entitlement of rights PCDs.

30. He questioned the need for impleading all the transferors. According to him, there is no such need as decided in Luxmi Tea Co. Ltd. v. Pradip

Kumar Sarkar [1990] 67 Comp Cas 518 (SC). If necessary, he pleaded that instead of issuing individual notices to all the transferors, this may be done by an advertisement in the newspapers. For this reason alone, he contended that the petition does not deserve to be dismissed.

31. In regard to the objection of gross delay in filing the petition, Shri Zaiwala pointed out that the petitioner-company filed the petition within the permissible time. Even assuming that Section 113 of the Limitation Act which prescribes that petitions/applications to be filed within three years in cases where no limitation has been prescribed in that Act is applicable in the present case, from the date of registration, the petitions have been filed within three years. It was also asserted that in the face of illegality for which the respondents themselves are to be blamed, no right can be created in their favour and in any event equitable principles do not apply as against mandatory provisions of the statute.

32. Shri Zaiwala denied that there is an estoppel against the company as there can be no estoppel against statute. He cited the decision in Dottikaran v. Bahadur Lakshmi Prasad, AIR 1928 PC 92, to argue that even under the Registration Act, if the registration has been done without compliance with the provisions of the Registration Act, the parties are not estopped from challenging the registration as the Registrar lacked jurisdiction to register the document when the documents do not meet the legal requirements. Under the same analogy, he contended that in the present case the company lacked jurisdiction to register the instrument when the instruments were not duly stamped. As has been held by the Supreme Court of India in Mannalal Khetan v. Kedar Nath Khetan [1977] 47 Comp Cas 185 (SC), the provisions of Section 108 of the Act are mandatory and, therefore, registration of instruments not fulfilling the requirements of that section is thus irregular and was done without jurisdiction. When the statute prescribes certain mandatory conditions, failure by a person to comply with these provisions cannot be treated as estoppel against him nor could there be any operation of equity as decided in Venkanna Chowdary (Y.) v. Special Deputy Collector, Land Acquisition, AIR 1981 AP 232. Likewise he cited Bhikraj Jaipuria v. Union of India, AIR 1962 SC 113, to show that when a provision is mandatory, even if it affects a third party on the basis of equity, the illegality cannot be allowed to continue. Therefore, he contended that it is a well-founded principle of law that there is no estoppel against statute. He refuted the reliance on Paradise Motor Co. Ltd.’s case [1968] 2 All ER 625 (CA) stating that in this case the issue related to the provisions of the articles and not statute. He also contended that Section 75 of the English Act is not in pari materia with Section 108 of the Indian Act. He also relied on Guide to the Companies Act by Ramaiya, twelfth edition, at page 523. “But as the language of the present section appears to be mandatory, the words used are ‘shall not register’, and any transfer which does not comply with its requirements will not be valid.”

33. Dealing with the contention of the respondents that the proceedings under Section 111 are summary in nature and as such disputed questions of fact or complex issues are not to be decided but should be relegated to be settled in a suit, Shri Zaiwala contended that there are no complex issues involved in the case and even assuming there are such issues, the Company Law Board has full powers under Section 111(7) of the Act to decide all issues arising in a Section 111 petition. In support of this, he cited the decisions in Gulabrai Kalidas Nath v. Laxmidas Lallubhai Patel of Baroda [1978] 48 Comp Cas 438 (Guj) and Mrs. E.V. Swaminathan v. K.M.M.A. Industries and Roadways Pvt. Ltd. [1993] 76 Comp Cas 1 (Mad).

34. In view of the above, Shri Zaiwala argued that there is absolutely no case for dismissal of the petitions on preliminary issues nor there is any need to stay the proceedings. He prayed that the Company Law Board should proceed with the merits of the petitions.

35. Taking up the facts of the case, Shri Zaiwala pointed out that Section 108 of the Act stipulates that documents have to be duly stamped and this means compliance with Section 12 of the Indian Stamp Act which deals with cancellation of stamps. According to Section 12, where stamps are not cancelled the documents will be treated as unstamped. He cited the decision in Mannalal Khetan’s case [1977] 47 Comp Cas 185 (SC) where the Supreme Court has held that the provisions of Section 108 are mandatory. He also referred to Nuddea Tea Co. Ltd. v. Asok Kumar Saha [1988] 64 Comp Cas 775 (Cal) to show that non-cancellation of stamps is not a mere formal defect and it would be a bar to the rectification of the share register as the instruments bearing adhesive stamps but not cancelled will not be treated as “duly stamped”. He also cited Greene v. Greene [1948] 1 Ch 333 in which it was observed that a proper instrument of transfer has to be lodged with the company for transfer of shares. Other cases cited by him in this regard are New Citizen Bank of India v. Asian Assurance Co. Ltd. [1945] 15 Comp Cas 53 (Bom) wherein it was held “the tender of a properly executed and stamped transfer as required by Section 34(3) of the Act is a condition precedent to the right of an applicant to get any relief under Section 38 and if the instrument is not properly stamped, an

application for rectification under Section 38 is not maintainable”. He also pointed out the decision in Jagdish Mills Ltd., In re [1954] 24 Comp Cas 241 ; AIR 1955 Bom 79, that if a company registers an instrument of transfer of shares which is not duly stamped, it would be doing something which is not lawful. He also cited the decision in Joshi (C.H.) v. Bombay Paper Mills Ltd. [1991] 72 Comp Cas 173 (CLB) in which it was held that adhesive stamps affixed on the transfer instruments are to be cancelled in accordance with Section 12 of the Indian Stamp Act failing which they will not be duly stamped and as under Section 108(1) of the Act it is mandatory the company shall not register the transfer.

36. Shri Zaiwala refuted the arguments that the provisions of the Indian Stamp Act cannot and do not override the provisions of Section 108 of the Act. Non-compliance with the provisions of Section 108 makes the instrument ab initio void. The non-cancellation of the stamps makes the instrument “not duly stamped” and as such it cannot be registered as it would be against the provisions of Section 108. When the provisions of statute are mandatory, the ab initio defect cannot be cured and the doctrine of relating back cannot be applied, he asserted.

37. According to him, Section 111(4) of the Act stipulates that there should be sufficient cause either for putting the name of a person in the register or removal thereof, and in the present cases the company had no justification to put the names of the respondents in the register of members in view of the violation of the provisions of Section 108 and, therefore, can seek removal of the same. The justification for the company in seeking the removal is strengthened by the fact that all the respondent-companies belong to the Reliance group and their being members of the company would be detrimental to the interest of the company. He stated that the company on its own could have removed the names of the respondents from the register, in which case the burden of proving mala fides would have fallen on the respondents. He tried to establish the nexus between all the respondent-companies by pointing out that the stock invest submitted by these respondents are all from the same bank and bear consecutive numbers. The replies furnished by these companies and also the applications raising preliminary objections by these companies are all practically in the same language. Therefore, according to Shri Zaiwala there is absolutely no doubt that all these companies belong to a single group and that too to the Reliance group. He also questioned the allegation of fraud, etc., by pointing out that such an irresponsible allegation should not have been made without proper proof. As indicated earlier by

him, the entire amount towards application for PCDs was paid through stock invest and the question of fraudulently keeping the amount with the petitioner as alleged by counsel for the first respondent does not arise. He refuted the allegation that once the names of the respondents are ordered to be removed from the register of members, the management of the petitioner-company would take all the rights PCDs covered in these petitions. According to him, these rights PCDs would be subject to the decision of the stock exchange and in all probability would be allotted to all the shareholders who have applied for additional rights. He pointed out that in the absence of written denial by the respondents through an affidavit that they belong to the Reliance group an adverse inference should be drawn against them.

38. He proposed another scenario in which if the company had by itself removed the name, the Company Law Board could have never ordered their names to be put back on the register as in that case it would mean ordering something which is illegal. Therefore, he contended that when the company itself has approached the Company Law Board for rectification, the Company Law Board should take into consideration the illegality of the registration and order rectification. He drew support from Turner Morrison and Co. Ltd.’s case [1980] 50 Comp Cas 296 (Cal) to indicate that in that case the company was held to have powers to rectify the register of “members in case of fraud.

39. Dealing with the requirements of Section 108, he stated that they are both positive and negative. Non-fulfilment of mandatory provisions makes the instrument void and the registration unlawful. Quoting Palmer, Shri Zaiwala pointed out that once an act is found to be unlawful, its rectification is imperative. In support of this, he once again cited Nuddea Tea Co. Ltd.’s case [1988] 64 Comp Cas 775 (Cal) in which it was held that an unstamped instrument is a nullity. Since Section 63 of the Indian Stamp Act provides penalty for infringement of Section 12, it is clear that infringement of Section 12 is illegal and, therefore, such instrument should be treated as null and void. In view of the decision in AIR 1938 Bom 280 (sic) in which it was held “what is invalid must remain invalid”, Shri Zaiwala argued that no time lapse, consent, etc., can correct an unlawful and void transfers irregular and voidable (sic). He also relied on Mahindra and Mahindra Ltd. v. Union of India [1993] 64 ELT 172 (Bom) and Firestone Tyre and Rubber Co. v. Synthetics and Chemicals Ltd. [1971] 41 Comp Cas. 377 (Bom) to strengthen his argument that there is no estoppel against statute. Shri Zaiwala also pointed out that the respondents have not denied

in categorical terms that the instruments had not been cancelled or cancelled by the employees of the twelfth respondent. Mere denial is not sufficient especially considering the fact that the respondents were given inspection of the instruments. The respondents, according to counsel, have only advanced a bald denial without challenging the affidavit of Shri Narayanaswamy, a representative of the twelfth respondent. If they challenge Shri Narayanaswami’s affidavit, then the respondents should have indicated in categorical terms as to who cancelled the stamps. In view of this, there is no reason why the affidavit of Shri Narayanaswami should be disbelieved. The replies of the respondents to the main petition are contrary to the terms of Order 8, Rule 4 of the Civil Procedure Code, according to which any denial should be specific. Shri Zaiwala drew our attention to the affidavit of Shri Saxena dated July 7, 1993, in which he has very clearly stated that the transfer forms were available for inspection. He further stated that the respondents have not refuted in clear terms the affidavit of Shri Mohan Das on behalf of the twelfth respondent. There has been no denial of these affidavits on oath that they are not correct. According to Shri Zaiwala mere denial is not sufficient as per Rule 22 of the Company Law Board Regulations, 1991, also.

40. In view of all the above Shri Zaiwala prayed that the Company Law Board should order rectification of the register of members as prayed for and the rights and additional rights applied for by these respondents should be directed to be disposed of in consultation with the Madras Stock Exchange.

41. Replying to the arguments of Shri Zaiwala, Shri Cooper reiterated his earlier contentions that it is not the infirmities in the instruments that have prompted the company to file these petitions, but the allegations of the respondents being Reliance companies. According to him, this itself shows the mala fide intention of the company that the petitions have been filed with an ulterior motive to deny the respondents their right of holding shares in the company. In October, 1991, there was no question of any take-over attempts in view of meagre acquisitions and as such the contention that the company would have acted under the provisions of Section 22A of the Securities Contracts (Regulation) Act is only illusive. He questioned the ratio of counsel for the petitioner citing the Privy Council decision in Dottikaran’s case, AIR 1928 PC 92. He asserted that in the Privy Counsel case the issue was impersonation and it has no relevance in a stamp case. He drew our attention to Ma Pwa May v. S.R.M.M.A. Chettiar Firm, AIR 1929 PC 279, to show that documents not duly stamped and admission to registration is an error in procedure and curable under Section 87 of the Registration Act. According to him, the same ratio was followed in CIT v. Lakshmi Talkies [1984] 145 ITR 191 (Kar). He also relied on the decision in CIT v. Lakshmi Talkies [1984] 145 ITR 191 (Kar) that the Stamp Act is a fiscal measure enacted to secure revenue for the State and is not enacted to arm a litigant with a weapon of technicality to meet the case of his opponent. Once the object is secured, the parties staking their claim on the instrument will not be defeated on the ground of initial defect in the instrument and once the deficiency in the stamp duty is made good it shall be acted upon as if it has been duly stamped.

42. Drawing an inference from the affidavits of Shri Narayanaswamy and Shri Mohan Das, Shri Cooper pointed out that the company must have been following the procedure of registering shares without looking into the cancellation of the stamps as a practice. Only when the rights issue came up for consideration, with a view to deny the respondents the rightful claim to the rights issue, the company looked into the instrument relating to these respondents and came up with these petitions for recti­fication. He also questioned the claim of the petitioner to ask for refund of dividends paid to the respondents inasmuch as the transferors are the trustees of the transferees and the latter are the ultimate beneficiaries. Rights shares are to be issued to all the persons whose names were in the register of members on the record date. Since the respondents’ names were on the register of members, they can never be denied the rights issue. It is for the petitioners to prove that on some of the instruments the stamps were cancelled by the twelfth respondent. The burden of proof in this respect lies on the shoulders of the petitioners. Finally, Shri Cooper stated that at the time of passing final orders, there should be clear direc­tions, as per Section 111(6) of the Act, regarding the rights issue and, in the meanwhile, he requested that in view of the annual general meeting convened by the petitioner-company for September 3, 1993, the interim order should be vacated and the respondents should be allotted “rights PCDs” which are due for conversion by the end of August, 1993.

43. Before we deal with the preliminary objections raised by Shri Cooper, we would like to point out that the objections were raised only after the petitions were admitted and after arguments had commenced and were in progress on the petitions. Even in their reply, they had not raised any preliminary objections. Normally, preliminary objections are to be raised only before admission of a petition or at least before commencement of arguments. However, learned counsel for the petitioner did not contest this and he dealt with each one of the objections.

44. The preliminary objections have been based on the following pre­mises :–

1. Proceedings under Section 155 (now 111(4)) are summary in nature ;

2. In equity and due to mala fides on the part of the petitioner the petitions deserve to be dismissed ;

3. The petitions suffer from non-joinder of the transferors ;

4. On account of delay and laches the petitions should be dis­missed;

5. Estoppel operates against the petitioner.

Even though learned counsel has projected these issues as prelimi­nary issues, we are of the view that issues relating to equity and estoppel deserve to be dealt with along with the merits of the case and not as preliminary issues. We have accordingly done so.

45. The main objection relates to the scope and the powers of the Company Law Board under Section 111(4). Shri Cooper strongly advocated by citing decisions in a number of cases, that the proceedings under Section 111(4) are of summary nature and, therefore, disputed facts or complex issues should not be decided by us but the parties be relegated to a civil suit. Shri Zaiwala, on the other hand, cited a number of cases to show that the Company Law Board can decide any issue under this section and there is no need to relegate the matter to a civil suit.

46. Section 111 consists of two parts. The first part in Section 111(1) to (3) relates to appeal to the Company Law Board in the case of refusal by a company to register transfer of shares and the second part in Section 111(4) to (7) relates to rectification of register of members. The second part is practically a reproduction of the provisions of the erst-while Section 155 which has been assimilated in Section 111 by the 1988 Amendment. Earlier, the appeal against refusal to register was to the Company Law Board as delegatee of the Central Government and the petition for rectification rested with the High Courts. With the amendment in 1988 to the Compa­nies Act, both appeals and petitions are to be entertained by the Company Law Board within its inherent powers. In other words, the Company Law Board is the specialised forum entrusted with specific powers/responsi­bilities in respect of rectification of register of members. There is no indication or stipulation in that section putting fetters on the powers of the Company Law Board and as a matter of fact Sub-section (7) of Section 111 makes it amply clear :

“111. (7) On any application under this section, the Company Law Board,–

(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 ;

(b) generally, may decide any question which it is necessary or expedient to decide in connection with the application for rectification.”

Even though these provisions were there in Sub-section (3) of Section 155, yet some courts have held that the provisions of Section 155, being summary in nature, complex issues involved in these cases could be decided in suits. At the same time, there have equally been cases where courts have held otherwise. In view of this it is not possible to conclude that any single principle has been laid down by the judiciary on this issue.

47. We have been apprised of the two Supreme Court decisions on the scope of Section 155. One is Indian Chemical Products Ltd. v. State of Orissa [1966] 36 Comp Cas 592 in which the Supreme Court, while dealing with the scope of Section 38 of the Indian Companies Act, 1913, observed in paragraph 11 (at p. 597) “the jurisdiction created by Section 38 is very beneficial and should be liberally exercised”. Even in Public Passenger Service Ltd.’s case [1966] 36 Comp Cas 1, the Supreme Court while observ­ing (at p. 6) “where by reason of its complexity or otherwise the matter can more conveniently be decided in a suit, the court may refuse relief under Section 155 in exercise of the discretionary jurisdiction and relegate the parties to a suit” used only the word “may” and not “shall”. In other words, it is not mandatory that whenever complicated issues are involved in proceedings under Section 155 (now Section 111) the same should be relegated to a suit.

48. We have come across a recent decision by the Division Bench of the Karnataka High Court in Muniyamma v. Arathi Cine Enterprises Pvt. Ltd. [1993] 77 Comp Cas 97 (Kar) ; [1993] 2 Comp LJ 327 reversing the deci­sion of the single judge (see [1991] 72 Comp Cas 555). Paragraph 55 states thus (at page 124 of 77 Comp Cas):

“Thus, a conspectus of these decisions lead us to the conclusion that even though the proceeding under Section 155 of the Companies Act is a summary proceeding, as it is a relief provided under the statute, in a proper and appropriate case, it is open to the court to grant relief even though it may involve complicated questions of law and fact. Whether in
a particular case relief should be granted or not, because the jurisdiction is discretionary as the word used is ‘may’ in Section 155 of the Act, would depend upon facts and circumstances of the case but the exercise of jurisdiction cannot be refused on the ground that it involves complicated questions of law and fact. Of course, the propriety of the petitioners and their conduct having a bearing on the subject-matter of the petition would be relevant to the decision as to whether the discretion should or should not be exercised.”

49. We feel that the above decision lays down the most appropriate proposition regarding the scope of the jurisdiction of the court under Section 155. Whether to deal with the issues under Section 155 (now Section 111(4)) or relegate the parties to a suit, depends purely upon the facts and issues involved in a proceeding and there can be no rigid yardstick to decide the same in one way or the other. It is also to be borne in mind that if any rigidity is to be followed that complicated issues should always be relegated to a suit, the very objective of the Legislature in conferring the jurisdiction on the Company Law Board under Section 111 and provid­ing such wide powers would be defeated making the same purposeless and nugatory. In most cases under this section one or more complicated issues always arise and the jurisdiction of the Board can be sought to be ousted by the conduct of the parties by setting up the plea of involvement of complex questions of law and fact.

50. Therefore, considering the facts that the Company Law Board is the specified forum to exercise jurisdiction under Section 111, it would not be in order to bind itself with any specific proposition. Whether an issue–be it a fact or a point of law–is complicated or not itself is a matter to he established. In this case, we do not find the issues so complicated that they cannot be decided in a summary manner. No doubt the conduct of the petitioner is a very relevant factor to be taken into account, but as we have explained later we have not considered the conduct of the petitioner to be such that we cannot use the discretionary powers to enter­tain these petitions. Accordingly, we are unable to agree with the prayer of Shri Cooper to relegate the parties to a civil suit.

51. Shri Cooper’s contention relating to mala fides on the part of the petitioner and that equity is in favour of the respondents as elaborated in earlier pages rests on the following premises :

(1) The company obtained mandatory minimum 90% subscription only on account of the respondents applying for the rights PCDs.

(2) The rights partly convertible debentures would go to the directors who actually approved the transfer and this would mean putting a premium on dishonesty.

(3) The company should have returned the original transfer instru­ments in June, 1991/June, 1992, as not duly stamped so that the deficien­cies could have been rectified.

(4) Mala fides on the part of the petitioner are apparent from the fact that one of the grounds relied on for rectification is the allegation that the respondents belong to the Reliance group.

In regard to the first, the company has furnished details of subscrip­tion to the rights partly convertible debentures from which it is clear that even without the respondents’ applications the company had reached the minimum subscription and as regards the second, the company has explained that the rights partly convertible debentures in the event of rectification of register of members, would be allotted as per stock exchange approval. In view of these clarifications furnished by the company, no further elaboration is needed on these two points.

52. In regard to the other arguments on equity, that the company should have returned the instruments back to the respondents in June, 1991/ June, 1992, for rectification and that the mala fides are apparent on the part of the petitioner, the same will be discussed later.

53. The third objection relates to non-joinder of the transferors whose rights, according to counsel, are involved, as it is probable that rectifica­tion would result in payment of fresh stamp duty by the transferors, and they may have to repay the consideration paid on account of frustration of contract. Learned counsel for the respondents cited judicial pronounce­ments to stress this point. The petitioner’s defence is that, since the peti­tioner seeks to undo a legal wrong, it would be immaterial whether the transferors are made parties or not. However, he also undertook, if need be, in view of a large number of transferors, to issue a public notice through newspapers instead of making every one a party to these pro­ceedings by individual notice.

54. It is essential in this connection to look into the general practice, especially in respect of transfer of listed securities. Most of the shares are sold with blank transfer forms which change from hand to hand till someone decides to get the shares transferred in his name. Thus, in the case of listed securities, there are normally a number of sales and purchases of the same security and it is extremely difficult, if not impossible, to
identify, at a later date, all the parties involved in these sales and purchases, resulting in a number of transferors and transferees, even though in common practice, only the first transferor, i.e., the person in whose name the shares stand and the last transferee who seeks to put his name on the register of members are treated as transferor and transferee. Normally, it is the last transferee who pays the stamp duty and there is generally no privity of contract between the first transferor and the last transferee. The broker through whom shares are purchased becomes del credere agent and the contractual relationship is only between him and the purchaser. In this connection, it is appropriate to quote from Palmer’s Company Law, page 470, 23rd edition, “if the company, under its powers, appropriately exercised, refuses to register the transfer, the transferee has no right against the transferor for breach of any implied warrantee to have the transfer registered or for the recovery of the purchase price and rescission of the contract. Any such term must be expressly provided for. Otherwise the seller’s duty is performed when he hands over to the buyer a duly executed instrument of transfer, together with the certificate or its equivalent.” If the buyer wishes to protect himself, he must buy with ‘registration guarantee’.” In Stray v. Russel [1859] 1 E & E 888, the Queen’s Bench held that in case of sale of shares, there is no undertaking on the part of the transferor that the company would register the name of the transferee and the plaintiff’s claim on this account should be rejected.

55. Thus, there is no basis for the apprehension of the respondent that stamp duty would become payable by the transferor (that is the first) and he may also have to refund the consideration if the respondents choose to rescind the contract of sale/purchase of shares on account of frustra­tion. In most of the cases cited by the respondents the contracts of sale and purchase were directly between the first transferor in whose name the shares stood and the ultimate transferee or where third party rights had been created. It is not that we advocate that there is no need of notice to the transferor but in the present prevalent circumstances it cannot be said to be mandatory. It would depend upon circumstances of each case.

56. However, if rectification is ordered, then, as rightly pointed out by Shri Cooper, the names of the first transferors would be put back on the register resulting in a divorce between the legal title and beneficial interest. The legal title reverts back to the transferors and the respondents become the owner of beneficial interest. The relationship of trustee and cestui que trust is established, relating particularly to dividends and the right to vote. To this extent the objection of Shri Cooper deserves to be sustained. But having noted the offer of the petitioner to issue a general notice in the newspapers if need be and taking into consideration the grounds on which these petitions have been based, we are of the view that joinder of the transferors as parties would not have materially altered our final decision spelt out later in this order.

57. The next objection relates to delay and laches on the part of the petitioner company in presenting these petitions. The respondents have relied on Cuddalore Construction Ltd., In re [1967] 37 Comp Cas 440 (Mad) in which the court observed (at pages 443-44) : “In considering an appli­cation for rectification, the court has always had regard to the lapse of time. …. The applicant cannot take advantage of his own laches. . .. This doctrine of laches has very great significance….. as otherwise such delay would be fatal to his application for rectification.” The above obser­vation was with reference to the prayer for removal of the name of a member from the register of members when the company had gone into liquidation and when such application was filed after a delay of over five years so as to avoid the liability of being a contributory. It was also observed by the court that the applicant had not explained properly the delay in filing the application. In the case before us, according to the petitioner company, non-cancellation of stamps was noticed only in December, 1992, and immediately thereafter it filed the petitions before us. Even the respon­dents have alleged in their replies that only at the time of allotment of the rights partly convertible debentures, with a view to deprive the respon­dents, of the rights partly convertible debentures the company laboured to find deficiencies in the instrument of transfer. In other words, it is fairly clear that whatever may be the motive for filing these petitions, there has not been any undue delay and the petitions have been filed within the period of limitation even assuming the provisions of Section 113 of the Limitation Act are applicable. Therefore, we are not inclined to sustain this objection of the respondents.

58. Accordingly, with the decision that the petitions are maintainable, we dispose of Miscellaneous Application No. 67/SRB/93 filed by respon­dents Nos. 1 to 11.

59. As far as the main petitions are concerned, on the basis of the plead­ings and arguments advanced by all the parties, the following issues emerge for decision :

1. Do the transfer instruments suffer from infirmities/deficiencies as alleged by the petitioner ?

2. If so, when the company registered the shares in the name of the respondents, was it without sufficient cause ?

3. If so, are the alleged deficiencies capable of being removed so that there is no need for rectification of the register of members ?

4. If (3) above is not possible, can the principle of equity be in favour of the respondents and the principle of estoppel against the peti­tioner be applied ?

5. Relief.

When the interim order was passed, at the request of the respon­dents, directions were issued to the petitioner to give inspection of the instruments of transfers covered in these petitions to enable the respon­dents to file their replies. The respondents were also permitted to take xerox copies of the instruments if they so desired. While the petitions furnish arithmetical details of instruments on which stamps have not been cancelled at all and on which stamps have been alleged to have been cancelled by the employees of the twelfth respondent, the respondents in their replies have not categorically disputed the figures of non-cancelled and fully cancelled instruments except denying the allegations and they have not disputed the figures.

60. However, as inspection was given to them and as they themselves have indicated in their letters seeking extension of time for filing the replies to the petitions that “in terms of the orders, inspection of transfer forms was taken by our representatives on February 13, 1993.” We have sought xerox copies of certain transfer forms which were received recently and as they have not chosen to categorically question the figures, we have to proceed on the demurrer that the arithmetical details relating to various instruments as in annexure 1 are correct.

61. In this connection, it is relevant to record that the petitioner offered the instruments for inspection during the hearing also. Accordingly, we hold that on 2,721 instruments covering 3,00,393 shares, stamps are not cancelled, on 2,955 instruments covering 1,73,604 shares, the stamps are fully cancelled and on 53 instruments covering 3,563 shares, the stamps are partly cancelled.

62. Before we consider the second issue, a reference to the statutory provisions involved in this case is necessary. Section 108(1) of the Compa­nies Act, 1956, reads as follows :

“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.”

Section 2(11) of the Stamp Act, “duly stamped” : ” ‘duly stamped’, as applied to an instrument, means that the instrument bears an adhesive or impressed stamp of not less than the proper amount and that such stamp has been affixed or used in accordance with the law for the time being in force in India.”

63. Section 12 of the Indian Stamp Act :

“12. Cancellation of adhesive stamps.–(1)(a) Whoever affixes any adhesive stamp to any instrument chargeable with duty which has been executed by any person shall, when affixing such stamp, cancel the same so that it cannot be used again ; and

(b) Whoever executes any instrument on any paper bearing an adhesive stamp shall, at the time of execution, unless such stamp has been already cancelled in manner aforesaid, cancel the same so that it cannot be used again.

(2) Any instrument bearing an adhesive stamp which has not been cancelled so that it cannot be used again, shall, so far as such stamp is concerned, be deemed to be unstamped.

(3) The person required by Sub-section (1) to cancel an adhesive stamp may cancel it by writing on or across the stamp his name or initials or the name or initials of his firm with the true date of his so writing, or in any other effectual manner.”

Shri Zaiwala contends that the statutory compliance with Section 108(1) of the Act that the instruments of transfer must be “duly stamped” is a condition precedent and as the instruments of transfer are not duly stamped within the meaning of Section 12 of the Stamp Act, as they were not cancelled in accordance with the section, there is total statutory prohi­bition to register the transfers, covered by these instruments. According to him, stamps on the instruments covered in List A of annexure 1 were not at all cancelled when they were delivered to the company, when they were approved for registration and even now they remain so. Those in List B were not cancelled when they were delivered to the company but were, without authority, and unlawfully cancelled by the employees of the twelfth respondent. List C consists of those where not all stamps are cancelled. Therefore, he argues that the registration of these shares by the company was without jurisdiction, null and void ab initio and deserves to be corrected by an order of rectification of the register of members.

64. Registration of transfers is governed by Section 108 of the Act. It has been contended by citing a number of cases, the Supreme Court decision in Mannalal Khetan’s case [1977] 47 Comp Cas 185 being the prime case, that the provisions of this section are mandatory and this being so, the provision relating to “duly stamped” is also mandatory. Since the instru­ments are not duly stamped under the Stamp Act, the registration of the shares covered under these instruments, being in violation of the manda­tory requirement of law, is void and has to be rectified, it is further sub­mitted.

65. In Mannalal Khetan’s case [1977] 47 Comp Cas 185, the Supreme Court was faced with a situation where the board of directors of the company approved the transfer even without production of the instru­ments duly signed by the transferors and without the share certificates. The term “duly stamped” occurring in the section was not the main issue.

66. In this connection, it is essential to note that the Companies Act does not define the term “duly stamped”, while the same is defined in the Indian Stamp Act in Section 2(11). Normally, the definition clause in a statute can be used only for the purpose of interpreting the words appear­ing in that particular statute and not for the purpose of interpreting the words appearing in other statutes (Geyer v. Geyer [1949] Lah 867). It was also held in Rao Bahadur Ravulu Subba Rao v. CIT [1956] 30 ITR 163 (SC) that it is not safe to pronounce on the provisions of one Act with reference to provisions dealing with other Acts which may not be in pari materia. However, as indicated later, various courts have adopted the defi­nition of “duly stamped” in Section 2(11) of the Stamp Act for the words used in Section 108(1) of Act in the absence of definition in that Act itself.

67. Under Section 2(11) of the Stamp Act, there are two main points to be considered. One, the amount of stamps to be used and two, the mode of using them. In the second one comes Section 12 of the same Act which deals with cancellation of adhesive stamps. Shri Cooper drew our atten­tion to the fact that Section 12 does not anywhere refer to the term “duly stamped”. Rather, according to him, Sub-section (2) of Section 12 lays down that non-cancellation of stamps would only make the instrument “un­stamped”. He drew support from the Stamp Act itself to point out the difference between the two terms that the penalty for “not duly stamped” is Rs. 500 as provided in Section 62 and for “unstamped” it is only Rs. 100 as per Section 63. He, therefore, advocated that an uncancelled stamp on an instrument does not make it “not duly stamped” within the meaning of Section 108(1) of the Companies Act.

68. Even, though this is an interesting proposition, yet, such a fine distinction may not be possible if we consider Section 2(11) of the Indian Stamp Act, which while defining “duly stamped”, stipulates “such stamp has been affixed or used in accordance with the law” and Chapter IIB of the Indian Stamp Act of which Section 12 forms part, deals with “stamps and mode of using them”. In addition, many of the courts which had occasion to deal with Section 12 of the Indian Stamp Act have held that an instrument not in compliance with the provisions of Section 12 of the Stamp Act would be a “not duly stamped” instrument. Accordingly, we are unable to uphold the argument of Shri Cooper in this regard.

69. As we have pointed out earlier, the term “duly stamped” was not the issue in Mannalal Khetan’s case [1977] 47 Comp Cas 185 (SC). But various High Courts, relying on the decision of this case, have held that a “duly stamped” instrument is a mandatory requirement, and where stamps had not been cancelled, such instruments have been held to be “not duly stamped” within the meaning of Section 12 of the Stamp Act. Some of such cases were cited by Shri Zaiwala. In addition, we have also come across a few other cases with the same proposition as indicated below.

70. In Mathrubhumi Printing and Publishing Co. Ltd. v. Vardhaman Publi­shers Ltd. [1992] 73 Comp Cas 80, the Division Bench of the Kerala High Court held that “the instruments of transfer of shares had not been duly stamped as the adhesive stamps had not been cancelled at the time of execution but only at the time of lodgment with the company and as such the board of directors of the company was justified in rejecting the regist­ration of transfers”. Likewise the Division Bench in Muniyamma’s case [1993] 77 Comp Cas 97 (Kar) reversing the decision of the single judge (see [1991] 72 Comp Cas 555) held that “the instrument of transfer of shares should bear the requisite stamps and the adhesive stamps should be cancelled at the time of affixation of stamps or execution of the docu­ment. In case it is not so cancelled then it cannot be said to be duly stamped. The provisions of Section 108(1) of the Act and Section 12 of the Karnataka Stamp Act are mandatory. These two provisions should be read
together. If the stamps are not cancelled, the document must be held to be not duly stamped. Consequently, it must be held to be invalid.”

71. Shri Cooper relied on the decision of a Division Bench of the Karnataka High Court in Lakshmi Talkies’ case [1984] 145 ITR 191 (Kar) to support his claim that the Stamp Act is only a fiscal measure and not to arm a litigant with a weapon of technicality. In this case, the dispute was only on the provisions of the Stamp Act and not read with Section 108 which has been declared to be mandatory provision. Secondly, this decision of the Division Bench of the Karnataka High Court has not been cited by the Division Bench of the same court in Muniyamma’s case [1993] 77 Comp Cas 97.

72. In other words, there is overwhelming support to the proposition that the provisions of Section 108(1) of the Act and Section 12 of the Stamp Act are mandatory and an act done or an agreement entered into without compliance with these provisions is void. The Company Law Board, Western Region Bench, also came to the same conclusion in Patel Engineering Co. Ltd. v. B. Y. Investment P. Ltd. [1992] CLA 77 (CLB).

73. However, we do not agree with the proposition of Shri Zaiwala that, in view of the infirmities in the instruments of transfer, the company had no jurisdiction to register shares. His reliance on this aspect, on Dottikaran’s case, AIR 1928 PC 92, has been rightly repelled by Shri Cooper as not relevant to the facts of this case.

74. From the above discussions, it is apparent that the basis of these petitions is the non-compliance with the mandatory provisions of Section 108 of the Act. In line with the decision of the Supreme Court which has held the provisions of this section as mandatory, in view of the negative words used “the company shall not register”, in Mannalal Khetan’s case [1977] 47 Comp Cas 185 (SC) the mandatory nature of Section 108 has been affirmed by various High Courts also. While some of the High Courts have held that the provisions of the Stamp Act relate to fiscal matters, some of the High Courts have held that compliance with the provisions of Section 12 of the Stamp Act is mandatory. Even granting that once the fiscal requirement is met, mere non-cancellation of stamp should not lead to litigation, what we are concerned with in this case is about non-compli­ance with the mandatory provisions of Section 108 of the Act which needs presentation of “duly stamped” instruments for transfer. In other words, a duly stamped instrument is a pre-condition which has not been fulfilled in respect of instruments in Lists A and C of annexure I. Accordingly, we hold that as far as instruments covered in Lists A and C are concerned, they have not complied with the mandatory provisions of Section 108(1) of the Act, as they were not duly stamped within the meaning of Section 12 of the Indian Stamp Act. Therefore, when these instruments were registered without fulfilling the mandatory requirement, it has to be held that they were registered without sufficient cause and accordingly we hold so.

75. As far, as List B is concerned, no doubt, affidavits have been filed by two employees of the twelfth respondent to the effect that the stamps on the instruments covered in that list were either cancelled by rubber stamp or by hand by themselves. We are unable to accept this submission. Annexure I shows that the shares were lodged by the respondents in three lots on three different dates, viz., June 29, 1991, June 11, 1992, and Septem­ber 21, 1991. On June 29, 1991, in all about 2,500 transfer instruments were lodged with the company by the respondents of which only 15 remain uncancelled today. If we consider the submission that all these forms were cancelled by the employees of the twelfth respondent, then it must have been done with record speed as the transfers were approved on July 1, 1991, i.e., within the next two days. While we do not dispute the possibility of doing so in view of the book closure commencing on July
2, 1991, yet we also have to consider as to why such cancellation was not done by the twelfth respondent in respect of instruments lodged on the other two dates. On June 11, 1992, the respondents lodged about 3,000 transfer instruments of which according to the affidavits of employees of the twelfth respondent, they cancelled only about 500 instruments even though there was a gap of four days between lodgment on June 11, 1992, and transfers effected on June 15, 1992. No doubt, the tables can be reversed and the respondents can be made to answer the same questions. But, as we have already pointed out, in the case of listed securities which are subject to repeated transfers with blank transfer instruments, through the intermediary of share brokers, a roving enquiry as to the time of cancel­lation would be an endless one. Documents have to be considered on their face value. It is an admitted position that when the one man committee approved the transfers, the stamps on the instruments had been cancelled. Now, to plead that they were not cancelled as per Section 12 of the Stamp Act but were cancelled by the employees of the twelfth respondent, after lodgment, though may have been sworn through an affidavit, does not fully establish such a fact especially when we look at the figures of such cancellation with reference to lodgment on June 11, 1991, and June 15, 1992, as pointed out earlier. Though the respondents have also not
categorically stated whether the stamps on these instruments were can­celled by them before lodgment, they have denied that they were not cancelled. Under these circumstances, we would like to give the benefit of the doubt in favour of respondents Nos. 1 to 11 herein and hold that the instruments in respect of shares covered in List B were duly stamped and were as such registered with sufficient cause.

76. The next issue relates to the effect of registration without sufficient cause and whether the deficiencies can be cured. According to the peti­tioner, the deficiencies make the instrument invalid and the registration ab initio void and no corrective action can revive the instruments. Shri Cooper advocated that the defects could be cured and there would be no need for rectification of the register. Relying on the impounding provi­sions in Part IV of the Stamp Act, he suggested that the instruments which are considered to be not duly stamped may be impounded and sent to the Collector for adjudication so that once they are certified by the Collector, they could be admitted in evidence, acted upon and registered.

77. As far as the impounding is concerned, it is to be pointed out that the grounds on which the petitions have been filed relate to infringement of the provisions of the Companies Act and the decision we are called upon to give is whether there has been infringement or not and the effect thereof. Therefore, we are unable to accede to the prayer of Shri Cooper for impounding the documents as per the Indian Stamp Act. We draw support from the observation of the Calcutta High Court in Nuddea Tea Co. Ltd.’s case [1988] 64 Comp Cas 775 when demand for impounding was raised “we do not find any substance in the contention . . . This is not the case in the present appeal. The question in this appeal, as we have already noted is whether the company is bound by law to accept any instrument not duly stamped within the meaning of Section 108 of the Act or Section 12 of the Indian Stamp Act and to make registration of transfer and rectify the share register”.

78. The Company Law Board, Western Region Bench, went a step further to say that even if the instruments are impounded and sent to the Collector for adjudication, the certificate given by him under Section 40(2) even though conclusive evidence for the purposes of the Stamp Act, will not be of any assistance under Section 108 of the Act which requires the instru­ment to be duly stamped when the same was delivered to the company. Likewise we have come across a number of cases wherein the issue relating to “not duly stamped” was raised but the courts have not impounded the instruments as in most of these cases the issue to be decided, as in the present case, was about the effect/validity of such instruments not fulfill­ing the requirement of Section 108 of the Act.

79. From the above, it is clear that when the stamps on instruments were not cancelled at the time when the stamps are affixed or at the time of execution of the instruments and were delivered to the company as such, even subsequent certification by the Collector under the Stamp Act does not fulfil the mandatory requirement of Section 108 of the Act which requires lodgment of a duly stamped instrument for registration of transfer. In this connection, it is worthwhile to refer to Sub-section (3) of Section 32 of the Indian Stamp Act according to which on endorsement by the Collector, the instruments may be acted upon and registered as if it had been originally stamped. The term “may be registered” makes it clear that the act of registration is only prospective even though the instrument is deemed to be originally stamped. Likewise, Sub-section (2) of Section 42 of the Indian Stamp Act also states that endorsement on instrument by the Collector, on payment of duty, such instrument may be registered and acted upon as if it has been duly stamped. The words “may be registered” indicate that the registration of instruments prospectively is permissible. Shri Cooper cited the decision in Hindustan Steel Ltd.’s case, AIR 1969 SC 1238. In this case, the Supreme Court has, after dealing with the impounding provisions of the Stamp Act, held in paragraph 4 that “there is no bar against an instrument not duly stamped being acted upon after payment of stamp duty and the penalty according to the procedure pre­scribed by the Act”. This also indicates that any action with reference to such instrument is futuristic. Thus, even if the defect is cured now, it will not protect the registration done earlier.

80. The next issue for consideration is regarding the application of the principle of equity. The contention of Shri Cooper in this regard, accord­ing to us, has a lot of weight and merits very careful consideration. It should be said in all fairness to Shri Cooper that even though he stressed the point that non-cancellation is only a procedural defect yet he fairly admitted that in case the transfer had not been registered, he perhaps could not approach the Company Law Board for a direction for registration, as such direction may be considered to be a direction to do an unlawful act. But once the registration has taken place and considerable time has lapsed, then different equities arise between the parties and even an unlaw­ful and void transaction becomes irregular and voidable, he argued.

81. He stressed that the conduct of the company should be taken into account in deciding the matter finally. He argued that two lots of transfer instruments were lodged with the company in June, 1991, and June, 1992, and it is for the company to have examined the correctness of these instruments, returning those in which deficiencies were detected or other­wise they should have rejected the transfers under Section 22A of the Securities Contracts (Regulation) Act. Not only did the company not do so, but it registered the transfers and, therefore, it is inequitable for the company now to come for rectification, seeking removal of the names of the respondents from the members register. This way the respondents have been denied not only the opportunity of getting the instruments rectified but also participation in the rights issue. Therefore, according to him, the equities are in their favour. He has relied on the decision of the single Bench of the Karnataka High Court in Muniyamma’s case [1991] 72 Comp Cas 555 that “in appropriate case this court may decline to exercise this jurisdiction, depending on the question arising in the case and the equities applicable . . . The circumstances of the case, prima facie, indicate that the equities are not in favour of the petitioners ; in such a situation in respect of the petitioners making a strong case for legal right in them, the court may refuse to exercise its powers and leave it to the petitioners to approach the civil court by way of regular suit”. (The decision of the single Bench has been reversed by the Division Bench–[1993] 77
Comp Cas 97.) He has also sought, that, in equity, in view of the mala fide motive of the petitioner in filing the rectification petitions, no relief should be granted to the petitioners. In this connection, reference was made to the rejection of certain applications for transfer of shares made by the respondents which have been rejected under Section 22A of the
Securities Contracts (Regulation) Act, recently by the company.

82. It is a well-established principle of law that whenever any one seeks relief in a court of equity like the Company Law Board, he should come with clean hands. Even though in this case it has been alleged that there was a deliberate attempt on the part of the company to first register these shares and later move the Company Law Board for rectification, yet this has not been borne out from the averments of the respondents where they have further alleged that only with a view to deny the respondents the rights PCDs, the company, at the time of allotment of the PCDs, scrutinised the old instruments and detected the impugned deficiencies. While it has not been established that the company had full knowledge of the deficien­cies in the instruments at the time of registration, it is apparent that the applications for a large number of rights by these respondents had prompted the board to look for some excuse to prevent allotment of such rights. The company has, on its part, justified these petitions on the plea
that the respondents had hidden the fact of their belonging to the Reliance group and if this fact had been known to the company, it could have rejected the request for registration under the relevant provisions of Section 22A of the Securities Contracts (Regulation) Act which opportunity, the company claims, has been denied due to non-disclosure of this vital information by the respondents. To sustain their claim about the Reliance connection, the petitioner has relied on the Supreme Court observation in N. Parthasarathy’s case [1991] 72 Comp Cas 651 in which four of the 11 respondents were observed to have been a part of the Reliance group. Even though the petitioner tried to assert this position by pointing out the commonality of various actions by all these 11 respondents like lodg­ment of transfer forms in lots on the same dates, filing of identical replies to the petitions, similarity in the preliminary objections, remittance of money for rights PCDs from the same bank through consecutive serially numbered stock invests, etc., we refrain from expressing any opinion on this inasmuch as the rectification has not been sought on this basis.

83. While it is the responsibility of the respondents to have lodged duly stamped instruments with the company, the company is also equally responsible to ensure that it registers only duly stamped instruments of transfer. The mere fact that it had acted in a bona fide manner with the shortest time available does not mitigate against the negligence on the part of the company. It is inconceivable that the one man committee which approved the transfers did not enquire into the identity of the persons when such a large number of share transfer forms was lodged with the company for transfer.

84. One important remedy that the respondents could have availed of has also been denied to them due to the failure of the petitioners to inform the former of the deficiencies before registration. That is the remedy provided in Section 41 of the Stamp Act, according to which even though the effect is prospective when an instrument remains not duly stamped due to mistake or by accident, the same could be presented to the Collector for adjudication by any person on his own motion and once the Collector endorses certificate of payment of penalty, etc., the same could be registered. However, this has to be done within one year from the date of execution. Because of the delay by the company in pointing out these defects, the respondents have lost this opportunity now. Also, the company has not provided any satisfactory answer to the commonality in the dates of registration and the dates of impression of the rubber stamp with the “not
duly stamped” endorsement. We have also noted the observation of Buchley that “lapse of time coupled with recognition of the transferees as share­holders will render the transfer incapable of being impeached. It is sub­mitted that the registration of a defective transfer of shares may be regarded after a long lapse of time as a mere irregularity and not a nullity”.

85. It is worthwhile at this point of time to refer to the dates of lodgment of the transfer forms, registration of the transfers and the dates of closure of the books. The transfer forms in lots were filed just a couple of days before the book closure dates and the transfers were approved just a day before the date of book closure. For instance, the first lot of shares were lodged by five respondents on June 29, 1991, and were approved for regist­ration on July 1, 1991, a day before book closure on July 2, 1991. Likewise, ten respondents lodged the second lot on June 11, 1992, and were approved for registration on June 15, 1992, a day before book closure on June 16, 1992. The act of ultra quick registration can be termed both as signify­ing the bona fides of the company as well as its acquiescence while lodg­ment by the respondents at the last minute as tactical as well as surrepti­tious. Whatever it may be, we feel that the arguments of Shri Cooper about the equity being in favour of the respondents cannot be easily brushed aside.

86. However, we are unable to go any further beyond this because of the grounds on which the rectification has been sought, i.e., infringement of mandatory provisions of law wherein it has been held that equity does not apply. In Public Passenger Service Ltd.’s case [1966] 36 Comp Cas 1, 6 (SC), Bachawat J. observed : “counsel relied upon the well known maxim of equity that ‘he who comes into equity must come with clean hands’ and contended that the courts below should have dismissed the appli­cation as the respondents did not come with clean hands. This contention must be rejected for several reasons. The respondents are not seeking equitable relief against forfeiture. They are asserting their legal right to shares on the ground that the forfeiture is invalid and they continue to be legal owners of the shares. Secondly, the maxim does not mean that every improper conduct of the applicant disentitles him to equitable relief. The maxim may be invoked where the conduct complained of is unfair and unjust in relation to the subject-matter of litigation and the equity sued for”. Another case we have come across in this regard is East Indian Produce Ltd. v. Naresh Acharya Bhaduri [1988] 64 Comp Cas 259 in which the Division Bench of the Calcutta High Court observed (at page 285) : “In our opinion, the above observation was made by Ajit Kumar Sen Gupta J. in a different context. If, however, the said observation of His Lordship means that if an illegal contract is performed in part by a party, it is not open to it to contend subsequently that it is not legal or valid, then, with respect, we are unable to agree with the above view of His Lordship. If a contract is not legal or valid, then by acting upon it by any of the parties thereto, the same cannot be said to be valid or legal. Acting by the parties upon a contract, which is contrary to any provision of law or statute and as such is illegal, invalid and not unenforceable cannot make the same legal, valid and enforceable”. Again, on the preference of equity over provisions of law, we would like to refer to Bindeshwari Singh v. Har Narain Singh, AIR 1929 Oudh 185, wherein it was observed by the Division Bench (at page 188) : “But surely as said before, a principle of equity must yield to express provisions of a statute and if the contract to assign or the transfer itself is declared by the statute as void the prin­ciple that equity considers as done that which ought to be done must be held to be inapplicable to such a transfer.”

87. Coupled with the earlier arguments is the issue relating to estoppel. It is an admitted position that the company has registered the shares in the name of the respondents in respect of the shares under dispute, paid them dividend on these shares and also offered rights PCDs, and the respondents have also applied for rights PCDs. Thus, the respondents have been held out to be members and they also acted as such. Therefore, Shri Cooper is justified in asserting that there is clear estoppel operating against the company in this regard.

88. The only argument of the company on this is that there is no estoppel against the statute, inasmuch as they have sought for rectification of the register of members only on the ground that the mandatory provisions of Section 108 of the Act were not fulfilled when the transfer instruments were delivered to the company. To support this contention, a large number of court decisions have been cited as indicated earlier. Unfortunately, the respondents were not able to rebut this argument to our satisfaction. Various judgments on the issue of estoppel that we have come across, have also supported the same view that there is no estoppel against the statute. In Firestone Tyre and Rubber Co.’s case [1971] 41 Comp Cas 377 (Bom) the court observed: “No estoppel against statute nor can a person waive any right or benefit conferred by a statute unless it is a private or personal nature”. In the case of Lady Dinbai, Mr. Chagla J. observed : “The learned judge has dealt with this plea of estoppel and in my opinion rightly come to the conclusion that the plea of estoppel must fail because no person can be precluded from pleading that certain orders are illegal or invalid, because whether orders are illegal or invalid is a pure question of law and there can be no estoppel against law”. In Mahindra and Mahindra Ltd.’s case [1993] 64 ELT 172 (Bom), the court held that “factual conduct of the petitioner cannot, in law, validate a demand otherwise invalid or cure a patent illegality. Besides the end result is a mistake of law. There is no bar against legal rectification. There cannot be estoppel against a statute, all the more when it is a taxing statute.”

89. Thus, the legal position that emerges from various judicial pronounce­ments, is that, once a mandatory provision of law is infringed, then irres­pective of motive, delay, laches, negligence, creation of third party interests, etc., the principles of equity and estoppel may not have any relevance. There does not seem to be any exception to the maxim “there is no estoppel against statute”.

90. Even though a large number of cases were cited to support the view that when the instruments are not duly stamped, the company cannot be forced to register the transfer, no decided cases were referred to us wherein register of members was rectified to remove somebody’s name. We have come across a decision of the Delhi High Court in Mahabir Singh v. Jai Singh [1978] 48 Comp Cas 558 in which the court while ordering rectifi­cation observed (at page 563) : “In my view the proper order in this case has to be on the basis that the transfer was not valid because of a defect in the transfer form and the stamp appearing thereon. I must come to the conclusion that this transfer deed is not ‘duly stamped’ within the meaning of Section 108 and, therefore, should not have been acted upon by the company”. Similarly, we have also come across another case wherein rectification was ordered because of the reason that the transfer was not in compliance with the articles of association of the company. This was the decision of the Punjab and Haryana High Court in Amrit Kaur Puri v. Kapurthala Flour, Oil and General Mills Co. Pvt. Ltd. [1984] 56 Comp Cas 194.

91. In view of this, we have to perforce conclude that the names which were entered in the register of members without sufficient cause have to be removed therefrom and the prayer of the petitioner for rectification in relation to shares covered in Lists A and C be granted. We order accord­ingly.

92. In this connection, we would like to make the following observa­tions. As we have indicated earlier, in respect of listed securities, a large
number of transfers take place with blank transfer forms, it is very difficult to identify the intermediaries between the first transferor and the last transferor. The intent of the Legislature is to ensure free transfer ability of shares and even the new Companies (Amendment) Bill makes abun­dantly clear only the circumstances under which transfers could be refused by companies. Even though it has been held by many courts that non-cancellation of adhesive stamps as per Section 12 of the Stamp Act would violate the mandatory provisions of Section 108 of the Act, it has to be remembered that these decisions have been given on the basis of the definition of “duly stamped” as given in Section 2(11) of the Stamp Act. In a number of cases in various proceedings before us this plea of non-cancellation has been taken to defeat the rights of the transferees. It is improbable that a person who purchases shares for valuable consideration should fail to cancel the stamp deliberately. In most of the cases it is either by mistake or due to negligence that the stamps are left uncancelled even though stamps for adequate value are affixed. In view of the large number of shares transacted especially just before closure of members’ register, companies may not be in a position to examine each and every instrument. Under the circumstances, it is most appropriate that in the Companies Act itself there is a definition for “duly stamped” different from the one in the Stamp Act so that the mere non-cancellation of stamps may not be treated as mandatory provision for the purposes of registra­tion of transfer. The present case is a typical case where even though stamps of adequate value have been affixed on the instruments and the fiscal requirements fulfilled yet on the technicality of non-cancellation of stamps, the mandatory provisions of Section 108 have been invoked and rectification is sought. Therefore, it is essential that specially when free transferability of shares is being propounded as essential for the growth of the capital market, a suitable provision is made in the Act so that on technicalities, transfers are not rejected.

93. Incidental to the above, we also like to make another observation relating to the status of the shares which are rejected for registration. Section 22A as well as the present Companies Bill provide for the circum­stances under which alone transfer of shares can be refused by a company. Assuming that shares are refused on one of these grounds, there is no provision either in the Companies Act or in the Securities Contracts (Regu­lation) Act to indicate as to what would be the status of such shares. Even though the original shareholders in whose name the shares stand are considered to be the trustees of the person who holds the shares under blank transfer or who has got his name entered in the instrument but whose name has been refused to be registered in the register of members, yet it is not a healthy practice. Once a person hands over the shares in blank transfers, he has divested his interest in the shares and the shares are transferred either on cum dividend basis and cum rights or ex rights basis. In other words, whatever subsisting interest there is in the shares at the time of transfer, it is taken care of in the consideration paid, thus completely relieving him of any interest/liability in respect of the shares. The property, in the shares passes on to the transferee. However, by legal fiction because his name continues on the register of members, till the ultimate transferee’s name is put on the register, he is treated to be a member of the company and all the rights as member accrue to him. While the need for continuing him on the register of members is neces­sary till someone fills up the blank transfer form and presents it for registration, yet once the instruments are lodged with the company and the company has notice of the transfer, different legal provisions should apply, but in the absence of suitable legal provision in this regard, the original shareholders, even though they have divested their entire interest in the shares are treated as trustees of the transferees, even though there may not be any privity of contract between them and one may not even know the other. How far the liability of the trustees can be enforced is a matter of concern and we feel that it is unequitable that a person who has paid full consideration, has to be at the mercy of the transferor. No doubt Section 206A inserted by the Companies (Amendment) Act, 1988, makes provision for payment of dividend and offer of rights shares and issue of bonus shares in respect of shares for which instruments of trans­fer have been delivered to the company for registration and the registra­tion is pending. While inserting this section, the notes on clauses explain “with a view to providing protection to the investing public, this clause introduces a new section providing for payment of dividend and allot­ment of bonus and rights shares to the transferee on a mandate in this regard from the transferor and in the absence of such mandate, also imposes an obligation on the company to transfer the dividends accruing on such shares to the unpaid dividend account and to keep in abeyance any offer of rights or bonus shares, till the title to the shares is decided”. No doubt the provisions of Section 206A take care of contingencies relat­ing to dividend and bonus and rights issue but it does not encompass all other rights of a member like the right to vote and further transfer of shares, etc. Perhaps, a suitable provision has to be made in the Act itself in such a way that the ultimate transferee is in a position to deal with the shares as he likes–further transfer of shares, etc., especially when the registration of transfer is refused by the company.

94. Coming back to the present case before us, the next issue for conside­ration is the relief that is to be granted, inter alia, relating to the rights PCDs and dividends. Shri Cooper pointing out to Section 111(6)(c) of the Act prayed for issue of a consequential order regarding payment of divi­dend and rights PCDs. In regard to the rights PCDs and additional rights PCDs which were kept in abeyance in respect of the shares covered in these petitions, different propositions were advanced as below :

(a) They should be allotted to the respondents even in the case of rectification as their names were on the register of members on the record date.

(b) They should be allotted to the existing members in consulta­tion with the stock exchange.

(c) In case of rectification, as the names of the transferors will be put back on the register of members, they alone would be eligible for these PCDs in case they are not allotted to the respondents.

In addition to the above three alternatives, we have, before us, the provisions of Section 206A of the Act which we have already dealt with in an earlier paragraph.

95. We have given careful thought to all the above alternatives. Even though we have” already held that in respect of shares in Lists A and C, the register of members should be rectified, we are of the view that the plea of equity advocated by Shri Cooper becomes very relevant in the case of rights PCDs. With the handing over of blank transfer forms and on receipt of consideration, the original transferors have no beneficial inter­est in the shares. Even Section 206A of the Act recognises this aspect and provides for keeping in abeyance the rights allotment in case of transfers which are pending for registration. This section being a non-obstante provi­sion, is applicable notwithstanding any other provisions of the Act in the circumstances as specified in that section. Even though as per Section 81 of the Act, all holders of equity shares of the company are entitled to the rights offer, in the case before us, even though the transferors’ names are put back in the register of members on account of rectification, since they have already divested their interest in the shares and as there is admit­tedly no dispute regarding sale and purchase of the shares between the transferors and the transferees, guided by the objectives and principles behind Section 206A of the Act and also taking into consideration the general prevalent practice followed in cases of rights issue after transfer of shares by the transferors, we are of the firm view that the transferors are not entitled to the rights PCDs, and, therefore, there is no need to offer the same to them. Allotment of the rights PCDs to the other existing members would also not be in order as they are not entitled to the same as a matter of right. If the names of the respondents had not been origi­nally put on the register of members, then in all probability, even though the respondents could not have forced the original transferors to apply for the rights PCDs, they could have, perhaps got the rights renounced in their favour by the transferors. This opportunity had been denied to the respondents because of the registration of transfers. Therefore, even though we have ordered rectification on the basis of the mandatory provi­sion of the statute in respect of the shares covered in Lists A and C, we feel, that, in equity, the respondents should be entitled to the rights PCDs as renouncees. While coming to the decision we have also taken into consideration the fact that even if the transferor is allotted the rights issue, the transferee is entitled to claim the same from the transferor.

96. In regard to the additional rights PCDs in respect of these shares, as the company has not allotted any additional rights in favour of any renouncees, the same treatment should be given to the respondents also in respect of their applications for additional PCDs as we have treated them as renouncees.

97. The dividend in respect of shares covered in Lists A and C of annexure I which the respondents have already received in the past, we are of the view that there is no need for them to refund the same to the company as even otherwise they would be entitled for the same from the original transferors. This is in line with Section 27 of the Securities Contracts (Regulation) Act according to which in case a transferee lodges transfer instru­ments with the company for transfer to his name within 15 days from the date on which the dividend became due, such dividend can be paid to him. Registration of a transfer is not the criteria to claim such dividend. In the present case, the dividends were paid after registration only. While coming to this decision, we have also taken into consideration the deci­sion of the Supreme Court in Chunilal Khushaldas Patel v. Adhyaru (H.K.) [1956] 26 Comp Cas 168 (SC) in which it was held (at page 190) :

“. . . the liquidators, even though they received the dividend from the company by virtue of their having been shown as shareholders in the register of shareholders of the company, would be bound, once the contract of sale had been entered into between them and Chunilal, to hand over the said dividend to Chunilal.”

In the result, the petitions are partly allowed with the following directions :

(a) The register of members shall be rectified by removing the names of the respondents in respect of the shares covered in Lists A and C of annexure I within 10 days of receipt of this order.

(b) The rights PCDs in respect of shares covered in Lists A and C of annexure I which have been kept in abeyance shall be allotted to the respondents. However, in respect of the convertible portion, as the date of conversion is already over, the shares for the converted portion along with the non-convertible portion of the PCDs will be allotted within 10 days of receipt of this order.

(c) The additional rights PCDs in respect of shares covered in Lists A and C which are kept in abeyance will be allotted to all the existing members who have applied for additional rights, in consultation with the Madras Stock Exchange.

(d) The rights PCDs and the additional rights PCDs kept in abey­ance in respect of shares covered in List B, in view of our decision that there need be no rectification, shall be allotted to the respective respon­dents. Here also, as in (b) above, the shares for the converted portion along with the non-convertible portion of the PCDs will be allotted to the respective respondents within 10 days of receipt of this order.

(e) The respondents shall not be entitled to any interest on the application money for the PCDs and the additional PCDs whether allotted or not inasmuch as the entire amount was remitted through stock invests which have not been encashed by the company so far.

(f) The respondents will retain the dividends they have received in the past in respect of all the shares covered in Lists A, B and C of annexure I and there is no need for them to refund the same.

(g) In regard to registration of transfers in respect of shares in Lists A and C, the respondents may lodge the instruments afresh in accordance with Section 108 of the Act for consideration by the company.

98. There will be no order as to costs.

ANNEXURE I

Summary of particulars
of stamps not cancelled, cancelled fully by the staff of the second
respondent company, and partly cancelled by the staff of the second
respondent company in respect of all the eleven company petitions.

 

 

Date on which transfers
were lodged

Date on which transfers
effected

List A

List B

List C

Total

Grand total

sl. No.

Name of the company

Stamps not cancelled –

Stamps fully cancelled by
staff of the second respondent

Stamps partly cancelled
by staff of the second respondent

Total No. of T.D.S
received 91-92

Total No. of shares
received 91-92

No. of T.D.S

No. of shares

No. of T.D.S

No. of shares

No. of T.D.S

No. of shares

No. of T.D.S

No. of shares

 

 

1.

Lazor Detergents (P.)
Ltd.

29-6-91

1-7-91

6

173

494

26,870

15

667

515

27,710

 

 

11-6-92

15-6-92

255

17.680

282

18,648

 

 

537

36,520

 

 

21-9-92

16-10-92

 

 

4

200

 

 

4

200

1.056

64,450

2.

Maxwell Dyes and
Chemicals (P) Ltd.

29-6-91

1-7-91

8

400

581

24,210

21

1,858

530

25,660

 

 

11-6-92

15-6-92

191

17,260

 

 

 

 

191

17,260

721

42,920

3.

Swadee Chemicals (P.)
Ltd.

29-6-91

1-7-91

1

50

481

24,698

2

150

484

24,890

 

 

11-6-92

15-6-92

273

36.280

 

 

 

 

273

36,280

757

61,172

4.

Oscar Chemicals (P.) Ltd.

11-6-92

15-6-92

147-

11,900

196

20,000

 

 

343

31,900

 

 

21-9-92

7-10-92

 

 

1

100

 

 

1

100

 

 

 

16-10-92

 

 

2

100

 

 

2

100

346

32,100

5.

Prolab Synthetics and Detergents
(P.) Ltd.

11-6-92

15-6-92

287

21,810

 

 

 

 

287

21,810

 

 

21-9-92

16-10-92

 

 

4

670

 

 

4

670

211

22,450

6.

Mikantra Trading (P.)
Ltd.-

29-6-91

1-7-91

 

 

475

25,034

6

296

481

25,330

 

 

11-6-92

15-6-92

345

34,190

25

1,510

 

 

370

35,700

851

61.830

7.

Alkelite Intermediates
(P.) Ltd.

11-6-92

15-6-92

170

40.578

 

 

 

 

170

40,570

 

 

21-9-92

7-10-92

 

 

49

4,110

 

 

49

4,110

219

44,600

8.

Uavketan Commercials
Ltd.

11-6-92

15-6-92

279

40,700

 

 

 

 

279

40,700

279

40,700

9.

Shruti Traders Ltd.

11-6-92

15-6-92

506

42,300

 

 

 

 

506

42,300

 

 

23-9-92

7-10-92

 

 

6

1,050

 

 

6

1,050

 

 

28-9-92

16-10-92

 

 

4

160

 

 

4

160

516

43,590

10.

Saki Agencies (P.) Ltd.

29-6-91

1-7-91

 

 

424

25,310

 

1,400

433

26,710

435

26,710

11.

Skylab Detergents (P.)
Ltd.

11-6-92

1S-6-92

333

37,000

 

 

 

 

333

37,000

 

 

21-9-92

7-10-92

 

 

7

750

 

 

7

750

 

 

 

 

 

 

 

 

 

 

 

 

340

37,750

 

Total

 

 

2,721

3,00,393

2,955

1,73,624

53

3,563

5,729

4,77,560

5,7294

77,560

ANNEXURE II

Details
of rights applied by the respondent companies

C.P. No.

Name of the first
respondent

Rights applied

Additional applied

Rights allotment kept in
abeyance

Additional allotment
kept in abeyance

Total allotment kept in
abeyance

1.

Lazor Detergents (P.)
Ltd.

3,778

7.562

3.778

5,482

9,260

2.

Maxwell Dyes and
Chemicals (P.) Ltd.

2.525

5,075

2,525

3,662

6,187

3.

Swadee Chemicals (P.)
Ltd

3.598

7,202

3,598

5,219

8.817

4.

Oscar Chemicals (P.)
Ltd.

1,876

3,754

1.876

2.722

4.598

5.

Prolab Synthetics and
Detergents (P.) Ltd.

1,283

2,567

1,283

1,862

3.145

6.

Mikantra Trading (P.)
Ltd.

1,530

7.190

3.590

5,208

8.798

7.

Alkelite Intermediates
(P.) Ltd.

2.386

4,764

2,386

3,461

5,847

8.

Navketan Commercials Ltd

2,395

4,787

2,395

3.473

5,868

9.

Shruti Traders Ltd.

2.493

5,017

2,493

3.616

6,109

10.

Saki Agencies (P.) Ltd.

1.572

3,178

1,572

2,279

3,851

11.

Skylab Detergents (P.)
Ltd.

2.176

4,374

2,176

3.157

5.333

 

Total

27,672

5S.470

27,672

40.141

67.813

As
renouncee the following companies applied rights

sl. No.

Name

Applied

Additional applied

Total applied

Allotment kept in
abeyance

Amount refunded Rs.

1.

Maxwell Dyes and
Chemi-cals (P.) Ltd.

58

116

174

58

46.400

2.

Mikantra Trading (P.)
Ltd.

115

230

345

115

92.000

3.

Lazor Detergents (P.)
Ltd.

86

172

258

86

68,800

 

Total

259

518

777

259

2,07,200