ORDER
1. In this order, we are dealing with three petitions–C. P. No. 28/111/ SRB/97 by S. Anuratha, C. P. No. 29/111/SRB/97 by Shri M. Sampath, and C. P. No. 30/111/SRB/97 by Shri S. Balavenkatesan, and Shri S. Man-ickaraj–filed under Section 111 of the Companies Act, 1956 (hereinafter referred to as “the Act”) seeking rectification of the register of members of A. K. M. N. Cylinders Private Limited (hereinafter referred to as “the company”) by restoring the names of the petitioners in respect of 419 shares-95 shares in C. P. No. 28/111/SRB/97, 304 shares in C. P. No. 29/ 111/SRB/97 and 20 shares in C. P. No. 30/111/SRB/97. The petitioners are wife, husband and children respectively belonging to the same family. The first respondent-company is common in all the petitions. As the facts and circumstances of these petitions are common, they are disposed of by this common order.
2. The facts, in brief, as stated in the petitions and reiterated by Shri A. Arul Rayan, counsel for the petitioners, are that the petitioners in C. P. No. 28/111/SRB/97, C. P. No. 29/111/SRB/97 and C. P. No. 30/111/SRB/97 being members of the company are holding 419 equity shares–95, 304 and 20 equity shares respectively–of Rs. 1,000 each. The petitioner in C. P. No. 29/111/SRB/97 is one of the promoters and directors of the first respondent-company. The petitioners, their relatives and associates together holding 561 equity shares which include 419 shares mentioned hereinabove either lost or misplaced the original share certificates and called upon the company by lawyer’s notice dated October 27, 1995, to issue duplicate share certificates. The company did not obtain any indemnity bond from the petitioners for issue of duplicate share certificates. As per Rule 7(2) of the Certificate Rules, the relevant register of “renewed and duplicate share certificates” has not been filed by the company. The company in collusion with its managing director and the other respondents manipulated fraudulently as if duplicate share certificates were issued. By virtue of an unregistered agreement dated November 16, 1995, the petitioner in C. P. No. 29/111/SRB/97 and one Shri B. Mohandas, agreed to sell in favour of the second respondent in C. P. No. 29/111/SRB/97, 1,206 shares (506 + 700 shares respectively) for an aggregate sum of Rs. 19 lakhs. The petitioners by letter dated November 18, 1995, furnishing the certificate numbers of the original certificates requested the company to transfer their shares and settle the sale consideration as per agreement dated November 16, 1995, which will show that duplicate share certificates were not issued by the company. In the meantime, the petitioners delivered on November 18, 1995, blank transfer forms signed by them to an auditor at Trichinapally, as per the arrangement among the parties. The transfer forms were neither filled nor endorsed by the competent authority. The petitioners never executed the instruments of transfer in accordance with the provisions of Section 108 of the Act and did not surrender the share certificates. Blank transfers are not valid transfers. A signed transfer form which is blank otherwise in all respects cannot be said to be an executed document. The petitioners had not cancelled the adhesive stamps by putting their initials or names across the adhesive stamps in the instruments of transfer in compliance with Section 2(14) of the Indian Stamp Act, 1899. The company in collusion with the transferees had manipulated the date of execution as January 10, 1996, in the transfer deeds. The transfer deeds were executed prior to the endorsement of the competent authority and, therefore, contrary to law. The minutes of the board meeting held on November 18, 1995, approving the transfer of impugned shares are concocted. The articles of association of the company prescribe the manner and the procedure to be followed in the case of transfer of shares, which were not followed in the present case. In the circumstances the transfer of impugned shares is illegal and not valid in the eyes of law. According to the petitioners, the agreement dated November 16, 1995, became infruc-tuous due to breach of its terms and lapse of time and they are willing to pay back the consideration received by them along with interest.
3. In support of the above contentions, Shri Arul Rayan, relied upon the following decisions :
(a) Subhash Chandra v. Vardhman Spinning and General Mills Limited [1995] 83 Comp Cas 641 (CLB) to state that (page 648) :
“. . .the provisions of Section 108 are mandatory and as such the company cannot register the transfer of the shares in violation of the mandatory provisions of the Act.”
(b) Malabar and Pioneer Hosiery P. Ltd., In re [1985] 57 Comp Cas 570 (Ker) to state that (headnote) :
“The conditions imposed or the formalities enjoined in connection with the transfer of shares of a private company as provided in its articles of association read with Section 108 of the Companies Act, 1956, are mandatory.”
(c) Mannalal Khetan v. Kedar Nath Khetan [1977] 47 Comp Cas 185 ; AIR 1977 SC 536 to state that :
“The provisions contained in Section 108 are mandatory.”
(d) S. Sundaram Pillai v. P. Govindaswami [1987] 62 Comp Cas 414, 423 to state that :
“This provision (section 108) shows that a company is prohibited from registering the transfer of shares in the company, unless there is a proper instrument of transfer which is duly stamped and which is executed by or on behalf of the transferor and by or on behalf of the transferee is delivered to the company along with the certificate relating to the shares or debentures, as the case may be.”
(e) Amraoti Electric Supply Co. v. R.S. Chandak [1954] 24 Comp Cas 465 (Nagpur) to state that :
The company was not legally competent to register the transfer of shares if the requirements of Section 108 Of the Companies Act, 1956, were not fulfilled.
(f) Mathrubhumi Printing and Publishing Co. Ltd. v. Vardhaman Publishers Ltd. [1992] 73 Comp Cas 80 (Ker) to state that (headnote) :
“Under Section 12 of the Indian Stamp Act, 1899, cancellation of the stamps has to be done either when the stamps are affixed or when the instrument is executed that is when the executant affixes his signature to the instrument … if the instrument is not properly executed or the stamp affixed to the instrument is not cancelled before execution or at least at the time of execution, the said instrument must be deemed to be unstamped. The provisions of Section 12 are mandatory and, therefore, non-compliance with the requirements prescribed thereunder make the instrument not duly stamped and, therefore, it shall not be received in evidence, registered or acted upon.”
(g) Maheshwari Khetan Sugar Mills (P.) Ltd. v. Ishwari Khetan Sugar Mills [1963] 33 Comp Cas 1142 ; AIR 1965 All 135, 138 to state that :
“Where the company is guilty of fraud or the company had acted illegally by disregarding the mandatory provisions of the law, it can be said that the initial burden of proof which lay on the applicant stands discharged on his establishing the fraud or the doing of the illegal act and, thereafter, the burden shifts to the company to show that the omission of the name and the entry of another name was with sufficient cause.”
(h) S. Ramamurthy v. Jayalakshmi Ammal [1990] TLN] 352 ; [1990] 2 MLJ 497, 498, to state that :
“The execution of a document is not mere signing of it. It is a solemn act of the executant who must own up the recitals in the instrument and there must be clear evidence that he put his signature in a document after knowing fully its contents. The executant of a document must, after fully understanding the contents and the tenor of the document put his signature or affix his thumb impression. In other words, the execution of a document does not mean merely signing but signing by way of assent to the terms of the contract of alienation embodied in the document.”
(i) CIT v. Bharat Nidhi Limited [1982] 52 Comp Cas 80 (Delhi).
(j) C. Kuppiah Chetty v. P. Saraswathi Ammal [1941] 11 Comp Cas 334 ; AIR 1941 Mad 769, to state that :
“An agreement to transfer shares in a company accompanied with the actual instrument of transfer which had not been completed so far as the transferor could complete it does not amount to a transfer deed sufficient to cause title to pass. By itself it would be nothing more than an enforceable agreement to convey and until the transfer endorsement is signed the shares would be unascertained goods and would not be in a deliverable state.”
4. In the circumstances, the petitioners seek for rectification of the register of members of the company.
5. According to the company and its counsel, Shri R. Vidya Shankar, in his oral submissions, the paid up equity share capital of the company is of Rs. 25,00,000 divided into 2,500 equity shares of Rs. 1,000 each. Respondent No. 2 in C. P. No. 29/111/SRB/97, his wife and son along with their friends and relatives hold 1,658 equity shares constituting 66.32 per cent. of the total paid up equity share capital of the company. The petitioner in C. P. No. 29/111/SRB/97, his friends and relatives were originally holding 506 equity shares and Shri B. Mohandas, his friends and relatives 700 equity shares in the company. Pursuant to a memoran dum of understanding dated November 16, 1995, the petitioner in C. P. No. 29/111/SRB/97 as well as his group and Shri B. Mohandas’ group agreed to sell their entire holdings in the company to the second respondent in C. P. No. 29/111/SRB/97 and/or his nominees. Accordingly, the petitioner in C. P. No. 29/111/SRB/97 and his group had executed the instruments of transfer in blank in respect of 419 shares and delivered them with the share certificates to Shri A. R. Karuppan Chetty, auditor of the company. The second respondent in C. P. No. 29/111/SRB/ 97 had paid an aggregate sum of Rs. 8,60,900 to the petitioner-group and Rs. 2,50,000 to Shri Mohandas-group. After the payment of the entire sale consideration on January 8, 1996, the instruments of transfer duly executed by the petitioner in C. P. No. 29/111/SRB/97 and his group together with the duplicate share certificates issued pursuant to the board resolution dated November 18, 1995, were received by the second respondent from the auditor of the company. They were forwarded to the company for effecting the transfer in favour of the second respondent in respect of 419 shares, in accordance with the understanding among the parties. The board of directors in its meeting held on January 19, 1996, approved the transfer of impugned shares in favour of the second respondent in C. P. No. 29/111/SRB/97 and his group in support of which Shri Vidya Shankar, produced the original minutes book containing the relevant resolution for our scrutiny as well as of the respondents. The memorandum of understanding dated November 16, 1995, is yet to be performed by the petitioner in C. P. No. 29/111/SRB/97 and his group in respect of the remaining 87 shares and return the excess payment of Rs. 63,723 received by the petitioners in terms of the agreement. Thus, the memorandum of understanding had been duly performed so far as the petitioners are concerned. The agreement cannot be said to have become infructuous.
6. There has been no violation of the provisions of Section 108 of the Act or the Indian Stamp Act, 1899. The instruments of transfer do bear the stamping of the appropriate authority as on November 28, 1995. The petitioners had signed the transfer deeds on January 10, 1996. Shri Vidya Shankar, emphasised that blank transfers are valid in law for which he relied upon-
(a) The commentaries of Shri Ramaiya, on the Companies Act (14th Edition at page 911).
(b) Vasudev Ramchandra Shelat v. Pranlal Jayanand Thakar [1975] 45 Comp Cas 43 (SC).
(c) Howrah Trading Co. Ltd. v. CIT [1959] 29 Comp Cas 282 ; AIR 1959 SC 775.
7. He further summed up that the instruments of transfer were duly executed, stamped and cancelled in accordance with the provisions of the Act and also of the Indian Stamp Act, 1899. The duplicate share certificates (annexure R-9) contain the original share certificate numbers. It shows that duplicate share certificates were issued in lieu of the original share certificates. The impugned shares were transferred in favour of the existing members of the company at a mutually agreed price. The transferees constituted persons in management and control of the company and also directors even before execution of the memorandum dated November 16, 1995. In the circumstances, none of the articles has been violated. The transfer is valid, legal and duly supported by consideration. The petitioners retained the sale consideration received from the second respondent in C. P. No. 29/111/SRB/97 in respect of the impugned shares.
8. We have considered the pleadings and arguments of both the counsel. The question for consideration is whether the company shall rectify its register of members by restoring the names of the petitioners on the facts and circumstances of the case.
9. The admitted facts are as under :
The petitioners’ group holding 506 equity shares and Shri B. Mohandas’ group 700 equity shares in the company entered into an unregistered agreement dated November 16, 1995, for sale of their entire shareholding with the second respondent in C. P. No. 29/111/SRB/97, being a member of the company for an aggregate sum of Rs. 19,00,000. The aforesaid 506 equity shares include 95 equity shares of the petitioner in C. P. No. 28/111/SRB/97, 304 equity shares of the petitioner in C. P. No. 29/111/SRB/97 and 10 equity shares each of the petitioners in C. P. No. 30/111/SRB/97 respectively aggregating to 419 equity shares. These 419 equity shares are the subject-matter of the petitions. The remaining 87 equity shares belonging to other members of the petitioners’ group are not the subject-matter of the petitions. The petitioners by letter dated November 18, 1995, requested the company to transfer their shares and settle the sale consideration in terms of the agreement dated November 16, 1995. Respondent No. 2 in C. P. No. 29/111/SRB/97 had paid an aggregate of Rs. 8,60,900 by way of cheques and cash towards full sale consideration of 506 equity shares of the petitioners’ group. The entire sale consideration is retained by the petitioners. Shri B. Mohandas, one of the parties to the agreement dated November 16, 1995, is not a party to the proceedings. The impugned share certificates were lost or misplaced upon which the petitioners by lawyer’s notice dated October 27, 1995, demanded duplicate share certificates from the company. The petitioners delivered on November 18, 1995, blank transfer forms signed by them in respect of the impugned shares to Shri A. R. Karuppan Chetty, auditor at Trichinapally.
10. The contentious issues are that :
(a) The company had colluded with its managing director as well as the transferees and fraudulently manipulated the issue of duplicate share certificates.
(b) The instruments of transfer were falsified and fabricated. The mandatory provisions of Section 108 of the Act were not duly complied with.
(c) The adhesive stamps on the instruments of transfer were not cancelled in accordance with Section 2(14) of the Indian Stamp Act, 1899.
(d) The company failed to comply with the formalities specified in the articles of association of the company, before effecting the transfer of the impugned shares in favour of the transferees. The transfer of shares is violative of the articles.
(e) The agreement dated November 19, 1995, had become infruc-tuous due to breach of its terms and lapse of time.
11. If we examine the facts of this case, it is seen that notice asking for duplicate shares was issued to the company on October 27, 1995. After the issue of this notice, the petitioners entered into an agreement for sale on November 16, 1995, and further wrote to the company to act on this agreement by a letter dated November 18, 1995. They also handed over the blank transfer forms on November 18, 1995, to the auditor of the company and received consideration in respect of these shares. Therefore, not only expressing their intent to sell the impugned shares, they also reduced that intent in writing, received consideration and handed over the blank transfer forms. In other words, they had no more interest in the shares once they had received the consideration. The contention of the petitioners that duplicate certificates had not been issued prior in time to the date of effecting the registration is the only issue to be considered. Even though Section 84 of the Companies Act as well as the Issue of Certificate Rules specify certain procedures to be followed in the case of issue of duplicate shares, in the facts and circumstances of this particular case, considering that the company is a closely held private company and even assuming that there had been certain lapses of not following the legal procedure, we do not propose to hold the same against the company. While doing so, we have also taken note of the board resolution dated January 19, 1996, in which there is an indication of the duplicate certificates and that this date of transfer is in very close proximity with the date of letter of the petitioners addressed to the company asking for the company to effect the transfer of the impugned shares.
12. The instruments of transfer in respect of the impugned shares, photostat copies of which are produced by the company, reveal the endorsement of the competent authority as on November 28, 1995. The instruments are seen to have been executed on January 10, 1996. They are signed by the petitioners as well as the transferees. They contain the particulars of the duplicate share certificates. The adhesive stamps on the back of the instruments of transfer are found to be duly cancelled. Thus, the transfer deeds are prima facie found to be duly executed, adhesive stamps properly cancelled. The plea of counsel for the petitioners that blank transfers are invalid is not convincing. The Commentaries on the Companies Act by Ramaiya, and the decisions cited by counsel for the company will establish beyond doubt that blank transfers are valid. From the extracts of the minutes of the meeting of the board of directors of the company held on January 19, 1996, the original of which was produced by Shri Vidya Shankar, it is evident that the board of directors had approved the transfer of impugned shares in favour of the transferees. The endorsement on the back of the duplicate share certificates and extract from the annual report as on March 31, 1996, further establish the transfer of the impugned shares as approved by the hoard of directors of the company. The facts stated in the annual return are prima facie evidence of correct and complete facts, as has been held in Rashmi Seth v. Chemon India (P) Ltd. [1992] 3 Comp LJ 89 ; [1995| 82 Comp Cas 563. Moreover, the contentious issues raised by the parties regarding fraudulent manipulation of the duplicate share certificates, fabrication of the transfer instruments and other records cannot be resolved in summary proceedings by the Company Law Board, as has been held in quite a number of cases,
13. With regard to the plea that the transfer is violative of the articles, it shall be seen whether Articles 5 to 8 being relevant have been complied with by the petitioners as well as the company. They read as follows :
“(5) A share may be transferred by a member or other persons entitled to be a member so long as any existing member or any person selected by the directors as one whom it is desirable in the interest of the company to admit to membership is willing to purchase the same at the fair value.
(6) The persons proposing to transfer any share (hereinafter called the “proposing transferor”) shall give notice in writing (hereinafter called a “transfer notice”) to the company that he desires to transfer the same and such notice shall specify the sum ho fixes as the fair value and shall constitute the company as agent for sale of the share to any member of the company (or person selected as aforesaid) willing to purchase the share (hereinafter called “the purchasing member”) at the fair value to be fixed by the auditor in accordance with Article 8 hereof. A transfer notice may include several shares and in such case shall operate as if it were separate notice of each. A transfer notice shall not be revocable except with the sanction of the directors.
(7) If the company shall within the space of 30 days after being served with a transfer notice, find a purchasing member, it shall give notice thereof to the proposing transferor, who shall be bound upon payment of the fair value as fixed in accordance with Article 8 hereof to transfer the share to the purchasing member.
(8) In case any differences arise between the proposing transferor and the purchasing member as to the fair value of shares the auditor shall on the application of either party, certify in writing the sum which in his opinion is the fair value and such sum shall be deemed to be the fair value and in so certifying the auditor shall be considered to be acting as an expert, and not as an arbitrator and accordingly the Arbitration Act, 1940, shall not apply. Provided however that during the first five years after incorporation the fair value shall be the par value or break up value of the share which is higher.”
14. From a reading of the above articles, it appears that Article 5 is independent of Articles 6 to 8. Once the transferor himself chooses another member as the transferee, the question of following the procedure as per Articles 6 to 8 does not arise. It appears that a share may be transferred by a member to another member, of his choice, at the fair value. The term “fair value” as appearing in that article has to be seen with reference to the same term used in Article 6, according to which, it is for the transferor to specify the sum that he fixes as the fair value. In other words, whatever the transferor considers as the fair value the company, he is bound to offer the shares at that price in terms of Articles 6 and 7. Only when a purchasing member disputes the fair value as fixed by the transferor, then the question of referring to the company’s auditor as per Article 8 would arise. Therefore, when the petitioners entered into an agreement with the respondent for transfer of shares at a price as agreed among themselves, it becomes the fair value as the same has been fixed by the transferor himself as per Article 5. Moreover, we cannot go into the question whether the agreement dated November 16, 1995, became infructuous in Section 111 proceedings which can be agitated only in a civil suit.
15. The cases cited by counsel for the petitioners mostly relate to the mandatory nature of Section 108 which we have already held that in the present case the provisions of this section have been complied with.
16. Thus, in view of the foregoing, the petitioners have not made out a case for rectification of the register of members in relation to the impugned shares and as such these petitions are dismissed. Accordingly, the petitions are dismissed.