Ajoy Nath Ray, J.@mdashThere are three applications which should be disposed of together. The first application is a motion of the Plaintiffs/Petitioners Shambhu Charan Bhattacharyya and his wife regarding certain injunctions and other orders in respect of 2000 shares of The Statesman Ltd., the Defendant, which were held by him and his wife. It is in dispute whether these shares are still held by them either beneficially or fully.
2. The second application is an application by the Defendant, for vacating of an interim order which was passed in the application of the Plaintiffs/Petitioners. On October 17, 1992, an order of injunction was passed in effect restraining transfer or registration of transfer of these 2000 shares to any others than the first Plaintiff and his wife. It is submitted on the part of the Plaintiffs that the order was communicated on the phone on October 17 1992, itself but that is in dispute. The order was admittedly communicated at least on October 19, 1992. But, it is said by the Defendant, that, by then, and in fact on October 17, itself, the whole process of registration and transfer of the shares had been completed, and that the names of the Plaintiffs had been already deleted from the register of share-holders.
3. The third application is an application in Chambers for amendment made out by the Plaintiffs largely upon the alleged subsequent events that came to be known to the Plaintiffs. The names and addresses of the seven transferee share-holders are to be incorporated, who, according to the Plaintiffs, have, at least now, to be impleaded so as to make the reliefs claimed by the Plaintiffs effective as against all parties whose interests might be affected.
4. The said seven transferees are not yet on record in this suit. The order that I might pass in this matter would no doubt bind the company and the Plaintiffs as amongst themselves. But in case the order is to be rendered effective as against the seven transferee share-holders too, then and in that event, a further application might have to be made by giving them notice and having another interlocutory case decided in their presence upon such fresh notice. Liberty in this regard is reserved for all parties and others concerned.
5. There is not much dispute that these 2000 shares were acquired by the Plaintiffs while the first Plaintiff was in the employment of the company and these shares were acquired by the first Plaintiff from other erstwhile share-holders of the Defendant. The first Plaintiff is admittedly no longer in service of the Defendant company. The company asserts, that by virtue of its Articles, which were operative at all material times including the time when the Plaintiffs themselves became share-holders, the company is entitled to obtain a compulsory transfer of the shares of any of the members of the company upon certain requisites being complied with.
6. The Article in this regard is Article 39 and the said Article in effect states that with the approval of the 3/4th membership of the company any member can be called upon to make a compulsory transfer of his share-holding. This is a very rough reading of the Article, which runs as follows:
Article 39. The Directors may, with the previous consent in writing of the holders of at least three-fourths in nominal value of the issued ordinary shares, serve on any member a notice calling upon him to give a transfer notice within fourteen days and if such member shall fail to give, such transfer notice within fourteen days after being so called upon he shall be deemed to have given such transfer notice at the expiration of such period of fourteen days and the provisions of these Articles shall apply accordingly.
7. There are certain other Articles which need mention. By Article 6 the ceiling limit of an individual''s share-holding is limited to 13 % of the total share capital. By Article 35 transfer of shares subject to the above ceiling is freely permitted from one member to another, but not to an outsider.
8. The other important Article for our purposes, almost as important as Article 39 itself, is Article 36. The said Article runs into several sub-clauses. At the cost of some inaccuracy, the rough effect of these sub-Articles is as follows:
9. By Article 36(a) a member can give notice to the company of his intention to sell his shares. This is the transfer notice. By Article 36(b) the company can within two months of receipt of such notice find purchasers and under Article 36(c) intimate the name and address of such purchaser to the prospective seller member. By Article 36(d), upon such intimation, the member becomes bound to effect the transfer and if he does not so transfer, the Directors can nominate others to effect such transfer. By sub-Article 36(e) on the company failing to find purchasers within two months, or on the company intimating the member about the unavailability of such purchasers, the intending seller can, within four months of his giving of notice of intention to sell, freely sell within the said four months on his own, even to outsiders. By Article 36(f) the share price is prescribed at Rs. 50.51 per share; parties have not disputed about that, as this litigation is not for money.
10. The exact terms of Article 36 and the first five sub-Articles mentioned above are set out below:
Article 36. Except in the case of a transfer of shares expressly authorised by the last preceding Article, the right to transfer shares in the Company or to dispose of any interest therein shall be subject to the following restrictions, namely:
(a) Before transfering or disposing of any interest in or requiring the Company to register a transfer of any shares, the person, whether a member of the Company or not, proposing to transfer the same (hereinafter called ''the retiring member'') shall give a notice in writing (hereinafter called ''the transfer notice'') to the Company that he desires to transfer the same, and the transfer notice shall constitute the Company his agent for the sale of the shares therein mentioned at the prescribed price to any member (subject to Article 6) or to any other person selected by the Directors as a person whom it is desirable to admit to membership. A transfer notice once given shall not be revocable except with the consent of the Directors. Shares of different classes shall not be included in the same transfer notice, and, should they be, the transfer notice may be treated as invalid.
(b) If the Company within a space of two months after receiving a transfer notice shall find members or other such persons as aforesaid (hereinafter called ''the purchasers'') willing to purchase the shares therein mentioned, or any of such shares, and shall give notice in writing thereof to the retiring member, he shall be bound, upon payment of the prescribed price, to transfer the shares mentioned in the transfer notice, or those for which the Company has found purchasers, to the respective purchasers thereof.
(c) Every notice given by the Company under paragraph (b) stating that it has found a purchaser for any shares shall state the name and address of the purchaser and the number of shares agreed to be purchased by him, and the purchaser shall be completed at a place and time to be appointed by the Company.
(d) If in any case a retiring member, after having become bound to transfer any shares to a purchaser shall make default in transfering the shares, the Directors may authorise some person to transfer the shares to the purchaser, and the Company may receive the purchase money and shall thereupon cause the name of the purchaser to be entered in the Register as the holder of the shares, and shall hold the purchase money in trust for the retiring member. The receipt of the Company for the purchase money shall be a good discharge to the purchaser, and he shall not be bound to see to the application thereof, and after the name of the purchaser has been entered in the Register in purported exercise of the aforesaid powers the validity of the proceedings shall not be questioned by any person.
(e) If the Company shall not, within a space of two months after receiving a transfer notice, find members or other such persons as aforesaid desiring to purchase all the shares mentioned in the transfer notice and give notice in writing thereof to the retiring member, or, if the Company shall within the space aforesaid give to the retiring member notice in writing that the Company has no prospect of finding purchasers of such shares, or any of them, the retiring member shall, at any time within four months after giving the transfer notice, be at liberty (subject only to the restrictions contained in Articles 3, 6 and 41) to transfer the shares, or those for which the Company has not found purchasers, to any person on a bona fide sale of such shares at any price not exceeding the prescribed price.
11. By two letters of September and October, 1990, the Defendant had called upon the Plaintiffs to transfer their shareholding and the basis of such call was an undertaking which is said to have been given by them that they would effect such transfer when called upon to do so. That undertaking could not even be prima facie indicated from the records or the papers before me.
12. Some two years thereafter, on September 30, 1992, the company called upon the Plaintiff No. 1 for transfer of the shares held by the Plaintiffs and this was an action that the company has sought to justify as an exercise of the power conferred under Article 39 quoted above. The requisite consent of the three-fourth membership of the company is claimed by the company to have been given prior thereto and Mr. Bhaskar Gupta appearing for the Defendant produced a yellow file containing a bunch of such written consents. Such production was made pursuant to a written request to that effect being made on the part of the Advocate-on-record of the Plaintiffs. The said writings were examined by Mr. P.C. Sen and other Learned Counsel appearing for the Petitioners. I also examined those, and though most of them appeared to be undated, it is not possible to base my decision on any doubt as to the existence, at least prima facie, of the previous three-fourths consent, which is a pre-condition to exercise of power under Article 39.
13. Several points have been argued at length even at this, interlocutory stage. In order to pass an order I have to come to certain conclusions about the prima facie strength of the case on either side regarding these points, and I have to consider along with it the balance of convenience regarding the granting or refusal of orders of injunction. These contentions and the several arguments and authorities cited in support thereof by both sides are dealt with by me below. Even if my language hereafter appears at any stage to be more final than it is permitted to be at this interlocutory stage, the same should be read as the assessment of the prima facie strength of those arguments and not as any final pronouncement in the matter.
14. The first point that was taken on the part of the Plaintiffs was that Article 39 itself is void and impermissible contradictory to the sections of the Companies Act, and also contradictory to certain sections of the Transfer of Property Act. It was also said that the said Article is not permitted by any law in India to be adoptable by any company.
15. It was secondly argued that even if Article 39 is a valid Article and in accordance with the Jaw of the land yet the exercise of power under the said Article and the other applicable Articles, especially Article 36, was in appropriately carried out by the company, as even the facts disclosed at the interlocutory stage would clearly reveal. Since a power of compulsory expropriation of shares is a power in the nature of forfeiture of the rights of an individual, strict and due compliance with the Articles is necessary in that regard, and in case any lapse is found to be existing in the steps taken for such exercise, then the purported expropriation is bad and the Court should restrain by appropriate orders of injunction any effect which is sought to be given to such invalid acts of expropriation.
16. It was thirdly argued that even if the exercise of power under the Articles was valid, even then the subsequent registration of the names of the seven transferees and the deletion of the names of the Plaintiffs was made in breach of Section 108 of the Companies Act, especially because all the share certificates regarding the 2000 shares are still held by the Plaintiffs and without the delivery up of the same the company would not be free to effect a change in registration of the names of the share-holders.
17. So far as the first argument regarding the total invalidity of Article 39 is concerned, Mr. Gupta said that such an Article is not unknown in law. He referred to several English decisions in this regard and pointed out that corporations and other bodies have a right to float, what might be called a closed company, and they have a right to keep the shop closed by virtue of an initial agreement amongst the parties who bring such a closed shop into existence. Mr. Gupta also said that our statute envisages in express words the right of a private company to have in its Articles reasonable restrictions regarding transfer of shares. He said that the present Defendant company is a 43A company, i.e., it is a company which is deemed to have become a public company but was at its inception a private company. Mr. Gupta has said that by express provisions contained in Section 43A the company would be entitled to retain in its Articles what it had initially embodied in those Articles when it was a private company.
18. Mr. Gupta relied upon the case of
19. Mr. Gupta relied upon four English decisions from where he sought to make out the commonness of an Article like Article 39. The first of these cases is Phillips v. Manufacturers'' Securities 86 LJ Ch. 305, the second of these cases is Borland''s Trustee v. Steel Bros. and Company Ltd. (1901) 1 Ch. 279, the third of these cases is a decision of Megarry J., as His lordship then was, in Gainen and Ors. v. National Association for Mental Health (1971) 1 Ch. 317and the fourth of these decisions is Sidebottom v. Kershaw (1920) 1 Ch. 154.
20. Mr. Gupta also referred to the decision of Astbury J. in Brothers v. British Abrasive Wheel (1919) 1 Ch. 290 and said that here also was an expropriatory article in issue, and the decision in this case went against compulsory sale not because anything was found to be wrong essentially in having such an article in the company charter, but because the use of the article was found to have been badly made by a large majority with the motive of depriving a small minority.
21. Megarry J. has also referred in His lordship''s judgment to passages in Palmer (which Mr. Gupta also placed along with other passages from different editions), and in a language and style which is at once admissible and inimitable expressed His lordship''s satisfaction at reaching conclusions about the validity of such articles, which are to be freely found in the model precedents of learned draftsman.
22. On the basis of the above decisions Mr. Gupta submitted that there is nothing wrong in law in a company having an Article like Article 39. I think in this Mr. Gupta was more right than wrong.
23. Indeed, such an Article, in my opinion, militates neither against Section 10 nor against Section 11 of the Transfer of Property Act. These two sections deal with repugnant conditions attached, to property at the time the same is being sought to be transferred and the principles herein are not necessarily applicable also at the time of creation of property. In other words, if a transfer of property is made absolutely, it cannot contain a condition repugnant to its full enjoyment; but it is also not therefore true that it is impermissible to create property which is absolute in itself but will for all times be curtailed in regard to its enjoyment.
24. When shares are created in the capital of a company, the process is in the nature of creation of property. By Indian law, shares are not land, but goods. They are deemed goods, goods of a very special nature. One can create conditions of their enjoyment in the Articles. It is not possible to create actual goods, let alone create them with limited enjoyment possibilities. This is the central reason why, in deciding upon the Validity of Articles, property concepts like perpetuity, forbidden estates, repugnant conditions and the like are inapplicable. These concepts have free play in transfer of goods, or creation of estate or interest in real property, which are but different names of transfer. But when shares are floated with'' limited rights, it is not a case of certain pre-existent rights being curtailed, but is a case of such rights not ever existing at all, or being ever vested in anybody previously at any time whatsoever. Involing Sections 10 and 11 of the T.P. Act is thus of no help. The Articles have to be adjudged valid or invalid according to company law, and not by reference to these general provisions.
25. Mr. Sen said that his clients had become full owners when they had acquired the shares, because their names were also on the books of the company. They were beneficial owners plus legal owners. He relied on
26. Mr. Gupta said, correctly, that the shares in the Defendant company are not transferred property with a repugnance as to their enjoyment, but that the shares themselves were property of a particular nature which was not identical to the property, being the shares of other companies, which did not have in their Articles similar to Act. 36 or 39. Mr. Gupta submitted, in my opinion correctly, that these restrictions are not restrictions upon otherwise absolute property but that the property in the shares itself was of such nature as to have inbuilt in it these restrictions from the very beginning. The Petitioners acquired those shares with those restrictive Articles being there at the time of acquirement. It was not that they Acquired certain shares on which certain repugnant conditions were being sought later on to be imposed. The case rather was that they acquired shares in a company which had those Articles already validly incorporated in the Articles of the company and, therefore, the property that they acquired was itself of a nature which could be compulsorily made to be transferred by the 3/4th majority in accordance with Article 39.
27. Mr. Sen submitted that the Companies Act being operative in India, the language of the said Act is first to be looked into before application of English principles. Mr. Sen relied in this regard upon an observation of Lord Sinha contained in an advice of the Privy Council in Ranunandi Kuer v. Kalawati Kuer AIR 1928 S.C. 2 (4) set out in the case of
28. Mr. Sen in this context relied upon the meaning of a private company as set out in Section 3(1)(iii) of the Companies Act. The wording is set out later.
29. Mr. Sen submitted that the above section permits reasonable restrictions upon the right to transfer being imposed upon a member of a private company. However, he said, that there is nothing here which permits the incorporation of an Article like Article 39, namely, an Article by which a member can be compulsorily made to sell his shares.
30. The submission of Mr. Sen was that a right of expropriation is neither a restriction upon transfer, nor a right of pre-emption. He correctly submitted that in either of these two cases, the vendor comes into the market on his own accord, but is not allowed to sell freely to anybody he likes. On the other hand, by exercising a right of expropriation, a person is made to come into the market willy nilly, and sell, even if he was not willing to sell in the first place.
31. Both Mr. Gupta and Mr. Sen relied upon the case of Ontario Jockey Club v. Samuel McBride AIR 1928 P.C. 291 Mr. Gupta for showing that restrictions upon transfer of shares are generally permissible, and Mr. Sen for drawing my attention to the observation of Lord Wrenbury (at p. 293, rt. col.) that "A restriction which precludes a share-holder altogether from transferring may be invalid,.... "
32. Mr. Sen in this regard also relied upon the words contained in 43A (1A) proviso, and said that a, 43A company like the Defendant has been permitted to keep included in its Articles only the matter specified in Section 3(1)(iii) referred to above, and not any other matters.
33. The provisions of Section 3(1)(iii) and (iv) and the wording of the said proviso are set out below:
3(1)(iii) ''private company'' means a company which, by its articles,
(a) restricts the right to transfer its shares, if any;
(b) limits the number of its members to fifty not including-
(i) persons who are in the employment of the company, and
(ii) persons who, having been formerly in the employment of the company, where ''members of the company while in that employment and have continued to be members after the employment ceased; and
(c) prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company:
Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this definition, be treated as a single member;
(iv) ''public company'' means a company which is not a private company.
43A.(1A). Provided that even after the private company has so become a public company, its articles of association may include provisions relating to the matters specified in Clause (iii) of Sub-section (1) of Section 3 and the number of its members may be, or may at any time be reduced, below seven.
34. I find that though there is nothing expressly permissive in the above words of the Companies Act regarding the introduction or retention of an Article like Article 39 in an Indian Company yet there appears to be nothing contradictory to such an Article being incorporated.
Mr. Gupta has argued that even amongst members in a public company, which is straight way a public company and not even a 43A company, such an Article might find place consistently with the Indian Company Law. There appears to be nothing against the said contention of
Mr. Gupta being accepted at least at this prima facie stage.
The Companies Act no doubt provides (Sections 9, 31) that the Articles of a company cannot go against the Companies Act and if it does go against it, the Articles to that extent become void and inoperative. It is also true that the Companies Act provides for the shares to be transferable according to the Articles (Section 82), but I find from these sections nothing which would seem to indicate that such transferability of the shares does not envisage a compulsory transfer. I would, therefore, rather lean in favour of the Defendant in regard to the point as to the legality of having an Article like Article 39 in its charter.
35. About the observation of Lord Wrenbury regarding total restriction upon transfer, it is sufficient for the present to observe that such total restriction is not permitted by the words of Section 3(1)(iii), and that such total non-transferability in the Articles is not contemplated by the words of Section 82 either. But, blocking shares as totally untransferable is onething, and making shares liable to compulsory transfer under certain circumstances, quite another.
36. The second point was regarding the strict compliance of the two Articles being Arts. 39 and 36.
37. I have already said that the notice under Article 39 was sent on September 30, 1992, and that the registration was effected on October 17, 1992. A lot of things apparently happened on October 17, 1992. There were Board minutes authorising the transfer of the shares to be made by the Secretary and a Director. A letter was sent by one Barun Das, Secretary of the Defendant, to- the first Plaintiff mentioning the number of shares and the consideration and seven drafts were also sent in that regard. The Board minutes mentioned the names of the transferees. The transfer deeds are stated to have been executed also on this date by the Secretary and a Director of the company. The deletion of the names of the Petitioners and the substitution of the names of the seven transferees were also effected on October 17, 1992.
38. That day was a Saturday. The interim order was obtained at the residence of the learned Judge. The communication of the order was made at the latest on Monday, i.e., October 19, 1992. The whole thing, Mr. Sen rightly said, was allegedly done in breakneck hurry. However I do not find from the papers. anything on the basis of which I can come to any conclusion, at this stage, that any of the above various acts which were said to have been done on October 17, 1992, were in fact not so done on the said date.
39. Mr. Sen said, however, that in the matter of divestment of property by an application of an Article like Article 39 the Courts always insist upon strict compliance thereof. That is done because a person is being deprived of his property against his own will. He relied, in this regard upon the case of Promila Bansal v. Wearwell Cycle Company (India) Ltd. 48 Com C 208.
40. Mr. Sen said that as envisaged in Article 39, the 3/4th consent might at best substitute the wish of'' the said majority for the wish of the retiring member. That would only go one step, i.e. only up to the stage of compliance with Article 36(a). Mr. Sen, in my opinion, rightly said that upon a notice being served under Article 39, the other Articles of the company are not altogether wiped out from the necessity of compliance, but that they must thereafter be complied with on the same footing as if the member wishing to transfer the Shares had himself given a transfer notice.
41. The scheme of Article 36 is that upon receipt of such a notice from the member, the company itself gives another notice. Such notice is given within two months and such notice specifies the name and address of the prospective transferee. It is only upon such second notice being given by the company (the first notice being the notice under Article 39) that the member becomes bound to effect the transfer to the named transferee.
42. In the instant case, the letter of reply to the Section 39 notice was written by the first Plaintiff on October 12, 1992, and that was received by the company on October 19, 1992, i.e. two days after registration had already been effected. At no point of time prior to October 19 or 17, 1992, had the company intimated the Plaintiffs of the names and addresses of the intended transferees. In short, Article 36(b) and Article 36(c) were not complied with.
43. The above position is undisputed. Mr. Gupta however sought to make this distinction, that compliance with Article 36(b) or Article 36(c) would be a mere empty formality, because the first Plaintiff had, as early as in 1990, clearly made it known that he was not willing to sell the shares at all. The giving of names and addresses of prospective transferees would not be likely to alter the state of mind of the first Plaintiff. Mr. Gupta further says that this submission of his is fortified by the tenor of the letter of October 12, 1992, written by the first Plaintiff which is also a letter of refusal.
44. The question however is a question of a assessment of the prima facie strength of the case of the Plaintiffs. I agree with Mr. Sen that an Article of the nature of Article 39 is of the category of enforcement of a right of forfeiture. A person is made to forfeit the shares, against his will, and if he were not made to forfeit the shares he would still have continued to possess the same. By the application of Article 39 a shareholder is made to sell certain shares, at a predetermined price, which he otherwise would not have sold whether at their predetermined price, or at all. By the application of Article 39 he is made to sell the shares absolutely and obtain the present money value thereof fixed at Rs. 50.51 p. per share as per Article 36(f) which I have mentioned but not quoted above.
45. If the law is that such compulsory taking away of'' the rights or property of a man is to be done by strict compliance with all the necessary provisions applicable in that regard, then in this case it is clear that two such provisions being Article 36(b) and Article 36(c), read jointly, Were not complied with. I assume that Mr. Gupta correctly submitted that such compliance would be useless from the practical point of view because no consent would be forthcoming from the Plaintiffs. The law however is that the compliance of the provisions must be made, notwithstanding the same being productive of no other thing than the crystallisation of the legal right of forfeiture upon due compliance with the said provisions. I would hold that the Plaintiffs have a good prima facie case in this regard to go to trial.
46. The other point of non-compliance argued by Mr. Sen was that the requisite period of 14 days envisaged under Article 39 had not elapsed. The notice under Article 39 dated September 30, 1992, is said by the company to have been sent out both by registered post and under certificate of posting. The Plaintiffs deny having received such notice by post except by registered post. Their case is that the registered notice was received on October 7, 1992. If the service is to be taken as effected on that date i.e. October 7, 1992, then the authorization of the Board on October 17, 1992, and the change of registration of the name on that date was premature and invalid. This would again be a consequence of the application of the law regarding strict compliance in the matter of such things as forfeiture or expropriation. Indeed, even after expiry of 14 days, the Board could only send the second notice under Arts. 36(b) and 36(c), but, it is submitted by the - Plaintiffs, the Board allegedly sought to finish off even recording of changed names before that time, in a hurry to get the Plaintiffs out.
47. Mr. Gupta, however, said that u/s 53 of the Companies Act, on its true construction, the notice dated September 30, 1992, must be taken to have been served on that date itself. Relevant Sub-section (2) of Section 53 is set out below:
53(2). Where a document is sent by post-
(a) service thereof shall be deemed to be effected by properly addressing prepaying and posting a letter containing the document, provided that where a member has intimated to the company in advance that documents should be sent to him under a certificate of posting or by registered post with or without acknowledgement due and has deposited with the company a sum sufficient to defray the expenses of doing so, service of the documents shall not be deemed to be effected unless it is sent in the manner intimated by the member; and
(b) such service shall be deemed to have been effected-
(i) in the case of a notice of a meeting at the expiration of forty-eight hours after the letter containing the same is posted, and
(ii) in any other case, at the time at which the letter would be delivered in the ordinary course of post.
48. Mr. Gupta said that the section is applicable in view of the definition in Section 2(15) of the Companies Act which defines a document, and this definition would include an Article 39 notice.
49. Mr. Gupta submitted that in case a member does not deposit the money regarding sending of notice to him by certificate of posting or by registered post, then service of a document shall be deemed to be effected by the proper addressing prepaying and posting of the letter itself. Mr. Gupta said that Sub-clause (b), regarding the time when the notice was to be taken as being served, would be applicable only in the case of a member who had deposited the extra money regarding sending under certificate of posting or by registered post, but would not be applicable in the case of ordinary postal communication.
50. I am, at least at this prima facie stage, wholly unable to agree. It is quite clear that Sub-clause (a) refers to the manner in which service is to be effected and Sub-clause (b) shows the time when such service is to be taken as being effected. Sub-clause (b) is equally applicable to all modes of postal communication, be it by ordinary post or be it by registered post.
51. Mr. Gupta relied upon two cases in this regard. But, in my opinion, those two cases do not bear out the contention of Mr. Gupta that Sub-clause (b) can be made applicable only in the matter of registered communication and such like. None of these are binding authorities on me, but in any event, these do not exactly apply.
52. I am unable to accept the contention that service of the letter of September 30, 1992 is to be taken as effected on September 30, itself. By mere proper addressing prepaying and posting of the letter to the Petitioners, mere service would be presumed, but not service on September 30. It would also be an unnatural presumption. It would, in that event, be a point of enquiry as to when service of the letter by certificate of posting is to be deemed to have been effected in the ordinary course of post. That would be an enquiry into a matter of fact. The point remains that one postal communication actually reached on October 7, 1992. The receipt of the communication under certificate of posting is denied. Under such circumstances, it would require quite some degree of proof at the stage of trial to show that in spite of the above facts the Petitioners are to be taken to have received the notice of September 30, on September 30, itself. Also, in the affidavit of C.R. Irani, dated January 11, 1993, it is said on behalf of the Defendant that the notice period expired on October 16, 1992 (para. 15). That is clearly written under the mistake that the notice is deemed to be served within two days from September 30, which period of 48 hours is expressly applicable only for notice of meetings, and not to a notice like the one under Article 39.
53. At this interlocutory stage I must proceed on the basis that prima facie the notice was not served 14 days prior to October 17, 1992 either on the basis of facts disclosed or on the basis of any statutory presumption operating upon any such facts disclosed. The entire process of change of shareholding on October 17, 1992, would, therefore, on this basis, prima facie appear to fall to the ground for non-compliance with even Article 39, because the 14 days that were compulsorily to be allowed to pass after giving of notice were not allowed to pass before taking action upon that notice.
54. The third point of Mr. Sen was that on the basis of the Supreme Court''s decision of
108. Transfer not to be registered except on production of instrument of transfer.
(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, of if no such certificate is in existence, along with the letter of allotment of the shares or debentures.
55. The case of Mannaial Khetan is indeed an authority for the proposition that Section 108 is mandatory in its scope. I am at one with Mr. Gupta that the present case is not a case of transfer of shares by operation of law, which situation is covered by the further proviso to Section 108(1), which I have not set out above. I am also at one with Mr. Gupta that Section 108 is not exhaustive. I am, however, unable to agree with Mr. Gupta that Section 108(1) is applicable only in the cases of voluntary transfer and that in caces of involuntary transfer the same would not be mandatory notwithstanding the decision in Mannaial Khetan.
56. Mr. Gupta relied upon two Supreme Court decisions respectively in the cases
57. Mr. Gupta said that the case of Mannalal Khetan was a case regarding family transfer which was wholly of a voluntary nature in relation to a transaction which smacked of tax evasion. The case was also disposed of ex parte as against the Respondents. The position remains, however, in my opinion, that such case pronounces all cases of transfer of shares, which could be envisaged u/s 108(1) as cases requiring mandatory compliance with the said section.
The said case of Mannalal Khetan did not go so far as to pronounce that if there is a transfer of shares not by the company on its own but by intervention of the Company Law Board (see Section 111) or of the Court, even then Section 108 is mandatorily applicable. Indeed these cases of transfer through intervention of Bodies, Forums and Authorities outside the company itself are not considered in the case of Mannalal Khetan and the pronouncement of Section 108(1) being mandatory is not coupled with any pronouncement upon these other modes of change of share-holding. The two authorities cited by Mr. Gupta in the matter of interpretation of Supreme Court judgments would be good aids in determination of the applicability of the case of Mannalal Khetan to situations of, transfer made upon, say, an order of Court. So also in regard to cases of transfer through decrees, compulsory sales in execution, orders of the Company Law Board and such like.
58. In the present case, however, the company has sought to register the shares in the names of the new transferees by acting on its own. It has left the share- scripts of the 2,000 shares outstanding in the process. It cannot do so. This is clear law following from the case of
59. Mr. Gupta relied upon the case of
60. In case Article 39 had been invoked and the correct follow up had been made relating to the divestment of title, the beneficial ownership of the shafes would pass to the seven new transferees. The legal ownership of the shares would however follow only upon registration of their names in the register of members. All this has happened, according to the view taken by the company, but on the basis of the findings above, in my opinion, all this has happened prima facie contrary to law. It is important therefore that this process does not continue any further.
61. On the balance of convenience it must be mentioned that the Plaintiffs are only 2 % share-holders of the company. They should not be able till the balance of voting at any company meeting. It is not material to enquire why the Petitioners have fought this protracted battle which must have pinched heavily on the individual purse of these Plaintiffs. After all, people spend time and money upon things, which for some reason, or the other, appear to them to be important unto themselves. The Plaintiffs are free to follow that freedom of action and choice. In case they vote or continue to vote at the company meetings, or in case they receive dividends, if any are to be declared on the 2,000 shares in question, or even if they receive bonus shares, if any are to be issued on those shares, then this would not be such an insuperable factor in the management of the Defendant company as cannot be set right at the final trial, if and when the Plaintiffs lose the action and the Defendant wins the same. On the other hand, if the above prima facie observations withstand the test of final trial, the interim benefits received by the Plaintiffs would have gone to the rightful persons.
62. I offered to Mr. Sen to have suit disposed of on points of law upon agreement to that effect by the parties. But such an agreement did not come. Mr. Sen himself resisted a final disposal of the suit, because, according to instructions, he wished to have the benefit of a full trial where he would try to substantiate the case of mala fides or improper conduct which he has alleged against the Defendant. I have not gone into such questions, as those cannot be pronounced upon or even be appropriately entered into in a case of this nature at this preliminary stage.
63. Upon the notice of motion taken out by the Plaintiffs Petitioners on October 17, 1992, there shall be an order of injunction restraining the Defendant, its servants, agents and assigns from in any manner treating the Petitioners as being deprived of the rights and benefits of their shareholding of the 2,000 shares, whether pursuant to the notice dated September 30, 1992, on pursuant to the changes in the register of shareholders made thereupon on or about October 17, 1992, or otherwise. Subject to the adjustment of the rights of the parties at the final trial, the Petitioners shall be accorded, during the pendency of the suit, their entire rights as shareholders of the 2,000 shares on the basis as if the same had not been transferred from them, and that their names were still upon the register of members.
64. The above order would bind the transferees if and when an application in that regard impleading the transferees is made and an order is successfully obtained thereupon.
65. In case the company feels any difficulty with the rights being claimed as to the 2,000 shares by the Petitioners, and also by the new transferees, then the company would have to sort out the said problem on its own, pending disposal of the suit, and in the solution of such problem, needless to say, strict compliance with orders of Court are a must. While sorting out the said problems it would have to be borne in mind by the company, i.e., by the persons acting on its behalf, that the problem is a creation of their own actions which have not prima facie passed the independent tests of legality in a Court of law.
66. In so far as the notice of motion of the Defendant is concerned the same is dismissed.
67. In so far as the amendment application initiated by way of Master''s Summons returnable on December 17, 1992 is concerned, there shall be orders in terms of prayers (a), (b), (c) and (d) of the same. The Defendant would be entitled to deal with the amended plaint in the written statement which is still to be filed by it.
68. The costs of all these three applications have to be assessed on a realistic basis. I am aware of the reputation of the Defendant and I am also aware of the social service they perform by their independent and valued publication. I am equally aware of the comparatively small status of the Petitioners. It is at once the glory and the trouble of the system of laws that we administer, that in a litigation of this nature, the small man goes back satisfied with the glory of justice at the hands of which he is benefited, and the big organisation meets with a troublesome set back in a situation which was until then well geared and unopposable.
69. This is the process of equalization between the great and the small, by that most powerful of forces invented by man for civil government, the force of the rule of law, the law that declares the greatest to have erred, the smallest to have been wronged, the law that must be carried out, even if the heavens fall.
70. Treating the parties as merely one party that has lost and another party that has won, I would assess the total costs of all the three applications at 1500 G. Ms. The same shall be paid by the Defendant to the Plaintiff within a period of seven days from date hereof.
71. A stay of operation of this order is prayed for, but the same is refused.
72. All parties, their servants agents or assigns, and all others concerned to act on a signed copy of the dictated order on the usual undertaking.
