BEFORE THE COMPANY LAW BOARD, WESTERN REGION BENCH, MUMBAI 

THIRUMALESH M., Advocate, for the petitioners. 

S. C. BAFNA, Chartered Accountant, HARI HARA SUBRAMANIAN, Assistant Company Secretary, with him, for the respondent company. 

ORDER 

P. K. MAJUMDAR, J., CHAIRMAN - Shri A. Akhilandam and Smt. A. Nagalakshmi, (hereinafter referred as the petitioners) who were the joint holders of 200 shares have filed a petition under section 111 (4) of the Companies Act, 1956, seeking rectification of the register of members of the Great Eastern Shipping Company Ltd. (hereinafter referred as the respondent company) in respect of the share certificate No. S21346 and S21347 held in ledger folio No. 6377 each scrip being of 100 shares. 

2. According to the petitioners, the said shares were in the possession of the Bank of Baroda, Bangalore. The said shares were not pledged - there being no pledge letter signed by the joint shareholders. The shares were also not subject to any lien since no lien was given to the bank. However, the shares scrips accompanied by blank transfer deed were signed by joint holders, but the rest of the columns of the transfer deed were left blank. The Bank of Baroda without intimating the petitioners and quite contrary to the trust reposed in them by the petitioners in the said bank, the bank was only to be in possession of the share scrips and was not empowered to alienate or otherwise transfer and notwithstanding the fulfilment by the petitioners of all obligation on their part to the bank, appears to have held out that the bank had authority to transfer the shares. The bank purported to have transferred the shares to unknown persons. It is further submitted that on coming to know of the unlawful act of the Bank of Baroda, the petitioner wrote a letter, dated 7.1.1994 to the respondent company not to put through the transfer in respect of the above-mentioned shares. It is further stated that in a letter, dated 17.2.1994 the Sharepro Services who claimed to be the registrar and transfer agents of the respondent company, acknowledging the receipt of the petitioner's letter, dated 7.1.1994, required an injunction or a similar order of court. It is further submitted that the letter proceeded to state that if a valid transfer deed complete in all respects was presented to the respondent company, the transfer may not be held back for a long time. However, irrespective of the objections lodged by the petitioner, the respondent company and/or their transfer agents put through the transfer. The petitioners submit that they are aggrieved with the transfer effected as there can be no transfer unless the title is validly passed on the transferee. In this case, the Bank of Baroda which acted on the blank transfer did not have authority or title or right or claim to the shares in question, the Bank of Baroda having been satisfied with reference to obligations vis-a-vis the petitioners, the Bank was in a position of a person who had no title to pass on to another and cannot confer title on the transferee. It is further submitted that the share scrip did not accompany the transfer deed on the showing by the respondent and hence transfer is invalid. It is further submitted that the endorsement by the Bank on the reverse of transfer deed was incomplete, and further incorrect. The dispute with the Bank of Baroda being genuine and bona fide, the Bank had no authority to deal with the shares in any manner under company law except through a proper order from a competent court. It is further submitted that the transfer deed is invalid because of the various deficiencies as pointed out in the petition. The petitioner has also sought for the consequential reliefs as the rights and dividend accrued on the shares. 

3. The respondent company has filed an affidavit, dated 8.8.1995 wherein it is submitted that the petitioners were registered shareholders of 200 petition shares referred to earlier. The said certificates were received by the company in January, 1994, for transfer from the name of the petitioners to the name of New City Credit & Investment Ltd. alongwith the transfer deeds duly executed by the petitioners as transferor and by the said New City Credit & Investment Ltd. as transferee. The transfer deed was bearing presentation date of 3.8.1990 of the appropriate authority. The date of execution mentioned in the transfer deed was 31.12.1993. The signature of the transferors had been duly witnessed by one Mr. K. Devendra, Director of Nagalakshmi Leasing Company (P) Ltd., Bangalore. It is further submitted that the signature of the transferors on the transfer deeds had already been attested by Senior Manager of the Bank of Baroda, Bangalore, Main Branch, and the certificate was, dated 31.12.1993, and the said transfer deed alongwith the share certificates has been duly lodged with the company within two months of the date of release by the bank as prescribed under section 108 of the Companies Act. The signature of the transferors on the transfer deed tallied with the specimen signature on the respondent company's records and the transfer deed was complete in all respects. The transfer was put through in normal course of business and the transfer has been duly approved by the directors on 18.2.1994. The dividend rights and other benefits on the aforesaid shares have been already passed on the transferees. It is further submitted that in the absence of the court injunction restraining the company from transferring these shares, the transfer was put through in normal course. The respondent company has further submitted that before any decision is taken in the matter, notice should be issued to the transferee who is presently the registered holder of the aforesaid 200 shares and the transferee be given full opportunity to make their submissions. 

4. When the matter was taken up on 15 April, 1997, none was present on behalf of both the petitioners. However, petitioners sent a telegram which reads as under : 

"Unable to attend personally hearing of appeal No. 9/111/CLB/WR/95 Akhilandam v. Great Eastern Company on 15 April due to physical disability. Objection from respondent not received written submissions forwarded by post. Pray petition be decided on merits, thus, rendering justice." 

Shri S. C. Bafna, Chartered Accountant, appearing on behalf of the respondent company submitted that the respondent company having received duly executed transfer deed alongwith the share certificates the transfer has been affected in the normal course as the petitioners have failed to obtain any injunction order from the court. It is further submitted that the shares in question were lying with the bank and there is an endorsement from the bank that these shares were under lien with them for the advance granted and they have released the same on 31.12.1993. He submitted that according to the petitioners, these shares were not pledged with the bank nor did they have any lien on the said shares, but the petitioners have not disclosed what for those shares were given to the bank. He submitted that there is an endorsement from the bank that these shares were under lien. Shri Bafna further submitted that there appears to be some dispute between the Bank of Baroda and the petitioners. In this connection, he invited our attention to the letter, dated 8.2.1994 addressed by the bank to the petitioners wherein the bank has observed as under : 

"We shall release the remaining share certificates to you after the shares already sold by us are transferred in the name of buyers. As already advised, we have already appropriated the sale proceeds of shares towards the dues of Nagalakshmi wholesale to our Bank. We have nothing to add in this regard.", 

and submitted that there appears to be a dispute of civil nature between the Bank and the parties which cannot be adjudicated in this forum. He further submitted that no relief could be granted to the petitioners as the Bank of Baroda which had a lien on the shares and the transferees have not been made parties. Since the third party interest has been created no relief can be granted unless and until transferee is made party in these proceedings. He further submitted that, for adjudicating the present proceedings, this Board would be required to go into the question as to what were the dues recoverable by the bank and whether they have been fully satisfied or whether the bank was justified in appropriating the sale proceeds towards those dues. He submitted that since there is dispute between petitioners and bank, this matter being a dispute of civil nature, this Board should relegate this matter to a suit. 

5. The written submissions from respondents were received after the hearing was over on 21 April, 1997. The petitioner again submitted that lie has not received the reply from the respondent company. The petitioner further submitted that the transfer is defective and incomplete due to the fact that it does not bear the stamp of the prescribed authority as required under
section 108 (1) of the Act, i.e., the date of presentation to the prescribed authority. He further submitted that the transfer deed is not a 'blank transfer deed' as held by the Supreme Court in Howrah Trading Company Ltd. v. Commissioner of Income-tax AIR 1959 SC 775, for the reason that the transferors had not filled in the name of the company and their names in the share transfer form. Further, from the transfer deed, it is not clear whether the transferee is a public limited corn any or a firm or a proprietary concern. The column occupation of the transferee is unfilled. Further the endorsement on the transfer deed is incomplete, incorrect and makes no meaning and the name and place of the bank who had signed the endorsement is now known. It is further submitted that as per section 108 (1) of the Companies Act, every transfer instrument shall be duly stamped. The transfer deed in question is deemed unstamped in view of the fact that as per Maharashtra State Stamp Rules, it requires a second cancellation of stamps by the company. In the present case, respondent company has not cancelled the stamps for second time and hence the transfer deed is a defective and invalid document. It is further submitted that if at all the shares are deposited by the petitioner by way of security with the Bank, for the due performance by the petitioner, the documents such as letter of pledge of security, etc., should have been registered with the respondent company by the filled in the column provided in the transfer that section 108 (1C)(b) of the Companies Act specifically say way of security for prepayment of any loan for the purpose of endorsement. In the instant case, the bank states in the endorsement that the shares were in with lien. The shares held in lien are beyond the scope of section 108 (1C)(b) of the Act. It is further submitted that the endorsement of the bank does not say that the shares have been released for sale. In the absence of specific mention, the respondents should not have acted upon and put through the transfer and should have refused the transfer. I The transfer deed was lodged beyond time allowed and hence was invalid. 

6. Shri Thirumalesh M., Advocate, appeared for the petitioners and reiterated their arguments already put forth in their earlier written submissions received on 21 April, 1997. Shri Y. Hari Hara Subramanian Asst. Company Secretary appeared for the respondent company and reiterated their earlier stand ' Thereafter, the petitioner' has filed its further written submissions and counter representation dated 17.10.1997, wherein while reiterating its earlier allegations, he has alleged that the validity of the transfer deed bearing presentation date of 3.8.1990 by the prescribed authority has expired because the said transfer deed was valid only upto 2.8.1991 and not beyond that date. Hence, the respondent company should not have acted upon the said invalid transfer deed. The respondent company in its further reply, dated 25 November, 1997, has refused the aforesaid allegation' of the petitioner that the transfer deed is valid only upto 2.8.1991 reckoned from the date of presentation, i.e., 3.8.1990, and not beyond. It has stated that in terms of sub-clause (b) of clause (1C) of section 108 of Companies Act, 1956, no further validation is required under section 108 (1D) of the Companies Act, 1956. This procedure has been endorsed by Reserve Bank of India Directions in respect of shares pledged with banks as security. 

7. We have considered the various averments made by the petitioners and the respondent company, and note that shares have been duly transferred and transferee's name has come on the register of members thereby third party interests have been created. If the relief is granted in this petition, then the name of the transferee would be required to be deleted. But they have not been made the party in these proceedings. The petitioner has sought for rectification of register of members on two counts, firstly, that the shares were lying with the blank transfer deed duly signed with the Bank of Baroda; but they were not either in security nor the bank had any lien on the said shares and thus they could not have sold these shares in the market and passed on the title to third party, and secondly, as per petitioner when transfer deed [is] lodged with the company, the validity whereof has already expired on '4.8.1991, and as such, the respondent company ought not to have effected the transfer. Insofar as the sale of the shares by the bank is concerned, it is clear that the petitioner had given the shares and they were held by the bank. The petitioner's contention is that these shares were neither given as a security nor had the bank any lien on the said shares. However, he does not explain as to why the shares with the blank transfer deeds were given and held by the bank. The petitioner has also submitted that if the shares are deposited by the petitioner by way of security with the bank, then documents such as letter of pledge of security, etc., should have been registered with the respondent company by bank. The petitioner's plea is that respondent had not examined this aspect of legal position. The question whether there was any lien on these shares or any amount was due and petitioners were liable thereof or they stand duly discharged of their obligation and were entitled for [to] return of those shares, are subject matters of facts which cannot be verified in the absence of Bank of Baroda who have not been made a party in these proceedings. 

8. Insofar as objection raised by the petitioners on the validity of the transfer deed is concerned, unless the controversy regarding pledge or lien of the shares with the bank is resolved, it is not possible to come to the conclusion whether the validity period is to be reckoned with reference to the date of presentation to the prescribed authority as per section 108 (1C)(b) of the Act. Again, this |can be determined based on the facts. 

9. In view of the submissions made by the petitioners, it would be necessary to determine as to how bank claims that shares were under pledge or lien with them, authority under which they have sold the shares and how the bank was entitled to appropriate the proceed. In the absence of the bank who have not been made party in these proceedings, these issues cannot be adjudicated upon. It is a settled view of the Board that where in a petition under section 111 of the Companies Act, complicated question of facts arise, which could not be adjudicated upon and the controversy could be tested by a civil court alone, the Board would be reluctant to go into the matter, but can relegate the parties in civil court. In our opinion, this is a fit case for relegating the matter to civil court and no relief can be granted in the matter. The petition stands disposed of accordingly. There would be no orders as to cost.