Present: 1. Shri S. Balasubramanian, Vice-Chairman
2. Shri K.K.Balu, Member.
IN THE MATTER OF COMPANIES ACT, 1956 (1 OF 1956)
IN THE MATTER OF M/S PENTAMEDIA GRAPHICS LIMITED
PETITIONER:
M/s Maruti Udyog Limited
REPONDENTS:
1. M/s Pentamedia Graphics Limited
2. M/s Pentafour Products Limited
3. Shri V.Ramakrishnan
PRESENT ON BEHALF OF PARTIES:
1. Shri U.K. Chaudhary, Sr. Advocate ... for
Petitioner.
2. Shri T.K. Ramkumar, Advocate ... for
Petitioner.
3. Shri T.K. Bhaskar, Advocate ... for
Respondent-1.
4. Shri T.K.Seshadri, Advocate ... for
Respondents 2&3.
O R D E R
(Date of hearing: 5.9.2001)
K.K. BALU:
1.
This is a petition
filed under Section 111A of the Companies Act, 1956 (“the Act”) seeking
directions against M/s Pentamedia Graphics Limited (“the Company”) to register
50,000 shares comprised in share certificate No.67126 in the name of the
petitioner and enter the name of the petitioner in the register of members of
the Company.
2.
The facts in brief
as stated in the petition are that the petitioner is the manufacturer of
various models of cars by the name and under the brand of “Maruti”. The second respondent is a supplier of
certain car components. In the course of business dealings between the
petitioner and the second respondent, the petitioner had advanced amounts
aggregating Rs.5 crores against, inter-alia, the pledge of 50,000 shares of the
Company. The third respondent, being
Chairman of Pentafour Group by a letter dated 20.4.98 (Annexure-B) had
deposited the Share Certificate No.67126 relating to the impugned shares
together with a signed blank transfer deed with the Director (Finance) of the
petitioner enabling the petitioner to sell the impugned shares or transfer them
in favour of the petitioner in case of default by the second respondent. In
spite of repeated demands, the respondents 2 & 3 being the principal
borrower and guarantor had failed to repay the amounts advanced by the petitioner,
resulting in a civil suit filed by the petitioner before Delhi High Court for
recovery of the outstanding amount due from the respondents 2 & 3. Consequently, the petitioner was constrained
to enforce the security by seeking transfer of the impugned shares of the
Company deposited by the third respondent.
Accordingly, the petitioner by its letter dated 16.4.2001 forwarding the
original share certificate together with duly executed and stamped transfer deed,
requested the Company to transfer the impugned shares in its favour. However, the Company refused to transfer the
impugned shares in favour of the petitioner on account of stop transfer
instructions received from the third respondent, which, according to the
petitioner is contrary to the provisions of Section 111A(2) of the Act. Hence, the petition.
3.
According to the
respondents 1 & 2, the Company had refused to register the transfer in
respect of the impugned shares in favour of the petitioner on account of the
stop transfer instructions given by the third respondent, which is a sufficient
cause, contemplated under Section 111A(2) of the Act. By virtue of the letters dated 29.6.99 and 9.5.2001 (Annexure ‘G’
and Annexure ‘H’), the third respondent advised the Company that the shares
have not been mandated for sale or transfer.
In the circumstances, the Company was constrained not to register the
transfer in favour of the petitioner, in accordance with the guidelines of the
Stock Exchange.
4.
According to the
third respondent the impugned shares were neither pledged nor sold in favour of
the petitioner. However, the third
respondent had given the impugned shares to Mr.A.R.Halasyam, in his individual
capacity as comfort level security to be kept confidentially under his custody,
who had without any authority delivered the share certificate to the
petitioner. The third respondent had never advised Mr.A.R.Halasyam either to
sell or transfer the shares in his own name.
Consequently, the third respondent had to advise the Company by his
letters dated 29.6.1999 and 9.5.2001 (Anneuxre ‘G’ & ‘H’) that he has not
mandated the shares for sale and requested to stop any registration of the
shares. Moreover, there is no valid
transfer of shares in accordance with Section 108 of the Act between the third
respondent and the petitioner. The
petitioner has no right to seek registration of transfer in its favour. The request of the third respondent to stop
registration of the transfer in favour of the petitioner is sufficient cause on
the part of the Company to return the instrument of transfer together with
share certificates. The transfer of
shares in favour of the petitioner is not pursuant to sale of shares in favour
of the petitioner. The shares pledged
cannot be sold without notice and in the instant case, there is no notice
before the sale in favour of the petitioner.
In these circumstances, the transfer of shares in favour of the
petitioner is not valid in law.
5.
Shri U.K.
Chaudhary, Senior Advocate appearing for the petitioner, while reiterating the
averments made in the petition has invited our attention to a letter dated
20.4.1998 (Annexure-B) of the third respondent, being Chairman of Pentafour
Group. By virtue of Annexure-B, the
third respondent had forwarded the impugned shares to Mr.A.R.Halasyam,
Director(Finance) of the petitioner as security for the advances made by the
petitioner. The original share
certificate together with a duly signed transfer form (Annexure-C & D) was
delivered to the petitioner. Shri
Chaudhary urged that the impugned shares were delivered to Mr.A.R.Halasyam in
his capacity as Director(Finance) of the petitioner. Consequent upon the default made by the respondents 2 & 3,
the petitioner was compelled to file a civil suit for recovery of the
outstanding amount against them before High Court of Delhi which is
pending. In the circumstances, the
petitioner by its letter dated 16.04.2001 (Annexure-E) forwarded the instrument
of transfer together with the share certificate and copies of the Board
resolution of the petitioner authorising investment in the shares of the
Company and the Memorandum and Articles of Association of the petitioner,
requesting the Company to transfer the shares in its favour. Shri Chaudhary pointed out that the Company
is a listed public company whose shares are freely transferable under the
provisions of sub-section(2) of Section 111A of the Act. The refusal of the Company on the ground of
stop transfer request received from the third respondent is not sufficient
cause contemplated under the provisions of Section 111A. The requests dated 29.6.99 and 9.5.2001 of
the third respondent to stop the transfer in favour of the petitioner are
contrary to the intentions and documents executed between the parties. He pointed out that the letter of request
dated 29.6.1999 (Annexure ‘G’) though said to have been addressed to the
Company to stop the transfer, no copy of the same was endorsed in favour of the
petitioner. According to Shri Chaudhary
Annexure-G is a concocted document to defeat the claim of the petitioner. He further pointed out that such
instructions are void and contrary to the provisions of Section 9 and 111A(2)
of the Act. He referred to a letter
dated 15.05.2001 (Annexure-I) addressed by the Company to the petitioner
returning the share certificate placing reliance on a letter of the third
respondent advising stop transfer which does not at all contain any date. The said letter according to Shri Chaudhary
was created by the third respondent ante dated in order to stop the valid and
legal transfer. Shri Chaudhary further pointed out that according to Annexure
‘B’ written by the third respondent, he was Chairman of Pentafour Group which
falsifies his present claim that he ceased to be Chairman of Pentafour Group
since 27.10.97. He, therefore, sought
for the reliefs made in the petition.
6.
Shri T.K.Bhaskar,
Counsel appearing for the Company has reiterated the averments made in
counter-statement and submitted that the Company had refused registration of
the transfer in favour of the petitioner for sufficient cause, being the stop
transfer advice received from the third respondent. He further pointed out that the Company is not a group company of
the second respondent and that the third respondent is not group Chairman of
the Pentafour Group companies. The
third respondent who was once a Director and Chairman of the Company ceased to
be so with effect from 27.10.1997.
Hence the Company has no connection with the respondents 2 & 3. The Company had acted upon the stop transfer
instructions from the transferor in good faith and in accordance with
guidelines of Stock Exchange and accordingly advised the petitioner.
7.
Shri T.K.Seshadri,
appearing for the third respondent reiterated that the impugned shares were not
pledged in favour of the petitioner. Nor was there any agreement between the
parties as to the manner of dealing with the shares. Shri Seshadri made a reference to the recitals contained in
Annexure ‘B’ to show that the shares were handed over to Mr.A.R.Halasyam in his
individual capacity and not as Director (Finance) of the Company. The shares
were handed over to Mr.A.R.Halasyam in trust with an understanding that he
would hold the shares as a comfort level security for the advances given by the
petitioner. Annexure ‘B’ does not
amount to a pledge. Though the third
respondent had handed over the blank transfer form together with the original
share certificate, he never authorised Mr.A.R.Halasyam to deliver the
instrument of transfer and share certificate to the petitioner. He further pointed that the third respondent
never received any notice regarding the default by the second respondent. Annexure ‘F’ shows that the petitioner at
its meeting of Board of Directors held on 23.03.2001 passed a resolution
granting approval to the Company pursuant to Section 372A to take the impugned
shares pledged by the third respondent as investment at an aggregate
consideration equivalent to its market price on the date of transfer. According to the third respondent, there has
been no evidence to show that the shares were pledged in favour of the
petitioner. In case of pledge, the
pledgee has right to sue for the outstanding amount, enforce the security by
sale after due notice and file suit enforcing the security. However, the petitioner failed to give any prior
notice. Shri Seshadri pointed out that
the difference between mortgage of shares and pledge of shares. Only in case of mortgage of shares, the
mortgagee can enjoy the shares and bring them in his name and not in the case
of pledge. In view of the dispute in
regard to the title of the shares, the petitioner cannot resort to any relief
under Section 111A. He further pointed
out that the provisions of Section 187 have not been complied by the Company. Moreover, there has been no refusal of the
transfer in favour of the petitioner by the Company. Shri Seshadri relied upon the following cases in support of his
various legal submissions:-
I. A.M.P.
Arunachalam Vs. A.R. Krishnamurthy – 1979 49 CC 662 –
to
show that “the requirement of Section 108 are mandatory which have not been
complied with in this case.”
II. Narasayyamma Vs. Andhra Bank–1960 Andhra
Pradesh 273 (V 47 C 85) - to
show that “a pledgee has only the special property in the goods pledged, that
is, the right of retainer of the goods as security and in case of default he
must either bring a suit against the pawnor or sell the goods after giving a
reasonable notice”.
III.
Shatzadi
Begum Saheba Vs. Girdharilal Sanghi – AIR 1976 Andhra Pradesh 273 – to show that “.....
A pledgee does not have the right of ownership, though he has the rights of a
pledgor which include only the right of possession, but not the right of
enjoyment; a pledgee has the right of disposition which is limited to
disposition of pledgee’s rights only and of a sale only after notice and
subject to certain limitation”.
“While the owner has
the right of possession as well as the right of enjoyment and right of
disposition, the pledgee has only the right of possession but not the right of
enjoyment. The pledgee’s right of
disposition is governed by the terms of the pledge and is limited to the
recovery of the amount due to him under that pledge.”
IV.
Lallan
Prasad Vs. Rahmat Ali – AIR 1967 Supreme Court 1322 – to show that “a pledgee cannot maintain a suit
for recovery of debt as well as retain pledged property.”
V.
T.S.Kotagi
Vs. Tahsildar, Gadag – AIR 1985 Karnataka 265 – to show that “if a
pledgee wants to sell articles without the intervention of the Court, he can do
so only after issuing a notice of sale to the pledger. Sale without notice is void.”
VI.
Ramdeyal
Prasad Vs. Sayed Hasan – AIR (31) 1944 Patna 135 – to show that “Pawnee is entitled to sell the
ornaments pledged by giving a reasonable notice of the sale to the Pawnor.”
8.
Shri Chaudhary in
his reply has stated that the execution and delivery of blank transfer form
together with original share certificate empower the petitioner to deal with
the shares and seek transfer of the shares in favour of the petitioner. The decisions cited supra are not applicable
in the facts and circumstances of the case, especially the shares impugned have
not been enforced in a Court of law by the petitioner. The petitioner seeks transfer of shares in
its favour pursuant to the blank transfer forms duly excuted by the
petitioner. In such cases, according to
Shri Chaudhary, no notice need be given to enforce the right of the pledgee
under Section 111A. The letter dated
15.5.2001 (Annexure I) of the Company amounts to refusal to transfer the shares
in favour of the petitioner, which empowers the petitioner to approach the CLB
for appropriate remedy. He further
pointed out that the CLB cannot go by the technicality but by the provisions of
law for which he relied upon the decision of the Apex Court reported in 2001
4 SC 266. He therefore sought
for the remedies against the Company to register transfer of the impugned
shares in favour of the petitioner.
9.
After considering
the pleadings and oral submissions made on behalf of the petitioner as well
respondents, the issue for consideration is whether the Company should be
directed to register the impugned shares in favour of the petitioner in the
facts and circumstances of the case.
10. While the petitioner contends that the third
respondent had pledged the shares of the Company in favour of the petitioner to
secure the advances made in favour of the second respondent, it is contended by
the respondents that the impugned shares were not pledged by the third
respondent in favour of the petitioner, but only delivered to one
Mr.A.R.Halasyam, Director (Finance) of the petitioner in his personal capacity
as a comfort level security for the advances made by the Company. It is not disputed that the third
respondent had delivered the original share certificate together with signed
transfer form along with Annexure ‘B’, which gives the official address of
Mr.A.R.Halasyam, but not his personal or residential address. It is to be seen whether Annexure-B has been
sent by the third respondent to Mr.A.R.Halasyam in his personal capacity. In this connection, Annexure-H written by
the third respondent to the Company assumes importance, the relevant portion of
which reads as under:-
“..... Kindly refer to my letter of June 29, 1999
requesting stop transfer of certain specified shares. I wish to inform you that these shares had been offered as
security for the loans obtained by Pentafour Products Limited (PPL) and
arrangements are on for discharge of the debts due to Maruti Udyog Limited
(MUL), the same has also been communicated to MUL. The Company (PPL) has also paid a sum of Rs.1 crore during April
1999 in partial discharge of the debts due to MUL.”
It is revealed from Annexure ‘H’ that the
impugned shares were offered as security by the third respondent for the loans
obtained by the second respondent. This
is further confirmed by Annexure ‘C’ and ‘D’,
the original share certificate and share transfer form signed by the
third respondent. In the circumstances,
the plea of the third respondent that the impugned shares were not offered as
security is not tenable and must fail.
Having come to the conclusion that the impugned shares were offered as
security by the third respondent to secure the advances made by the petitioner,
the question that comes for our consideration is whether the Company is
justified in returning the original share certificate and the share transfer
form on account of stop transfer advice received from the third respondent by
his letters dated 29.9.99 and 9.5.2001 (Annexure ‘G’ and ‘H’). Section 111A
empowers a public company to refuse registration of the transfer under the
following three specific grounds:
(i)
Any transfer made
in contravention of the provisions of Securities and Exchange Board of India
Act, 1992 or regulations made under that Act.
(ii)
Sick Industrial
Companies (Special Provisions) Act, 1985.
(iii)
Any other law.
The Company Law Board has held in a
number of cases that apart from the grounds mentioned in Section 111A, a public
company cannot refuse to register transfer of shares on any other grounds
whatsoever. In the circumstances, the
mere stop transfer advice at the instance of the third respondent, in our view
is not a “sufficient cause” for refusing to register the transfer in respect of
the impugned shares in favour of the petitioner. The case laws cited supra by Counsel for the third respondent can
be distinguished from the facts of the present case, especially the petitioner
has not chosen to enforce the security through a competent court of law. Hence,
the decisions cited supra do not come to aid of the Company. We are, therefore, of the view that the
Company shall register the transfer of shares in favour of the petitioner. Accordingly, it is ordered that the Company shall register the transfer
of shares within 30 days of lodgement of the share certificate and instrument
of transfer by the petitioner with the Company. No order as to cost.
11. With the above directions, the petition stands
disposed of.
(K.K. BALU)
S. BALASUBRAMANIAN:
1. While I am in full agreement with the
reasoning and directions given by the learned Member, I would also like to add
the following:-
2. One of the objections taken by the
learned counsel for the respondents is that, even assuming that the case is
that of a pledge, the petitioner being a pledgee cannot dispose of the shares
pledged without notice to the pledgor.
He relied on a number of cases on this proposition. Unlike other movable goods, in normal
commercial practice, when shares are pledged with blank transfer forms, the
pledgor has the option of retaining the shares without registering the transfer
in his name or get the shares registered in his name. Both the practices are common.
Registering the shares in the name of the pledgor does not in any way
constitute a sale requiring notice to be given to the pledgor. Therefore, by getting the shares registered
in its name, the petitioner company cannot be deemed to have effected a
sale. Even though, it was contended by
the learned counsel that Board of Directors of the petitioner company has
passed a resolution to sell the shares, yet mere passing of resolution does not
amount to a sale. Further, in the
present petition what we are concerned is whether the action of the Company in
not registering the shares when they were lodged for registration is with
sufficient cause or not. The Company is
a listed company and as per the listing agreement if a transferor desires to
stop the registration, the Company can do so only if the transferor obtains a
restraint order from a competent court within 15 days. In the present case, the Company has
returned the share certificate merely on the basis of a letter from the third
respondent. Such return of the share
certificates along with the instrument of transfer amounts to a deemed refusal
and as such the proviso to Section 111A(2) are squarely applicable in this
case. Since the shares of a pubic
company are freely transferable the Company is not concerned with the inter-se
disputes, if at all any, between the transferor and transferee and as such should
not have returned the share certificate to the petitioner without
registration. The ground on which the
shares were returned does not constitute “sufficient cause”. Accordingly, as
directed by the learned Member, the Company should register the transfer of the
impugned shares within 30 days from the date of lodgement of the same with the
instrument of transfer.
(S.BALASUBRAMANIAN)
Dated this the 7th
day of November, 2001