SUPREME COURT OF INDIA
(1) Dove Investments Private Limited and Ors, (2) Sterling Holiday Resort (India) Limited
Vs
Gujarat Industrial Inv. Corporation and Another
(1). Appeal (Civil) Case No.: 942 of 2006, S.L.P. (Civil) Nos.5172 of 2005, (2). Civil Appeal No. 943 of 2006, S.L.P. (Civil) No.5260 of 2005
(S. B. Sinha And P. K. Balasubramanyan, JJ)
02.02.2006
S. B. SINHA J.
Leave granted in both the special leave petitions.
These appeals arising out of a common judgment and order dated 30.12.2004
passed by the High Court of Madras in C.M.A. Nos. 3188 and 3223 of 2004, were
taken up for hearing together and are being disposed of by this common
judgment.
The factual matrix of the matter, however, would be noticed from Civil Appeal
arising out of S.L.P. (Civil) No.5260 of 2005.
The Appellant herein took a loan of a sum of Rs.4.5 crores from Respondent No.1
in the year 1996. By way of security, Respondent Nos. 2 to 4 pledged 25, 92,
800 shares in favour of Respondent No.1. Respondent No.1 on or about 02.01.2001
lodged the said share certificate pledged by Respondent Nos. 2 to 4 along with
the share transfer forms with the Appellant for transferring the said shares in
its name on the ground that there had been delay in repayment of the said loan.
A winding up petition also came to be filed by Respondent No.1 against the
Appellant in terms of Section 434(1)(a) and 439(1)(b) of the Companies Act, 1956 (for short, 'the Act') in the High
Court of Judicature at Madras. Respondent Nos. 2 to 4 had also filed suits
being O.S. Nos. 3742, 3740 and 3741 of 2003 respectively for permanent
injunction restraining the Respondent No.1 and the Appellant from effecting the
transfer of the equity shares in favour of Respondent No.1.
It is not in dispute that upon compliance of the requisite formalities, as envisaged under Section 108 of the Act, Respondent No.1 was to present the said shares with the Appellant by 08.12.1999. However, it did so only on 02.01.2001. Respondent No.1 raised a grievance that the Appellant although had registered a transfer of 2, 99, 800 shares pledged by Respondent Nos.2 to 4, but failed to effect registration of transfer in respect of the remaining 22, 93, 000 shares. According to Respondent No.1, the said shares are freely transferable and the conduct of the Appellant in not effecting registration thereof is mala fide and without sufficient cause. Respondent No.1 filed an application before the Company Law Board. The Company Law Board by a judgment and order dated 23.08.2004 allowed the said application holding :
i) The civil suits filed by the Respondents 2 to 4 in the absence of any
restraint order against the Appellant and Respondent No.1 for not giving effect
to the transfer of shares, do not have any bearing on the prayer made by
Respondent No.1 herein.
ii) The other averments raised in the counter statement are neither argued nor
found to be germane to the issue in question.
iii) The Appellant is hereby directed to register the transfer of 22, 93, 000
shares in the name of Respondent No.1 herein within 30 days of receipt of this
order.
An appeal thereagainst was preferred by the Appellant herein before the High
Court of Judicature at Madras in terms of Section 10F of the Act. An appeal was
also preferred by Respondent Nos.2 to 4 herein. By reason of the impugned
judgment, the appeals preferred by the Appellant herein as also Respondent Nos.
2 to 4 came to be dismissed.
Mr. M.N. Krishnamani, learned Senior Counsel appearing on behalf of the
Appellants, raised a short question in support of the appeals. It was submitted
that if the provisions of Section 108 of the Act are read as a whole, it would
be evident that the time specified therein is mandatory in character. It was
argued that Appellant had discretion in registering the shares in terms of
Section 108 (1C) of the Act, and if the same was not done, inter alia, on the
ground that the provisions of the Act had not been complied with insofar as the
obligations for registration of shares were not complied with within the time
stipulated, the Company Law Board and consequently the High Court must be held
to have committed an error in exercising their jurisdiction. It was submitted
that the High Court also erred in distinguishing the decision of this Court in
Mannalal Khetan and Others v. Kedar Nath Khetan and Others , inter alia
relying on or on the basis of the decision of a learned Single Judge of the
Karnataka High Court in Mukundlal Manchanda and Another v. Prakash Roadlines
Ltd. and Others 1991 Indlaw KAR 196.
It was submitted that the principle of waiver which had been relied upon by the
High Court was not available, inasmuch as if on an earlier occasion, the
Appellant registered 2, 99, 800 shares in ignorance of law, it cannot be
expected to commit the same mistake over again.
Mr. Soli J. Sorabjee, learned Senior Counsel appearing on behalf of the
Respondents, on the other hand, would submit that the decision of this Court in
Mannalal Khetan (supra) is distinguishable inasmuch as the said provisions were
couched in negative language whereas Sections 108 (1A) and 108 (1C) are
structured differently and have a different scheme besides having not used such
negative language. The provisions of Sections 108 (1A) and 108 (1C) of the Act,
Shri Sorabjee would contend, do not provide for any penalty or consequences in
the event of failure to comply therewith and in that view of the matter, the
said provisions must be held to be directory in nature. In any event, the fact
that the Company can move the Central Government for extension of time itself
indicates that the provisions are directory and not mandatory.
In any event, the learned counsel urged that having regard to the fact that at
no point of time, the Appellant had taken objection of non- compliance of the
provisions Section 108 (1C) of the Act, it cannot now turn round and contend
that the obligation for registration of transfer of shares in the name of
Respondent No.1 was beyond the time stipulated under Section 108 (1C) of the
Act.
Section 108 (1) prohibits registration of transfer of shares except on
production of the instrument of transfer and unless the conditions precedent
therefor are complied with. Section 108 (1A) provides that every instrument of
transfer of shares shall be in such form as may be prescribed, and shall,
before it is signed by or on behalf of the transferor, be presented to the
prescribed authority for the purpose of stamping or otherwise endorsing thereon
the date on which it is so presented and after it is executed by or on behalf
of the transferor and the transferee and completed in all other respects be
delivered to the company within two months from the date of such presentation.
Section 108 (1C) provides for a non obstante clause stating, inter alia, that
any share deposited by any person, inter alia, with a financial institution by
way of security for the repayment of any loan or advance to, or for the
performance of any obligation undertaken by such person, if, inter alia, the
financial institution stamps or otherwise endorses on the form of transfer of
such shares, if it intends to get such share registered in its own name, the
date on which the instrument of transfer relating to such share is executed by
it and the instrument of transfer of such form duly completed in all respects
is delivered to the company within two months from the date so stamped or
endorsed. Section 108 (1D) again provides for a non obstante clause whereby the
Central Government has been conferred with the power to extend the period
mentioned in those sub-sections by further time as it may deem fit, if it is of
the opinion that it is necessary so to do to avoid hardship in any case.
Section 111 empowers the Company to refuse registration upon assigning reasons
therefor. Sub-section (3) of Section 111 provides for an appeal to the Company
Law Board against such an order.
A company may refuse to register shares for various reasons. In this case,
however, the shares being freely transferable refusal for transfer can be made
only on limited grounds. Some such grounds may be that the transfer is mala
fide or transferee is not a bona fide investor or transfer is not permissible
in terms of one or the other provisions of the Articles of Association or the
same is otherwise prohibited in law e.g. sub-section (3) of Section 22A of the
Securities Contract (Regulation) Act, 1956. However, before the company can be
asked to perform its duties in terms of the said provisions, the procedural
requirements contained in Section 108 are required to be complied with. Section
108 requires the applicant desiring to obtain the registration of transfer of
shares in its favour to comply with the provisions contained therein. It is,
therefore, ordinarily for the applicant to comply with all formalities. If it
does not do so it cannot make the company bound to effect the transfer, unless
sufficient and cogent reasons are assigned. The time is specified in the
aforementioned provisions for filing of such an application in the prescribed
form and upon complying with the requirements prescribed therein.
Whether a statute would be directory or mandatory will depend upon the scheme
thereof. Ordinarily a procedural provision would not be mandatory even if the
word "shall" is employed therein unless a prejudice is caused. [See
P.T. Rajan v. T.P.M. Sahir and Ors.
In Chandrakant Uttam Chodankar v. Dayanand Rayu Mandrakar and Others 4, this Court observed : "74. In this case it is not
necessary for us to go into the question as to whether Section 83 is imperative
in character or not inasmuch it is settled law that even where the expression
"shall" is used, the same may not be held to be mandatory. Even a
mandatory provision having regard to the text and context of the statute may
not call for strict construction.
75. In U.P. SEB v. Shiv Mohan Singh15 this Court stated the law in the
following terms: (SCC p. 440, paras 96-97)
"96. Ordinarily, although the word 'shall' is considered to be imperative
in nature but it has to be interpreted as directory if the context or the
intention otherwise demands. (See Sainik Motors v. State of Rajasthan)
97. It is important to note that in Crawford on Statutory Construction at
p.539, it is stated:
'271. Miscellaneous implied exceptions from the requirements of mandatory
statutes, in general.Even where a statute is clearly mandatory or prohibitory,
yet, in many instances, the courts will regard certain conduct beyond the
prohibition of the statute through the use of various devices or principles.
Most, if not all of these devices find their jurisdiction in considerations of
justice. It is a well-known fact that often to enforce the law to its letter
produces manifest injustice, for frequently equitable and humane considerations,
and other considerations of a closely related nature, would seem to be of a
sufficient calibre to excuse or justify a technical violation of the law."
In Mohan Singh and Ors. v. International Airport Authority of India and Ors.
2, this Court observed :
"17. The distinction of mandatory compliance or directory effect of the
language depends upon the language couched in the statute under consideration
and its object, purpose and effect. The distinction reflected in the use of the
word 'shall' or 'may' depends on conferment of power. In the present context,
'may' does not always mean may. May is a must for enabling compliance of
provision but there are cases in which, for various reasons, as soon as a
person who is within the statute is entrusted with the power, it becomes duty
to exercise. Where the language of statute creates a duty, the special remedy
is prescribed for non-performance of the duty. In Craies on Statute Law (7th
Edn.), it is stated that the court will, as a general rule, presume that the
appropriate remedy by common law or mandamus for action was intended to apply.
General rule of law is that where a general obligation is created by statute
and statutory remedy is provided for violation, statutory remedy is mandatory.
The scope and language of the statute and consideration of policy at times may,
however, create exception showing that the legislature did not intend a remedy
(generality) to be exclusive. Words are the skin of the language. The language
is the medium of expressing the intention and the object that particular
provision or the Act seeks to achieve. Therefore, it is necessary to ascertain
the intention. The word 'shall' is not always decisive. Regard must be had to
the context, subject-matter and object of the statutory provision in question
in determining whether the same is mandatory or directory. No universal
principle of law could be laid in that behalf as to whether a particular
provision or enactment shall be considered mandatory or directory. It is the
duty of the court to try to get at the real intention of the legislature by
carefully analysing the whole scope of the statute or section or a phrase under
consideration-"
Recently, a 3-Judge Bench in Kailash v. Nankhu and Others while
interpreting Order 8, Rule 1 of the Code of Civil Procedure was of the opinion
:
"33. As stated earlier, Order 8 Rule 1 is a provision contained in CPC and hence belongs to the domain of procedural law. Another feature noticeable in the language of Order 8 Rule 1 is that although it appoints a time within which the written statement has to be presented and also restricts the power of the court by employing language couched in a negative way that the extension of time appointed for filing the written statement was not to be later than 90 days from the date of service of summons yet it does not in itself provide for penal consequences to follow if the time schedule, as laid down, is not observed. From these two features certain consequences follow."
[See also Salem Advocate Bar Association, T.N. v. Union of India 4.
However, even if a statute is directory in nature the same should be
substantially complied with. What would satisfy the requirements of substantial
compliance, however, would depend upon the fact of each case.
The Appellants do not state as to how they would be prejudiced by the act of
Respondent No.1 in not filing the application for registration of transfer of
shares within the aforementioned period. The Appellants have, indisputably,
filed suits. In para 10 of the plaint filed by Appellant No.1, in O.S. No.3742
of 2003, it was categorically stated:
"-Even though the plaintiff cannot have an objection on the transfer, the
plaintiff is concerned about the value at which the second defendant is
attempting to transfer the equity shares in its favour-"
On their own saying, thus, they were not prejudiced. In fact, they had no
objection in registering the shares. The only objection was with regard to the
value thereof. It is also not in dispute that they, in fact, registered 2, 99,
800 pledged shares, although they were also presented after a period of two
months without any demur whatsoever. The Appellants, therefore, must be held to
have waived their right. The pledge of shares is not in dispute.
The fact that the Appellant had taken a loan of Rs.4.5 cores is also not in
dispute. Furthermore, we are of the opinion that by reason of the impugned
judgment no injustice as such has been done to the Appellants and in that view
of the matter this Court in exercise of its jurisdiction under Article 136 of
the Constitution of India may not interfere with the impugned order, even if it
may be lawful to do so.
In Taherakhatoon (D) By LRs. v. Salambin Mohammad , this Court observed
"20. In view of the above decisions, even though we are now dealing with
the appeal after grant of special leave, we are not bound to go into merits and
even if we do so and declare the law or point out the error still we may not
interfere if the justice of the case on facts does not require interference or
if we feel that the relief could be moulded in a different fashion-"
In Chandra Singh and Others v. State of Rajasthan and Another , it was
held :
"-Furthermore, this Court exercised its discretionary jurisdiction under
Article 136 of the Constitution of India which need not be exercised in a case
where the impugned judgment is found to be erroneous if by reason thereof
substantial justice is being done. [See S.D.S. Shipping (P) Ltd. v. Jay
Container Services Co. (P) Ltd.17] Such a relief can be denied, inter alia,
when it would be opposed to public policy or in a case where quashing of an
illegal order would revive another illegal one-"
The said principle was reiterated in Inder Parkash Gupta v. State of J and K and Others in the following terms :
"In ordinary course we would have allowed the appeal but we cannot lose
sight of the fact that the selections had been made in the year 1994. A
valuable period of 10 years has elapsed. The private respondents have been
working in their posts for the last 10 years. It is trite that with a view to
do complete justice between the parties, this Court in a given case may not
exercise its jurisdiction under Article 136 of the Constitution of India. (See
Chandra Singh v. State of Rajasthan-"
[See also Transmission Corporation of A.P. Ltd. v. Lanco Kondappali Power (P)
Ltd.
Following the aforementioned decisions, we are of the opinion that with a view
to do complete justice to the parties, no inference with the High Court's
judgment is called for.
For the foregoing reasons, we are of the opinion that no case has been made out for exercise our jurisdiction under Article 136 of the Constitution of India. The appeals are dismissed. No costs.