Dove Investments Pvt. Ltd. & Ors Vs. M/S Gujarat Industrial Inv. Corporation
& Anr  Insc 59 (2 February 2006)
Sinha & P.K. Balasubramanyan
out of S.L.P. (Civil) Nos.5172 of 2005] W I T H CIVIL APPEAL NO. 943 OF 2006
[Arising out of S.L.P. (Civil) No.5260 of 2005] M/s Sterling Holiday Resort (India) Ltd. Appellant Versus M/s Gujarat
Industrial Inv. Corporation Ltd. & Ors. Respondents S.B. SINHA, J :
granted in both the special leave petitions.
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.
factual matrix of the matter, however, would be noticed from Civil Appeal
arising out of S.L.P. (Civil) No.5260 of 2005.
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.
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 :
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.
averments raised in the counter statement are neither argued nor found to be
germane to the issue in question.
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.
appeal thereagainst was preferred by the Appellant herein before the High Court
of Judicature at Madras in terms of Section 10F of the Act.
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 [(1977) 2 SCC 424], 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 (72) CC 575].
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.
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.
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
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.
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.
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 & Ors. [(2003) 8 SCC 498] In Chandrakant Uttam Chodankar v.
Dayanand Rayu Mandrakar and Others [(2005) 2 SCC 188], this Court observed :
"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.
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)
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. [(1997) 9 SCC 132], 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.
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.
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 [(2005) 4 SCC 480] 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 (2005) 6 SCC 344].
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.
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 :
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.
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.
(D) By LRs. v. Salambin Mohammad [(1999) 2 SCC 635], 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 & Another [(2003) 6 SCC
545], it was held :
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 & K & Others [(2004) 6 SCC 786] in the following terms
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. (2006) 1 SCC 540] 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.
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.