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CASE NO.: Appeal (civil)  942 of 2006

PETITIONER: M/s Dove Investments Pvt. Ltd. & Ors.

RESPONDENT: M/s Gujarat Industrial Inv. Corporation & Anr.

DATE OF JUDGMENT: 02/02/2006

BENCH: S.B. Sinha & P.K. Balasubramanyan

JUDGMENT: J U D G M E N T [Arising 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.                                \005Appellant  

                                               Versus

M/s Gujarat Industrial Inv. Corporation Ltd. & Ors.             \005Respondents

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

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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  [(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].   

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

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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 & Ors. [(2003) 8 SCC 498]    

In Chandrakant Uttam Chodankar v. Dayanand Rayu Mandrakar and  Others [(2005) 2 SCC 188], 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

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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.\027Even 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.  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\005"

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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].    

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 :

"\005Even 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\005"  

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  [(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 \027 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\005"

In Chandra Singh and Others v. State of Rajasthan & Another [(2003)  6 SCC 545], it was held :

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"\005Furthermore, 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\005"  

The said principle was reiterated in Inder Parkash Gupta v. State of J  & K & Others  [(2004) 6 SCC 786] 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\005"  

[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.   

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.