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CASE NO.: Appeal (civil)  698-700 of 1995

PETITIONER: Smt. Claude-Lila Parulekar

RESPONDENT: M/s. Sakal Papers Pvt. Ltd. & Ors.

DATE OF JUDGMENT: 18/03/2005

BENCH: Ruma Pal & P.Venkatarama Reddi

JUDGMENT: J U  D  G  M  E  N  T

RUMA PAL, J.

In 1933 Dr. N. B. Parulekar and his wife Shanta, started a  Newspaper called Sakal. In 1948, Dr. Parulekar and Shanta  promoted a company known as M/s. Sakal Papers Pvt. Limited,  which is the respondent No.1 and is referred to hereafter as ’the  company". Dr. Parulekar died in 1973. Shanta died during the  pendency of the appeal before this Court. The appeal which is  now being prosecuted by the daughter of Dr. Parulekar and  Shanta, arises out of proceedings initiated by Shanta and the  appellant under Section 155 (as it stood in 1986) of the  Companies Act, 1956   (referred to hereafter as ’the Act’) in the  Bombay High Court.  The appellant was brought on record as Shanta’s only  legal heir and representative. As Shanta was alive during the  proceedings before the High Court, to avoid unnecessary  verbiage, the appellant and Shanta are referred to hereafter as  ’the appellants’. One of the matters in dispute in this appeal relates to the  transfer of 3417 shares in the company belonging to the estate  of late Dr. Parulekar by three of the four executors of the will of  Dr. Parulekar. The executors named in the will were Shanta,  the respondent No. 2, the respondent No. 3 and the respondent  No. 4. There is also a challenge to the transfer of 93 shares by  the respondent Nos. 3 and 4 in the company. The basis of the  claim of the appellant and Shanta with regard to the 3417 and  93 shares was the failure to allow the appellants to exercise  their undisputed right of preemption in respect of the shares.  The second branch of the appellants’ grievance pertains to the  issue and allotment of 17,666/- shares of the company. The  beneficiary of these transfers/allotments is the respondent No.5  and his group represented by the respondents Nos. 6 to 16   (hereafter referred to collectively as the Pawar Group).  According to all the respondents briefly speaking, the  appellants were precluded from exercising any right of  preemption and had in any event failed to exercise their right of  preemption in respect of the 3417 and 93 shares. As far as the  issue of 17,666/- shares are concerned it is submitted that it  was validly done and the allotment of the shares was duly  made to the Pawar group. The learned Single Judge held that the transfer of the  3417 shares was made contrary to the appellants rights of  preemption. He also held that the transfers had been made in  violation of the provisions of the Section 108 of the Companies  Act, 1956 and the Articles of Association of the Company. It  was held that the respondent No. 5 and his group were not

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bonafide purchasers of the shares as they were aware of the  preemptive right of the appellants to the shares. On the issue  and allotment of 17,666/- shares the Trial Court held that they  were invalid. Having effectively held in favour of the appellants  on merits, the Trial Court did not set aside the transfer of the  3417 and 93 shares  but  set aside the transfer of 3417 and 93  shares to the respondent No. 5 and his group conditional upon  the appellants depositing a sum or Rs.80,73,000/- in the Court  within a period of six weeks. As far as the 17,666/- shares were  concerned,  it was directed that they should be allotted to such  persons or persons at such price as the Board of Directors may  decide.   The Company was directed to pay back the Pawar  group a sum of Rs.17,66,600/- in respect of the 17,666 shares.  It was  then said that in the event the appellants did not deposit  a sum of Rs.79,86,110/- within six weeks the entire petition filed  by the appellants would stand dismissed. The appellants filed  an appeal from this order in so far as it was made conditional  on the deposit of the sum of Rs.79,86,110/-. They also filed an  application for extension of time for depositing the amount in  terms of the Trial Court’s order before the Trial Court. The  application was dismissed. In the meanwhile the Appellants filed two suits being CS  225 and 226 of 1988 before the Court in Pune against the  respondents seeking specific performance of the contracts of  sale of 3417 and 93 shares to them. Alternatively for damages  by way of compensation of Rs.3 Crore or 4 Crore? The suits  are pending. Also between the decision of the single Judge and  the filing of the appeal by the appellants, the company became  a Public Limited Company by virtue of Section 43A of the Act.  At the time of admission of the appeal an interim order  had been passed by the Division Bench on 21st December,  1989 directing that pending disposal of the appeal, the  appellants’ right of preemption was not to be disturbed and the  company was directed not to issue or invite any fresh capital. The appeal filed by the appellants against the Judgment  and order of the learned Single Judge as also cross appeals  filed by the respondents were heard and disposed of by a  common judgment. The Division Bench dismissed the  appellants’ appeal and allowed the cross appeals filed by the  respondents holding inter alia that the violation of S.108 was a  mere irregularity which was curable, that the sale of 3417  shares had been validly made to the Pawar group and that  although there was some irregularity in issuing the 17,666  shares, the irregularity had been cured by the subsequent  ratification of the decision. At the instance of the appellants the  interim order passed by the High Court on 21st December, 1989  was directed to continue for 8 weeks. Before the eight weeks expired, the appellants filed the  present appeal and an interim order was granted on                16th September, 1991 in terms of the order passed by the High  Court on 21st December, 1989. That interim order is operating  till today. The matter has been pending before this Court since  1991 and has been heard in part by different Benches from  time to time. Efforts for an amicable settlement were not fruitful.  In the meantime several of the parties including Shanta died.  The applications for substitution were allowed.   The respondents have raised a preliminary objection  questioning the entertainment of the appellant’s application  under Section 155 of the Act in the first place. It is submitted  that complex questions of fact were involved and the ordinary  procedure of a civil suit as opposed to the summary remedy  available under Section 155 was more appropriate. This was  more so because not only had the appellant and Shanta  reserved their right to file a suit for transfer of the disputed  shares to them in the Section 155 application, they had in fact

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filed suits being CS No. 225 of 1988 and 226 of 1988 before the  Courts in Pune claiming specific performance of the contract  alleged to be existing in favour of the appellants for transfer of  the 3417 and 93 shares. It is submitted that the issues involved  in the Civil Suits and the proceedings under S. 155 overlapped  in so far as the 3417 shares are concerned and that this appeal  should be considered only with regard to the challenge to the  issuance and allotment of the 17,666 shares. The appellants have submitted that they had no  alternative but to file the Company Petition for rectification of  the company’s Register of Members by deleting the names of  the respondents No.5 and his group under Section 155 of the  Companies Act.  Reliance has been placed on the decision of  this Court in the case of Ammonia Supplies Corporation (P)  Ltd. v. Modern Plastic Containers Pvt. Ltd. & Ors. 1998 (7)  SCC 105 in which this Court said that:-  "So far as exercising of power for  rectification within its field there could be  no doubt the court as referred under  Section 155 read with Section 2(11) and  Section 10, it is the Company Court  alone which has exclusive jurisdiction".                    It is also submitted that even if the jurisdiction under  Section 155 was not exclusive and the Company Court had  concurrent jurisdiction with Civil Courts, this Court should not  relegate the appellants to the alternative remedy of a Civil Suit  having regard to the facts of this case, especially, the pendency  of the matter before the different Courts from 1986. The Trial Court had rejected the preliminary objection and  held that it was open to the parties to choose any one of the  remedies available to such party and that the remedy under  Section 155 of the Companies Act was equally "efficacious,  definitely more speedy and certainly appropriate".   The Division  Bench did not go into the issue having held in favour of the  respondents on the merits.  Section 155 of the Act (as it stood in 1986) provided inter  alia as follows:-  S.155, Power of Court to rectify register of members-- If\027 (a) the name of any person\027 (i)     is without sufficient cause, entered in the  register of members of a company, or  

(ii)    after having been entered in the register is,  without sufficient cause, omitted therefrom;  or

(b)  default is made, or unnecessary delay  takes place, in entering on the register the  fact of any person having become, or  ceased to be, a member, the person aggrieved, or any member of the  company, or the company, may apply to the  Court for rectification of the register.

(2)       The Court may either reject the application or  order rectification of the register, and in the  latter case, may direct the company to pay the  damages, if any, sustained by any party  aggrieved.

In either case, the Court in its discretion may make such  order as to costs as it thinks fit.

(3)       On an application under this section, the

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Court\027

(a)      may decide any question  relating to the title of any person  who is a party to the application  to have his name entered in or  omitted from the register,  whether the question arises  between members or alleged  members, or between members  or alleged members on the one  hand and the company on the  other hand; and

(b)      generally, may decide any  question which it is necessary or  expedient to decide in  connection with  the application  for rectification.

(4)     From any order passed by the Court  on the application, or on any issue raised  therein and tried separately, an appeal  shall lie on the ground mentioned in  Section 100 of the Code of Civil Procedure  1908 (V of 1908)\027

(a)      if the order be passed by a  District Court, to the High Court;

(b)      if the orders be passed by a  single Judge of a High Court  consisting of three or more  Judges, to, a Bench of that High  Court.

(5) The provisions of sub-sections (1) to (4)  shall apply in relation to the rectification of  the register of debenture-holders as they  apply in relation to the rectification of the  register of members".

The power of the Court under Section 155 is limited to the  rectification of the register of members of a Company in three   situations (a) when the name of a person is wrongly entered in  such register (b) when  the name of a person, whose name  having been entered in the register is omitted therefrom and (3)  when default is made in entering the name of any person who  has already become or who has ceased to be a member. None  of the three situations envisaged under sub-section (1) of  Section 155 would allow the person whose right as a member  qua the disputed shares is yet to be established to apply for  rectification by inclusion of such person’s name.  The  appellants could not, therefore have applied for transfer of the  disputed shares in their favour under Section 155 of the  Companies Act. They would have to establish that right by way  of a separate suit or otherwise. The appellants in paragraph 26  of the Company Petition correctly reserved their right to file  appropriate action for transfer of the 3,417 shares to  themselves.   The relevant prayers in the appellants Company Petition  476/86 were as follows:-           " (a)  That this Hon’ble Court be pleased  to order  the rectification of the Register

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of Members of the 1st respondent  Company and order that the names of  Respondent Nos. 5,6,8,11,12,13 and 14  be removed from the Register of  Members of the 1st Respondent  Company in respect of 3,417 shares  belonging to the estate of Dr. N.B.  Parulekar and 93 shares belonging to  the 2nd Respondent;

(b)     That this Hon’ble Court be pleased to  order rectification of the Register of  Members of the 1st Respondent  Company and do order that the  names  of Respondent Nos. 11,12,13,15 and 16  be removed from the Register of  Members of the 1st Respondent  Company in respect of 17,666/- shares;

(c)     That Respondent Nos. 5,6,8,11,12,13  and 14 be ordered and directed by a  mandatory order and injunction of this  Hon’ble Court to deliver up to the 1st  respondent the share certificates in  respect of the said 3417 shares and 93  shares for removal of their names there  from;

(d)     That the Respondent Nos. 11,12,13,15  and 16 be ordered and mandatory  injunction of this Hon’ble Court to  deliver up to the 1st Respondent the  share certificates held by them in  respect of 17,666 shares allotted on  16.11.1985 to the 1st Respondent for  cancellation";  

As had been noted by the learned Single Judge, there  was no prayer for transfer of the disputed shares to the  appellants. The only prayers related to the cancellation of the  impugned transfers and the rectification of the Register of  Members of the Company by removal of the names of the  Respondent 5 and his group. The prayers in the appellants’ suits  pending in Pune are  inter alia as follows: " (a) that this Hon’ble Court be pleased to  declare that there is a valid and  subsisting contract entered into between  the Plaintiffs, on the one hand and the  Defendants 2,3 and 4 on the other for  the sale by the Defendants 2,3 and 4  and purchase by the Plaintiffs of 3417  shares of the 1st Defendants bearing  distinctive numbers more particularly  described in Exhibit ’\027-’

(b)     that the Defendants 2,3 and 4 be  directed to specifically perform the said  contract by executing the necessary  Transfer Forms and doing all other acts  necessary to effectually carry out the  said transfer;

(c)     that the 1st Defendant be directed to  register the said shares upon such

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transfer under prayer (b) in favour of the  2nd Plaintiffs;

(d)     that in the alternative to prayer (b)  above, the Defendants 2,3 and 4 be  ordered and decreed by this Hon’ble  Court be pay to the Plaintiffs a sum of  Rs. 3 Crores or such other sum as this  Hon’ble Court  may determine as  damages for breach of the contract."

Similar prayers were made in respect of the 93 shares.  Clearly the reliefs prayed for in the Company Petition were  different from for the reliefs claimed in the Civil Suits filed by the  appellants. The Civil Suits arose out of and were consequent  upon the findings of the learned single Judge on the petition  under Section 155 that there was a concluded contract between  the holders of the 3417 and 93 shares and the appellants for  transfer of those shares to the appellants. The learned single Judge correctly held that " This suit was necessary as even if the  Petitioners had managed to deposit the amount  and got an order of rectification of the register  in their favour, there was still no order of any  Court which directed the respondents to deliver  these shares to the petitioners".

 If there is any issue in the suit which was required to be  and has been determined in the  Company Petition, the effect  of that determination would no doubt be the subject matter of  consideration by the Civil Judge, Pune, before whom the suits  are pending. But the possibility of overlapping of such issues  does not preclude the filing of the suits by the appellants.  The  appellants advisedly did not pray for the transfer and  registration of the disputed shares in their favour in the  proceedings under Section 155. They could not have done so.  That the Court exercising jurisdiction under Section 155 of  the Companies Act was competent to entertain the applications  filed by the appellants cannot be disputed.  The only question is  whether the discretion to do so was properly exercised.     Despite the respondents’ submissions to the contrary, we do  not consider this case as an appropriate one to decide whether  this Court’s decision in Ammonia Supplies Corporation  (supra) was correct in so far as it has held  that the jurisdiction  to grant relief provided under Section 155 was exclusive. It may  be noted that the view has been reiterated by a larger Bench in  Canara Bank vs. Nuclear Power Corporation of India Ltd. &  Ors. JT 1995 (3) SC 42 (para 31).     But assuming that the  decision is wrong and that jurisdiction of the Company Court  under S. 155 of the Companies Act and the Civil Court under  Section 9 of the Code of Civil Procedure is concurrent, there is  no reason for us to refuse to entertain the application under  Section 155 of the Companies Act. The questions raised in the  petition for rectification were determined on the basis of the  material available  both by the Single and the Division Bench.  Neither of the Courts were of the view that the materials were  inadequate or that the disputes were such which could not be  resolved under Section 155. Apart from any other  circumstance, the fact that the matter has been awaiting  disposal by the Courts at the different levels for almost 18 years  would render it grossly inequitable and be an improper exercise  of judicial discretion if we were to turn the appellants away at  this stage to pursue an alternative remedy (if any) available  under the general law.  The preliminary objection raised by the  respondents is accordingly rejected.

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Moving to the merits of the appeals the various issues  raised relate to the appellants’ right to purchase the disputed  shares;  the transfer of 3417 and 93 shares and the issue and  transfer of 17,666 shares.

I.1     The preemptive right which is being claimed by the  appellants arises from Article 57A of the Articles of  Association of the Company. The right is admitted by the  respondents, but as the extent of the right is in dispute, it  is quoted verbatim.

"57-A. In the event of any member  of Company desires to transfer his  shares he shall be bound to offer the  same either to Dr. N.B. Parulekar or to  Madame Shanta Parulekar or such  other person or persons as Dr. N. B.  Parulekar or Madame Shanta Parulekar  may direct or may nominate and in  which event the transferee or  transferees shall pay such price as may  be certified by the Auditors of the  Company."

I.2     Analysed, the right contains four elements which are  cumulative: (i)     the desire of any member to sell his shares. (ii)    the offer by such member of the shares to Dr.            Parulekar or to Shanta or to their nominee.

(iii)   the certification of the price by the Auditors of the            Company.

(iv)    The payment of such price by the Transferee /               transferees.

I.3         The other relevant Articles are Articles 58 to 64.  All  these articles are under a group entitled "Transfer and  transmission of shares".  Article 57-A is the first of the  group.  The remaining articles read as under:- 58.     Subject to Cl.57A no shares shall be  transferred so long as any member or  any person selected by the Directors  as one to whom it is desirable in the  interest of the Company to admit to  membership, is willing to purchase the  same at the fair value as mentioned  herein below.

59.     Except where the transfer is made  pursuant to Article 58 here of, the  person proposing to transfer any share  shall give notice in writing to the  Company that he desires to transfer  the same.  Such notice shall constitute  the Directors his agents for the sale of  the share to any member or persons  selected as aforesaid, at a fair value to  be agreed upon between the  Transferor and the purchaser and in  default of such agreement to be fixed  by the Auditors of the Company.  The

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notice may include several shares and  in such case shall operate as if it were  a separate notice in respect of each  share.  The notice shall not be  revocable except with the Sanction of  the Directors.

60.     If the Directors, shall, within the space  of 30 days after being served with the  Transfer Notice, find a purchasing  member or a person selected as  aforesaid willing to purchase the share  and shall give notice thereof to the  proposing transferor, he shall be  bound upon payment of the fair value  fixed as aforesaid to transfer the  shares to the purchaser.

61.     In case any differences arises  between the Transferor and the  Purchaser as to the fair value of a  share, the Auditors of the Company  shall certify in writing the sum which in  their opinion is the fair value and the  same be binding on the transferor and  the purchase. Provided however  that  the Auditors so certifying shall not be  considered to be acting as Arbitrators  and the Indian Arbitration Act 1940  shall not apply.  The Auditor shall be  considered to be acting as an expert.

62.     If in case the proposing transferor,  after having become bound as  aforesaid, makes default in  transferring the share, the Directors  may receive the purchase money and  shall there upon cause the name of  the purchaser to be entered in the  Register as the holder of the share  and shall hold the purchase money in  trust for the Transferor.   The Directors  may appoint any person to execute a  transfer of the said share on behalf of  the defaulting transferor.  The receipt  of the Directors for the purchase  money shall be a good discharge to  the purchaser and after his name has  been entered in the Register in  purported exercise of the aforesaid  power the validity of the transfer shall  not be questioned by any person.

63.     If the Directors, shall not, within the  time prescribed as aforesaid after  being served with the Notice, find a  purchasing member or select a person  as aforesaid willing to purchase the  shares or any of them and give notice  in manner aforesaid, the transferor  shall at any time within 30 days  thereafter be at liberty subject to

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Article 65 thereof to sell and transfer  the shares to any person and at any  price.

64.     Every share specified in the Notice  given pursuant to the Article 59 hereof  shall be offered to the members in  such order as shall be determined by  the Directors and in such manner as  the Directors think fit.  If no member is  ready and willing to take up such  shares the same may be offered to  any person selected by the Directors  as one to whom it is desirable in the  interest of the company  to admit to its  membership".

I. 4.1          The Articles give the hierarchy of the persons  entitled to purchase shares upon transfer.  The first right  is given to the preemptors under Article 57-A.  Next in the  hierarchy is any member who is willing to purchase the  shares at a fair value.  This follows from a reading of  Article 58 with Article 64.  The third category is of any  person or persons selected by the Directors as being  desirable in the interest of the company to admit to  membership.  The last category is the person to  whom  the transferor may choose to sell the shares.  As long as  there is any person in a higher category, there is no  question of sale or purchase by a person in a lower  category.  Thus for example the right of a member or a  person in the 2nd  category to purchase shares can arise  only in the event there is a default or refusal on the part of  the preemptor and so on. A person may fall within any  one or more of these four categories and would, by virtue  of these articles have distinct and separate rights to  purchase the shares in each of the four categories.  So  even if a preemptor or a nominee of a preemptor does not  exercise his/her right under Article 57-A to purchase the  shares at a price certified by the company’s Auditors,  such person may choose to exercise the right as an  ordinary member and purchase the share at a fair value   or the transferor may choose to sell the shares to such  person under Article 63.   I. 4.2.  In the case of a transfer to a person in the  2nd and 3rd  categories of putative purchasers, the Directors are  appointed agents of the transferor.  The notice of transfer  is required to constitute the Directors as the transferor’s  agents.  This notice is distinct from the other required to  be given under Article 57-A. In respect of these two  categories, the price of the shares is at first to be  negotiated with the transferor.  It is only in the case of a  default in such agreement being reached that the  company’s Auditors step in and fix a "fair price".  The third  distinctive feature of these two categories is that upon  refusal/default of the preemptor , the transferor is required  to give a notice in writing of his desire to transfer. Giving  of this notice must necessarily be subsequent to the  failure of Article 57-A for whatever reason,  as the  Directors are required to find a willing person either in the  2nd and if not the 3rd category within a period of 30 days.    There is no time limit specified for the completion of the  preemptive transfer under Article 57-A. Therefore unless  the transferor gives a separate notice of the failure of  Article 57-A how would a willing member know whether

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he/she has a right or when the period fixed for intimating  their willingness to purchase was to lapse? Article 60 also  requires the Directors to give a notice to the transferor  after finding a willing purchasing member or selectee  under Article 58.  Giving of this notice is important  because if 30 days expires without such notice by the  Directors, Article 63 would come into play and the  transferor would be at liberty to sell the shares to any  person and at any price,  albeit also within a period of 30  days from the expiry of the first period of 30 days.  It  follows that a notice issued prior to the preemptor  exercising or failing to exercise the right under Article     57-A would not be in keeping with Articles 59 and 60 as  this would make the period of 30 days uncertain if not  illusory. Thus the notice by the transferor under  Article 58   must succeed the factual failure of Article 57-A and  notice, if any, under Article 60 must follow the failure of  Article 58.  I.4.3      Assuming there is a willing purchaser under Article 58,  there is no time limit fixed either for the parties to arrive at  a negotiated price or for the Auditor to fix a fair value. But  Article 63 indicates that the entire transaction envisaged  by Articles 59, 60, 61 and 62 would have to be completed  within a period of 60 days after Article 57-A failed to  operate. I.4.4.  Section 36 of the Companies Act, 1956 makes the  Memorandum and Articles of Company, when registered,  binding not only on the company but also the members  inter-se to the same extent as if they had been signed by  the company and by each member and covenanted to by  the company and each shareholder to observe all the  provisions of the Memorandum and of the Articles.  The  Articles of Association constitute a contract not merely  between the shareholders and the company but between  the individual shareholders also.  The Articles are a  source of powers of the Directors who can as a result  exercise only those powers conferred by the Articles  in  accordance therewith. Any action referable to the Articles  and contrary thereto would be ultra vires.  

I.4.5   Thus in Hunter vs. Hunter (1936) A.C. 222, the  shareholders in a private company challenged the  transfer of shares by another shareholder to 3rd parties  without compliance with the provisions of Articles of  Association.  In terms of the articles a member could not  transfer his shares until he had given notice to the  Secretary offering to sell the shares at a price to be fixed  by the auditor and until the Secretary had offered them to  the other members.  It was found that in violation of this  article, one of the shareholders had sold the shares to  nominees of a bank from which that shareholder had  obtained loans.  The application for rectification of the  share register was resisted by the purchaser in whose  favour the shares had already been registered with the  company.  The House of Lords came to the conclusion  that the purchase was not in  terms of the Article  and that  the transfer in violation of the Articles was inoperative.

I.4.6       A similar situation arose in the case Lyle and Scott  Ltd. Scott’s Trustee (1959) 2 All ER 661.  There was a  similar article which provided for inter alia the preemptive  right in the existing shareholders to purchase shares.   There was no dispute that the article had been violated. "The purpose of the Article is  plain: to prevent sales of shares to

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strangers so long as other members of  the appellant company are willing to buy  them at a price prescribed by the Article.   And this is a perfectly legitimate  restriction by the Article.  And this is a  perfectly legitimate restriction in a  private company". (p.667)   

               The House of Lords was of the view that the Article   would have to be complied with in order to effect a valid  transfer. [See: Naresh Chandra Sanyal v. Calcutta Stock  Exchange Association Ltd. ( 1971) 1 SCC 50, 107; H.P.  Gupta vs. Heera Lal (1970) 1 SCC 437, 440 and 441).   With this prefatory statement of the relevant law we may  now look at the facts.      

II   Facts II.1    The narration of facts starts with the will of Dr.  Parulekar by which he appointed the four Executors,  viz. Shanta and the respondents 2,3 and 4  as  Executors and Trustees of the will.  The will inter alia  empowered the Executors and Trustees to sell or to  postpone the sale from time to time of all the properties  vested in them by the will for payment of estate duty   and to invest the same as the Executors and Trustees  thought fit.  After providing for specific legacies, the  Executors and Trustees were directed to hold the rest  and residue of the estate on trust (1) for the spread of  education through newspapers, magazines and  periodicals (2) for effecting improvement of the quality  and standard of journalism and training of personnel in  journalism (3) for purchase of shares of concerns,  firms, companies or from persons or persons  interested in or concerned with newspapers,  magazines, periodicals and otherwise in journalism (4)  for publication of books and literature for masses at  low and reasonable prices, and (5) for such other  objects and acts that may be necessary to bring about  improvement of information amongst the masses and  also which may be incidental or conducive to the  above objects.  The trust was to be known as "Sakal  Papers Trust".  Although the probate of the will had  been granted in 1975 to the four Executors and all four  of them had been entered in the register of members  of the company as joint shareholders of the 3417  shares belonging to the estate of  late Dr. Parulekar on  26.4.1977,  no steps were taken by the Executors to  convert the shares into money till 1984.    

II.2    It is the claim of the respondent Nos. 2, 3 and 4 that in  1984 a company by the name of M/s. Jain Plastic Pvt.  Ltd. offered to purchase the 3417 and 93 shares at a  price of Rs.2250/- per share.   The offer is not on record.   What is on record is a letter dated 10.11.1984 written by  the respondents Nos. 3 and 4 as the holders of 93 shares  to Shanta as well as  the Board of Directors of the  Company offering to sell those shares to Shanta or her  nominee under Article 57-A at a price of Rs.2250/- per  share.  The letter further stated that in the event Shanta  was not agreeable to pay the price, the letter should be  treated as notice to the Directors within the meaning of  Article 57-A to Article 61 who were called upon to take  steps to get the price fixed under Article 61.  It was further

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stated that if Shanta did not exercise her rights under  Article 57-A or was not willing to pay the price or not  willing to complete the transactions in accordance with  Article 61, then the respondent Nos.3 & 4 would be free to  sell the shares to any other person in accordance with  Articles of the company.   Article 61, as we have already  seen, pertains to the valuation of shares when a  shareholder expresses his or her willingness to purchase  the shares.

II. 3    On 27.11.1984 the Board of Directors resolved that the  93 shares held by the respondent Nos. 3 & 4 should be  offered to the other members of the company subject to  the preemptive right of Shanta under Article 57-A.   

II. 4   As far as the 3417 shares are concerned, a similar  resolution was taken that if Shanta did not exercise her  rights or did not pay the shares at a price fixed under  Article 61 then the Executors could sell the shares to any  other person or persons for the price of Rs.2250/- per  share.  It was also resolved that any one of the Executors  was authorized to implement the resolution and also to  take steps to execute the transfer forms and complete the  transaction.

II.5  Notice was given on 29.11.1984 by the Executors  to  Shanta with the respondent No.2 signing on behalf of all  the Executors.  The contents of the notice are materially  the same as the notice given by the respondent Nos. 3 &  4 in respect of the 93 shares.  The company similarly  issued a notice to all share holders to indicate whether  they were willing to purchase the shares subject to  Shanta’s right under Article 57-A. II.6   On 14.12.1984 the appellants wrote a letter  accepting the offer to sell the 3417 shares.  The letter  stated that Shanta was agreeable to buy the shares by  herself/or her nominee and that her nominee was her  daughter, now the sole appellant.  Shanta stated that she  was agreeable to pay such price as may be certified by  the Auditors of the company as stipulated in Article 57-A.  A copy of the letter was sent by Shanta to the Board of  Directors and countersigned by her daughter signifying  her assent.   II.7    The Company’s Chartered Accountant gave notice to  Shanta on 20.1.1985 stating that he had received several  documents from the company pertaining to the valuation  of the shares.  A list of such documents was given.   Shanta was also called upon to submit any documents  that she may desire in that connection within seven days.   Shanta asked for an extension of time to submit such  information. This was granted by the Auditors upto  20.2.1985.  By a letter dated 20.2.1985 Shanta called  upon the Auditors to submit a draft report and draft  certificate within seven days in order to enable her to  make her submissions in respect thereof.  By a letter  written on the next date, Shanta asked for copies of the  documents submitted by the Company to the Auditors.   There was no response to either of these letters by the  Auditors who straightaway issued a certificate on  21.2.1985 certifying that the price of the 93 shares was  Rs.2,10,273/- and of the 3417 shares Rs.77,25,837/-. II. 8  The respondent Nos. 3 & 4 then wrote to Shanta on the  same date calling upon Shanta to pay the sum of  Rs.2,10,273/- in respect of 93 shares on or before  2.3.1985 "time being of the essence" failing which they

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would dispose of the shares in such manner as they  thought fit. II.9   In the meanwhile, the appellants had protested against the  certification to the Auditors both with regard to the  procedure followed as well as the value certified.  The  allegation against the Auditors was that the valuation had  been fixed collusively and was not just,  fair or reasonable  according to the recognized  principles of valuation. The  appellants called upon the Auditor to fix a fair valuation  after giving the appellants a proper opportunity of being  heard.  They also wrote to the respondents Nos. 3 and 4  contending that there was no question of time being of the  essence either under Article 57-A or under the offer  letters.  It was alleged that the stipulation of time could not  be imposed unilaterally. They also stated that the time  fixed was unreasonable and that in any event the  certificate issued by the Auditor could not be treated as a  final certificate. It was also stated that there was a final  and concluded contract between the parties for the  purchase of the said shares.  Without prejudice to all that  was stated and also without prejudice to their legal rights  to take actions relating to the Certificate dated 21.2.1985  issued by the Auditors, the appellants wrote:  "We are willing to deposit with any  stakeholders of our mutual choice an  amount of Rs. twenty lacs as an earnest   of our bonafides and genuine desire to  purchase the said shares.  The said  amount will be paid to the stakeholders  within three days from the receipt of  your confirmation that you are ready and  willing to accept this interim  arrangement.  The stakeholder shall  hold these monies until such time, but  not later than one month within which  we hope the Company’s Auditors will  submit a just, fair and impartial  Certificate and it will be accepted  by us.   In case a just, fair and impartial  Certificate is not issued by the  Company’s Auditors, within the said  period, then the stakeholder shall return  the said monies to us without any  objection immediately on a written  demand by us".  

       The appellant also protested against the threat held out in  the letter dated 21.2.1985, to sell the shares to third parties.  II.10 In response to this letter a telegram was sent by  respondent No.3 stating "Will communicate action nothing  in your letter deemed as admitted".   

II.11 On 2.3.1985 and 1.4.1985 two suits were filed by the  appellants before the Civil Judge, Pune praying for a  permanent injunction to restrain the respondents Nos. 2,  3 and 4 from  selling the shares contrary to the concluded  contract with the appellants.  The suits were rejected on  5.8.1985 by the Civil Judge on the application of the  respondents Nos. 2, 3 and 4 on the ground that the  subject matter involved in the suit was outside the  pecuniary jurisdiction of the Court. II.12    According to the respondents, the 3417 and 93 shares  were then sold to the respondent No.5 and his group on  9.9.1985.  There is no record when the offer of the  respondent No.5 or his group had been made either to

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respondent Nos. 3 or 4 or to the Executors prior to the  sale nor of any further notice being given in respect of the  sale of the shares to the respondent No.5 and his group  to the appellant.   II.13 On 16.9.1985 a notice was issued by the Board of  Directors of the Company that a meeting would be held  on 21.9.1985.  The appellants’ claim that the notice was  given by a telegram late in the night on 16.9.1985.  On  the next date, the appellants sent a telegram to the  Company protesting against holding the meeting of the  Board of Directors at such  short notice and requesting for  postponement.  This was followed by a letter dated  21.9.1985 written by the appellants. The day before the  meeting was held, on 20.9.1985, the respondent No.5  and his group lodged transfer forms in respect of the 3417  and 93 shares with the company.  The request of the  appellant for adjournment of meeting was not heeded to  and the meeting was held on 21.9.1985 as scheduled.  At  the meeting, despite there being no item in the agenda  relating to the registration of the shares sold, a resolution  was passed to register the transfer of the 3417 equity  shares standing in the name of the four Executors as well  as the 93 shares to the respondent No.5 and his group  which included the respondent Nos. 11 to 16, all private  limited companies.  The respondent No.5 himself was  appointed as an Additional Director of the Company  together with another member of the respondent No.5’s   group.  The respondent No.2 was appointed as a  Chairman upon the retirement of the respondent No.3. II.14  On 1.10.1985 the appellant wrote to the respondent Nos.  2, 3 and 4 stating that they were willing to purchase the  shares at the price fixed by the Company’s Auditors and  would pay the same immediately upon the modalities for  such payment being intimated. No reason was put  forward for this volte face by the appellant  In response to  this letter, two letters dated 2.10.1985 and 3.10.1985  were written by respondent No.2 on behalf of the  Executors and by the respondent Nos. 3 and 4 as holders  of 93 shares intimating the appellant that the shares had  already been sold.  It was however not intimated as to  whom the shares were sold.   II.15 On 13th October, 1985 a Board Meeting was held at which  the appellants were present.  The appellants affirm that  they came to know of the transfers of the shares to the  Pawar group only when the Minutes of the earlier Meeting  held on 21.9.1985 were put up for approval.  Despite their  protest the Minutes were approved. II.16           It was in these circumstances that the application  under Section 155 of the Companies Act, 1956 was filed  by the appellants.  II.17  Before we close this chapter of facts on the transfer of  3417 and 93 shares, it may be noted that the District  Court at Pune recalled its order rejecting the plaints in the  two suits which had been filed by the appellants on a  review application filed by them.  The respondents  challenged the order before the High Court.  The High  Court set aside the order of the District Court and  remanded the matter to the Trial Court for re-deciding the  appellant’s application for review afresh.            III. Submissions         

III.1   According to the appellants once Shanta had exercised  her rights under Article 57-A, there was a binding contract  in respect of the 3417 and 93 shares. With the exercise of

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the right, notice to the other shareholders as required  under Article 58 being a conditional one ceased to  operate. It is submitted that there was no question of the  respondents Nos. 2, 3 and 4 fixing a time frame for the  implementation of the concluded contract unilaterally.          It is the case of the appellants that the contract had never  been repudiated.  The conduct of the appellants spoke to  the contrary.  Furthermore there was no acceptance of  the repudiation by the respondent Nos. 2, 3 and 4. While  denying the alleged repudiation of the contract, the  appellant contended that in any event in accordance with  Article 63, the Directors had to find a willing member or  desirable outsider to purchase the shares within 30 days.   Only after that could the transferor sell to any person  within 30 days.  The sale to the respondent No.5 and his  group was beyond that date. As far as Shanta’s right to  purchase the shares offered, despite the fact that she was  herself one of the Executors/Trustees of the 3417 shares,   it is the appellant’s contention that Section 153 read with  Article 29 showed that the Company was not bound to  recognize any interest in shares other than that of the  registered shareholder.  It is further averred that Dr.  Parulekar did not by his Will, seek to deprive Shanta of  her right to preemption by appointing her  Executor/Trustee.  In any event there was nothing which  deprived the present appellant of her right to purchase the  shares independently, not only as a nominee under  Article 57-A but also as a "willing member" under Article  58.  According to the appellants there was no bar either  under the Bombay Public Trust Act, 1950 or under the  Indian Trusts Act, 1982 allowing Shanta to exercise her  right under Article 57-A.  It is contended that the three  trustees could not by themselves make any offer of sale  of the 3417 shares to the Pawar group. The power of the  Executor was not delegatable under the Will and the  authorization, if any, by Shanta to transfer the shares  stood revoked once she had exercised her option under  Article 57-A.  It was argued that the transfer to the Pawar  group by three of the four joint shareholders of the 3417  shares was in any event contrary to Section 108 of the  Companies Act which mandatorily required all the joint  shareholders to execute the transfer forms.  It is said that  the respondent No.5 and group were not bona fide  purchasers.  This had been so held by the Learned Single  Judge which finding was not challenged before the  Division Bench. III. 2  According to the respondents, as far as Article 57-A is  concerned, it is said that the article could not be  construed to provide for a concluded contract merely  upon the acceptance of the offer because in such event it  would be open to the transferee to file a suit challenging  the price and effectively subverting the transfer of shares  as a result of which the transferor would be deprived of  the immediate use of the funds.  According to the  respondents, the contract under Article 57-A would be  concluded only after payment of the price. It is conceded  that this particular argument had not been raised in the  Courts below but being an argument on the interpretation  of Article 57-A,  it is submitted that it should not be  excluded from consideration. According to the  respondents the appellant’s conduct clearly showed  repudiation of the contract.  The appellants had failed to  perform their obligation by challenging the certificate of  the Auditor.  It was submitted that the respondent Nos. 2,  3 and 4 were entitled to fix a time for the performance of

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the contract not only under  Section 32 of the Sales of  Goods Act but also under Article 57-A.  By not paying the  certified price for the shares, the contract came to an end.  The respondents have said that by the resolution of the  executors dated 7.11.1984, the three executors had been  authorized to transfer the shares to a 3rd party under  Section 108 (1) of the Companies Act.  The transfer could  be made by or on behalf of a shareholder.  In fact the  respondent Nos. 2, 3 and 4 need not have signed the  transfer forms and any one of them could have done so.   The transfer was in keeping with  Article 63. The  respondents then submitted that Shanta was a trustee  and she could not under any principle of law applicable to  trusts either herself or through a nominee purchase any  trust property as this would invariably lead to a conflict of  duty and interest.  In fact by challenging the price fixed in  the shares by the Auditor and contending that it was too  high, the conflict between the interest of the beneficiary  and the interest of the trustee was manifest.                                                     IV. Conclusion IV.1    In our opinion the entire transaction of sale is riddled with  illegalities.  IV.1.1   The notices issued in respect of the 93 and 3417   shares were not in keeping with the Articles as far as  Articles 58 to 63 were concerned.  As we have already  observed, notices to willing members or to selected  persons under Article 58 must succeed and not precede  the actual operation of Article 57-A.  The notices issued  by the respondent Nos. 2, 3 and 4 also did not constitute  the Directors as the transferor’s agents for the purposes  of selling the shares in terms of Article 59.  There was, in  the circumstances, no question of the transferors selling  their shares to any 3rd party under Article 63 unless  proper notice had been issued to the  2nd  and 3rd  category of persons if any.  There was also no question of  the transferor invoking Article 61 bypassing the right of a  willing member  or selectee, if any, to negotiate a fair  price. IV.1.2   The Division Bench held that the notices dated 29.11.84  and 10.11.84 issued by the respondent Nos. 2,3 and 4 in  respect of the 3417 shares, and  the 93 shares  respectively,  were valid notices under Articles 57-A and  58 to the other shareholders in the company.  But the  Division Bench erred in holding that none of the other   shareholders showed   any interest in purchasing the  shares. In fact the conclusion of the Division Bench is  contradictory.  If the notices could be combined notices  under Article 57-A and Article 58,  then the appellants’  acceptance of the offer as made in the notices should  also be construed  as  a  combined  assent under both  the Articles.  The Division  Bench  erred  in holding  that  there was no material before the Court to indicate that the  second appellant  had at  any  time   informed the  company that she proposed to exercise her rights as a  shareholder to purchase the shares.  The                                     Division Bench should have considered whether there  was any offer to the second appellant as a shareholder to  purchase the shares.  If there was not an offer to the  shareholders, obviously, there was no question of the  second appellant accepting the offer.  But whatever offer  was made whether under Article 57-A or under Article 58  by the two notices,  that offer was accepted by the  appellant. And upon such acceptance, there was a  concluded contract between the respondent Nos. 2,3 and

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4 on the one hand and the second appellant on the other.  IV.1.3    The learned Single Judge correctly held that:- "The offers being both under Article     57-A and Articles 58 to 64, the  acceptance by the second petitioner  must be deemed to be not only as a  nominee, but also as a member of the  first respondent-company entitled to  take up the shares in her own right.   There is a concluded contract to sell the  shares to the second petitioner.  The  second petitioner was and is not an  executrix or a trustee.  This contract  cannot, therefore, be said to be void or  unenforceable".  

IV.2.1   Article 57-A does not by itself indicate when the  contract is concluded between the offeror and offeree.  It  was concurrently held by the Single Judge and the  Division Bench  that with the acceptance of the offers of  the respondent Nos. 2, 3 and 4 by the appellants,  the  contract to purchase the shares under STA was  concluded.   Having regard to Section 9(1) of the Sale of  Goods Act, 1930 we see no reason to differ from this  conclusion.  Section 10(1) of the Sale of Goods Act also  speaks of avoidance of an agreement if the third party  valuer either cannot or does not fix the price of the goods  to be sold.  Apart from the fact that the third party valuer  in this case did in fact make the valuation, the section  proceeds on the basis that the agreement is already  concluded otherwise there would be no question of  avoidance.  Section 32 of the Sale of Goods Act provides:  "32. Payment and delivery are  concurrent conditions \026  Unless  otherwise agreed, delivery of the  goods and payment of the price are  concurrent conditions, that is to say,  the seller shall be ready and willing to  give possession of the goods to the  buyer in exchange for the price, and  the buyer shall be ready and willing  to pay the price in exchange for  possession of the goods".  

               The section has no relevance to the question  whether there was a contract at all between the parties.  It  pertains to a condition which is to be implied, unless there  is a provision to the contrary, in a contract.  Indeed the  section assumes the existence of a contract in respect of  which such a term may or may not be read in.  IV.2.2.   The respondents’ argument that a contract could not  be said to be concluded until the price was in  fact  paid  because it would then be open to  an  offeree like the  appellants to stall the transfer of shares   to a third  party  buyer and hold the offeror to ransom, is ingenious but  not  an argument which is legally acceptable.  The legal  consequence of a concluded contract will remain  irrespective of how a particular party in a given situation  might abuse the rights flowing from it.  It is platitudinous  that the possibility of abuse of a right cannot determine  whether the right exists as a matter of law.  Such  arguments are normally met by the aphorism "hard cases  make bad law".    

IV.2.3          In Sudbrook Trading Estate Ltd. v. Eggleton &

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Ors. (1982) 3 All ER 1, 64   a clause in the lease gave  the lessees an option to purchase the reversion in fee  simple at a price to be agreed by two valuers, one to be  nominated by the lessors and the other by the lessees  and, in default of agreement, by an umpire to be   appointed by the valuers, a minimum purchase price  being specified in the clause.  When the lessees sought  to exercise the option in December 1979 the lessors  claimed that the option clauses were void for uncertainty  and refused to appoint a valuer. The lessors also  contended that the options were unenforceable as there  was no contract of sale since the purchase price had not  been fixed.  It was held that since the contract between  the parties provided that the price was to be determined  by valuers, it necessarily  followed that the contract was a  contract for sale at a fair and reasonable price assessed  by applying objective standards, and " on the exercise of  the option clauses a complete contract for the sale and  purchase of the freehold reversion was constituted".   IV.2.4       There was thus a concluded contract which was  breached by the respondent Nos. 2, 3 and 4 when they  purported to sell their shares to the Pawar group.  IV.2.5   If the notices issued by the respondent Nos. 2,3, and 4  were not under Article 58, then it was not open to the  respondent Nos. 2,3 and 4 to have sold the shares to the  Pawar Group without issuing such notices.  Hence  irrespective of whether there was a concluded contract  between the appellants and the respondent Nos. 2,3 and  4 in respect of the 3417  and 93 shares, the shares could  not have been sold to the Pawar Group.  Apart from the  lack of notice under Article 58, as we have already  noticed, the right of a transferor in terms of the Articles of  the company to sell the shares to a person of the  transferor’s choice is required to be exercised within the  period specified in the Articles.  This is clear from Article  63.  According to the respondents the appellants had  repudiated the contract by challenging the certification of  the auditor in February, 1985.  If that were so  then the  Directors were required to give the notice to the transferor  or if no such notices were given, the transferors could sell  within the period of 30 days thereafter.  Those 30 days  had long since expired much before the date on which the  sale of the shares is said to have taken place between the  respondent Nos. 2,3 and 4 and the Pawar Group. IV.3       We are of the view that there was also no repudiation  of the contract by the appellants as contended by the  respondents on account of the appellants alleged failure  to pay the price within the time fixed by the respondent  Nos. 2, 3 and 4 by their notices dated 21.2.1985. IV.3.1  Section 11 of the Sale of Goods Act, 1930 expressly  says: "11. Stipulation as to time. -  Unless a  different intention appears from the  terms of the contract, stipulations as to  time of payment are not deemed to be  of the essence of a contract of sale.   Whether any other stipulation as to time  is of the essence of the contract or not  depends on the terms of the contract".  

IV.3.2.  As there was no time fixed either under   Article 57-A or in the offer letters, the question of time  being of the essence did not at all arise. As was held in  S.C.Gomathinayagam Pillai v. Palaniswami Nadar 1967  AIR 1967 SC 868 "the stipulation must show that the

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intention was to make the rights of the parties depend on  the observation of the time limits prescribed in a fashion  which is unmistakable."  If there is no stipulation as to  time, it is not open to a party to unilaterally stipulate a  time and then cancel the contract because of an alleged  failure of the other party to act within the time stipulated.    [See: National Co-operative Sugar Mills Ltd., Alanganallur  v. M/s. Albert & Co.  AIR 1981 MAD 172 (D.B.) IV.3.3. Of course if  time is fixed by the contract but it is not  originally of the essence, a party could by notice served  upon the other call upon him to complete the transaction  within the time fixed and intimate that in default of  compliance with the requisition the contract will be treated  as cancelled (ibid p.872).  But where no time is fixed for  completion, it is not open to either the vendor or  purchaser to serve notice  limiting a time at the expiration  of which he will treat the contract as at an end.

IV.3.4    In the circumstances, the contract for sale of the  shares to the appellants  could not be avoided by reason  of any alleged failure on the part of the appellants to pay  the price fixed by the Auditor. IV- 4           Furthermore for an act to constitute a repudiation of  a contract it must be "\005.such an act as indicated an  intention to refuse to perform the  contract and to set the  other party free from performing his part.\005 an act by  which the party renounced all intention to perform his part  of the contract, and thereby set free the other party\005\005 or  an intimation that it was no use for you to go on, because  I tell you that I do not mean to keep to the contract" .  [See: Freeth v. Burr (Lord Coleridge, CJ (1874- 80) All  ER.753].  The question to be asked is "\005is the act to be  relied on as rescission, an act which on the part of the  person doing it amounts to an abandonment, or refusal by  him to perform his part of the contract?" (ibid at pg.754)

IV.4.I      Repudiation of a contract is " a serious matter, not to  be lightly found or inferred".  From the facts as narrated  earlier, it is clear that there was no such repudiation on  the part of the appellants.  The letters exchanged, the  suits filed do not show that the appellants were  renouncing the contract nor that they were absolutely  refusing to perform the contract.  The question is not  whether the valuation by the company’s auditors was  correct.  The Division Bench held that it could not be  said to be incorrect.  But the question which should have  been asked was, was the challenge permissible in law  and if so was it made bonafide?  The Division Bench did  not answer this question in the negative.   There was in  fact no refusal to perform the contract, but a questioning  of the mode of performance.  It may be that they were  mistaken in their challenge to the Auditors’ certificate,  but that is a long way from saying that they were  unwilling to pay. As was said in Sweet & Maxwell Ltd.  vs. Universal News Services Ltd. 1964 QBD 699 (CA)  179  "their view might have been a wrong one, but that  does not justify it being treated as a repudiation of the  contract" . "\005.If A and B, parties to a contract, form  different views as to the construction and effect of their  contract, and A demands performance by B of some act  which B denies he is obliged to perform upon the true  interpretation of the contract, then, if B says "I am ready  and willing to "perform the contract according to its true  tenor, but I contend that what you, A, require of me is  not obligatory upon me "according to the true

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construction of the contract," and if in so saying he is  acting in good faith, he does not manifest the intention  to refuse to perform the contract.  On the contrary, he  affirms his readiness to perform the contract, but merely  puts in issue the true effect of the contract."(ibid pg.737)    IV.4.2  There would have been no point in the appellant  challenging the valuation of the shares by the auditors if  they were not interested in completing the transaction.   There would have been also no point in their offering to  deposit Rs.20 lakhs as proof of their continued interest in  purchasing the shares.  The filing of the suit in Pune is not  conduct in keeping with an intention of not performing the  contract.  If the offers were in terms of Article 58, as is  now contended by the respondents, then, as we have  said, the acceptance of that offer must also be  understood to be under Article 58.  In that case it was for  the parties to negotiate the price for the shares and not  for the auditors to determine. The challenge to the  certification may be taken as a method of negotiating a  fair value under Article 58. Be that as it may, the  appellants in fact accepted the price as certified by the  auditors on 1st October, 1985.  IV.5   The respondents have relied on the resolution at the  Executor’s meeting on 27.11.1984 at which it was  determined that the sale of the shares would be made.  The resolution of the executors was that one of the  executors could implement the sale and execute the  transfer forms but did not name anyone.   Before the sale  of the 3417 shares was made to the Pawars by the  Executors, it was abundantly clear from the conduct of  Shanta (i) that she had revoked consent she may have  given qua Executor and Trustee to the sale of the 3417  shares to third parties and (ii) that the appellants were  desirous of purchasing the shares themselves in  whatever capacity. IV.5.1   In any event the Executors’ resolution dated 27.11.84  authorizing one of them to effect the transfer of the shares  could not override the provisions of Section 108 of the  Companies Act which prohibits a company from registering  or transferring of shares in the company "unless a proper  instrument of transfer duly stamped and executed by and  on behalf of the transferor and by and on behalf of the  transferee and specifying the name, address and  occupation if any of the transferee, has been delivered to  the company.   IV. 5.2     For the purposes of registration of the transfer under  Section 108 the instrument of transfer must be executed by  the transferor or it must be executed on behalf of the  transferor.  But there must be execution. The learned single  Judge has found as a fact that the instrument of transfer  had been signed by only three of the joint shareholders.   Shanta had not signed. There were three signatures  on  the transfer deed.  Each transferor had therefore, executed  qua shareholders in respect of their own interest.  There  was no 4th signature on behalf of the 4th joint shareholder.   This was also the finding of the Division Bench.  But the  Division Bench held that it was a mere irregularity which did  not vitiate the registration. It was also held that the  irregularity could be cured by one of the Executors signing  on his behalf. IV.5.3    But compliance with the provisions of Section 108 was  and is mandatory.  As held in Mannalal Khetan & Ors. vs.  Kedar Nath  Khetan & Ors.  (1977) 2 SCC 424:- "The words "shall not register" are

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mandatory in character..  The  mandatory character is strengthened by  the negative form of the language.  The  prohibition against transfer without  complying with the provisions of the Act  is emphasized by the negative  language. Negative language is worded  to emphasise the insistence of  compliance with the provisions of the  Act\005..The provisions contained in  section 108 of the Act are for the  reasons indicated earlier mandatory.  The High Court erred in holding that the  provisions are directory".           (See also: Halsbury’s Law of England 4th edn.Vol.7 para  1632, Palmers Company Law 24th Edn. Pg.638, Jarnail  Singh Vs. Bakshi Singh (1960) 30 C.C. 192., L.  Janakirama Iyer Vs. P.M. Nilkanta Iyer and Others  (1962)  Supp.1 SCR 206.) IV.5.4.  The power to act by majority qua executors and  authorizing someone to act as a shareholder on  another’s behalf are distinct.  There is no question of  transferring shares by signature of a majority. Whatever  the agreement between the executors was inter-se, the  agreement could not over-ride the provisions of the  Companies Act and under Section 108 the Company is  bound to recognize only those transfers for the purpose  of registration which are executed in terms of that  section.  It is true that they were in fact executors, and  that, with regard to the beneficiaries mentioned in the  will, they would be trustees of the stock, but the  company does not take notice of any trust, and must act  in accordance with the Act of Parliament, under which it  is constituted, with regard to placing persons upon the  register." [See: Barton v. London and North Western  Railway Co. 1889 (24) QBD 77 (CA)].

IV.5.5         Even if the four executors had wanted registration  only in    the capacity of executors and the company also  acquiesced in it, the four executors would continue to be  ordinary share holders and the limitation would be illegal  and of no effect.  Being on the register as joint share  holders, there is no escape from the proposition that a  transfer by one of them only would be an invalid transfer.   [See: Barton v. London and Northern Western Railway Co.  (1889 24 QBD 77)]  IV.5.6    As far as the company is concerned, the requirement  of execution of the transfer form by each of the joint share  holders could not be met by execution of the transfer form  by one of the shareholders even  though between the  share holders inter-se there was an agreement that one  share holder could sign on behalf of all the other share  holders unless the executant signs for himself and for on  behalf of the other share holders/transferors. It would be of  no consequence as far as Section 108 is concerned to  exclude the reluctant share holder on the ground that the  share holder had refused to execute the form.  The remedy  of the other joint share holders to compel the reluctant   share holder to sign the transfer form would lie elsewhere  and not in a breach of the requirement of Section 108 of  the Companies Act. IV.5.7    Here the instruments of transfer had admittedly  been improperly executed. Both the Courts have so held.  It was therefore not lawful for the company to register the

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transfer.  The principle that a Court will not interfere in the  affairs of the company if the defect complained of can be  cured would apply if the defect is a technicality and is  curable.   The non-compliance of Section 108 is not a  technicality.    IV.6  Apart from the violation of Section 108 as far as the  registration of shares is concerned, the meeting of the  Board of Directors at which the company recorded the  transfer was invalidly held.   IV.6.1. According to the Article 93 of the Articles of the  Association of the Company:- "Every notice of a meeting of the  Company shall specify a place, date and  hour of the meeting, and shall contain a  statement of the business to be  transacted thereat.  No General  Meeting, Annual or Extraordinary, shall  be competent to enter upon, discuss or  transact any business which has not  been specifically mentioned in the notice  or notices upon which it was convened.   In every notice there shall appear with  reasonable prominence a statement that  a member entitled to attend and vote is  entitled to appoint a proxy or, where one  or more proxies are allowed, to attend  and vote instead of himself and that the  proxy need not be a member of the  Company".  IV.6.2  In the  notice for the meeting held on 21st September,  1985, there was no mention whatsoever, let alone a  statement, relating to the transfer of the 3417 and 93  shares to the Pawars.  At the same meeting, the  respondents Nos.5 and 10, were appointed as  Additional  Directors although their shares were not yet entered in  the Company’s register of members.   IV.7    As we have found several legal infirmities in the sale of  the 3417 and 93 shares to the Pawars, it is not necessary  to consider whether the respondent No.5 and his group  were purchasers of the shares.    IV.8.    The Division Bench erred in holding that the violation of  Section 108 was ratified at the Board Meeting held on 13th  October, 1985. Ratification is possible in respect of an act  which is incompetent, by a person who would have been  competent to do such act.  The violation of Section 108  could not be ratified by the Board of Directors as the act  was one which the Board was incompetent to allow. The  Board of Directors never had the legal capacity to direct  the registration of shares invalidly transferred. IV.9 It is the respondent’s final submission that neither of the  appellants could have purchased the shares under Article  57A because Shanta was one of the named executors  and trustees of inter alia  shares of Dr. Paruleker under  his will.   IV.9.1 A trust is created under Section 6 of the Indian Trust Act,  1882 ".. when the author of the trust indicates with  reasonable certainty by any words or acts (a) an intention  on his party to create thereby a trust, (b) the purpose of  the trust, (c) the beneficiary, and (d) the trust-property,  and (unless the trust is declared by will or the author of  the trust is himself to be the trustee) transfers the trust- property to the trustee." According to the appellant no  valid trust was created as the beneficiaries had not been  named. We do not propose to go into this question in  these proceedings.

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IV.9.2 Under Sections 51 and 52 of the 1882 Act a trustee may  not use or deal with trust property for his own profit or any  other purpose in connection with the trust.  And no trustee  whose duty it is to sell trust property may directly or  indirectly buy the same or any interest therein, on his own  account or through his agent or third person. IV.9.3 Article 57-A does not envisage Shanta purchasing the  shares through her nominee. One of hers rights under  Article 57-A was no doubt to purchase the shares herself.   But she could also nominate any other person to  purchase the shares.  The transferor then would have to  make an offer to such other person who would then,  independently of Shanta, be entitled to a transfer of the  shares.  In the latter case there is no question of any  conflict of interest between Shanta in her capacity as  trustee under the will of Dr. Paruleker and as a nominator  under Article 57-A.  Here, Shanta was not purchasing the  shares.  It is true that she could have done so in exercise  of her preemptive right under Article 57-A, but she did not  and only nominated her daughter as the person to whom  shares should be sold. IV.9.4. This was also how the parties understood the situation  as the correspondence exchanged between the parties  evidences.  As we have noted the resolution relied upon   by the respondents authorizing one of them to sell the  trust shares, was taken of a meeting held on                 27th November, 1984 which was attended only by two of  the four Executors.  Shanta could not attend because she  was ill.  Her prayer for adjournment was rejected by the  two executors on the ground that her interest would not  be jeopardized since she would be given notice under  Article 57-A. It was then resolved that notice should be  given under Article 57-A to Shanta.  If she exercised her  right under that Article, the executor was to sell the  shares to her at Rs.2,250 per share. If she did not agree  to purchase the shares at the price of Rs. 2,250 then the  price should be fixed in accordance with Article 61.  The  resolution further records that only if Shanta did not buy   the shares at such fixed price then the executors "do sell  the shares to any other person or persons at or for the  price of Rs. 2,250 per share". Since the meeting was not  adjourned because Article 57-A protected Shanta, it  follows that if Shanta’s rights were not to be  protected  under Article 57-A, then the meeting should have been  postponed. IV.9.5. Indeed the matter was referred to the company’s  auditors in purported compliance with Article 57-A.  Certification of the price was made by the auditors also  under that Article.  The notice of the respondent Nos. 2,3  and 4 calling upon the appellants to pay the certified price  was also under Article 57-A. The present stand of the  respondent Nos. 2,3 and 4 with regard to the  disqualification of Shanta as a purchaser of the shares  under Article 57-A is thus wholly inconsistent with their  conduct ante litem. IV.9.6. The respondents now say that Article 57-A has no  application. If it  does not then Article 58 would. In that  event, the certification by the auditors was entirely  premature as the willing shareholder (the appellant No.2  in this case) would be at liberty to negotiate the price with  the respondent Nos. 2,3 and 4 and it would only be in  default of any agreement being reached that a "fair value"   would have to be fixed by the auditors. In the  circumstances the principle that the trustee not directly or  indirectly buying the trust property as contained in Section

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57-A of the 1882 Act would also  not have any application  because irrespective of her right as a nominee of Shanta,  the present appellant could undoubtedly have purchased  the shares being in the second category in the hierarchy  of purchasers provided under Articles 57-A to 64.   

V.      This bring us to the second branch of the appellant’s  challenge viz. the issuance of 17,666 equity shares.   V.1     The decision to raise the issued capital of the company  and to allot the shares at par was taken at an Annual  General Meeting held on 16.11.1985.  It was resolved at  that meeting to immediately issue increased share capital  of Rs.17,66,600 of 17,666 equity shares of Rs.100/- each  to any person whether a member of the company or not.    It was further resolved that the decision would be ratified  by convening a general body meeting preferably in the  month of January/February, 1986 after giving proper  notice and explanatory statement.   

          V.2            The notice of the Annual General Meeting was given on  13.10.1985.  Although details of ordinary business and  special business were given, there was no indication  whatsoever that there would be any decision taken with  regard to the increase in the issued capital and allotment  of shares in the notice.  According to the respondents,  after the notice of the Annual General Meeting had been  issued on 13.10.85, on 5.11.85, the Ministry of Finance  gave notice to the company extending the validity of a  sanction for foreign exchange loan to 30.11.85 and  stating that no further extension would be granted. On  9.11.1985 a letter dated 7.11.1985 was sent to the  company by Modular Finance and Consultancy Private  Limited (the respondent No.12 before us and a member  of Pawar Group) proposing that the share capital of the  company be increased and requesting the issue to be  decided at an ensuing AGM. On 11.11.1985 a letter was  also received by the company from the United Western  Bank advising the company in view of its expansion  programme, to increase its share capital. V.3       According to the respondents, the  increase was by  reason of the urgent need of the Company to purchase  machinery. We are unable to agree. The purchase of  the machinery was in contemplation of the company  from much prior to the date of the notice.  The alleged  letter from the Ministry of Finance was not produced  before the High Court and we are not prepared to allow  the same to be brought on record at this stage.

V.3.1   The Division Bench affirmed the finding of the  learned Single Judge that the need to increase the issued  capital from Rs.7,33,400 to Rs.25 lakhs was not  established.  Indeed the Division Bench went on to find  that the action of issuing the increased share capital  clearly indicated that the respondent No. 5 and his group  who were in control of the company, had decided to make  a fresh issue of share capital to themselves at par so as  to strengthen their control over the company.   

V.4.     We have already noticed that Article 93 specifically  provides inter alia that every notice of a meeting of the  Company shall contain a statement of the business to be  transacted thereat and no General Meeting, Annual or  Extraordinary, shall be competent to enter upon, discuss  or transact any business which has not been specifically

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mentioned in the notice or notices upon which it was  convened.   

V.4.1       Additionally, in terms of Article 94, the relevant extract  whereof is quoted hereunder: "94 (a) In the case of an Annual General  Meeting all business to be transacted at the  meeting shall be deemed special except\005..

b)  xxx        xxx              xxx             xxx

c) Where any item or business to be  transacted at the meeting is deemed to be  special as aforesaid, there shall be annexed  to the notice of the meeting a statement  setting out all material facts concerning ach  special item of business, including in  particular the nature and extent of the  interest, if any, therein, or every Director,  Secretaries and Treasurers, if any, and the  manager, if any.

V.4.2   The increase in issuance of share capital does  not fall within  the exceptions carved out in Article 94  as not being special business.  Article 94 reflects the  substance of Section 173 of the Companies Act, 1956  and it was therefore, incumbent for notice to be given  not only indicating the issuance of the share capital as  a special item of business but also giving a statement  setting out all material facts relating thereto.  The  violation of this Article by the company is patent and  the Annual General Meeting is to the extent of the  violation vitiated thereby.  

V.4.3   In Pacific Coast Coal Mines Ltd. vs. Arbuthnot &  Ors.  (1917) AC 607 PC, the Privy Council was of the  opinion;  " that to render the notice a compliance  with the Act under which it was given it  ought to have told the shareholders,  including those who gave proxies, more  than it did.  It ought to have put them in  position in which each of them could  have judged for himself whether he  would consent, not only to buying out  the shares of directors, but to releasing  possible claims against them.  Now this  is just what it did not do and therefore,  quite apart from the fact that the  meeting was held in half an hour from  the time the Act passed and before the  shareholders could have had a proper  opportunity of learning the particulars of  what the Legislature had authorized,  their Lordships are of opinion that the   notice was bad, and that what was done  was consequently ultra vires".  (pg.282)

V.4.4.  Again in Baillie vs. Oriental Telephone and Electric  Company Ltd., (1915)1 Ch.D.503 (CA) it was said by  the Court of Appeal;    "\005I feel no difficulty in saying that  special resolutions obtained by means  of a notice which did not substantially

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put the shareholders in the position to  know what they were voting about  cannot be supported, and  in so far as  these special resolutions were passed  on the faith and footing of such a notice  the defendants cannot act upon them."

                (See also  LIC vs. Escorts (1986) 1 SCC 246 at pg.  343] .  V.5.1      The respondents have relied on Article 94 (e) which  says that " the company shall also carry out the  requirements of Section 188 of the Act" to contend that  due notice was given under Article 94 because the  letter of Modular Finance had been forwarded to the  shareholders.  V.5.2.  Section 188 provides that a meeting could be  requisitioned by the prescribed number of members,  after notice of any resolution which may properly be  moved and is intended to be moved at a meeting  together with a statement with respect to the matter  referred to in any proposed resolution.         Assuming that  Modular Finance’s letter was in fact circulated, this  could hardly be termed to be compliance with the  requirement of Section 188 of the Act which deals with  meetings called at the instance of requisitionist and  circulation of a statement by the requisitionist of a  proposed resolution and a statement in support  thereof.  Moreover, such a notice in terms of the  proviso of Sub Section 3 of Section 188 is required to  be given "in the same manner and, so far as  practicable, at the same time as notice of the meeting,  and where it is not practicable for it to be served or  given at that time, it shall be served or given as soon  as practicable thereafter".  Further it is clear from  Article 94(e) that compliance with Section 188 was in  addition to the requirements with the other parts of  Article 94 which admittedly have not been complied  with.

V.5.3   The Division Bench found that there was no  explanatory statement annexed to the notice and held  that the respondents certainly committed an irregularity in  not mentioning the proposal to increase and allot the  share capital on the agenda of the annual general  meeting.  However, it went on to hold that the irregularity  did not vitiate the decision because it could be cured  since the Pawar group already had majority  control and  also because the decision had been taken at the annual  general meeting that an extraordinary general meeting  would be called after proper notice to ratify the fresh issue  of 17666 shares at Pawars.

V.5.4    We are unable to accept the reasoning of the  Division Bench. The two grounds which persuaded  them not to interfere with the fresh issue are  questionable .  For one, we have already come to the  conclusion that the sale of 3417 and 93 share to the  Pawar Group was bad.  The Pawar group did not  legally have the majority to push through the decision  to increase the share capital or to allot the further  shares to themselves. For another,  the majority  cannot be permitted to ride rough shod over the  provisions of the Articles and the Companies Act  merely because they could if they so desired follow the

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proper procedure. The haste with which the Pawar  Group sought to ensure their position in the company  is evident from the fact that a Board Meeting was held  immediately after the Annual General Meeting on  16.11.1985 at which the Board resolved to issue the  additional 17,666 shares at par to the Pawar Group.   There was no notice given of the Board meeting at all.   

V.6.1   The Respondent Company was bound to offer the  further shares on a fresh issue of capital to the existing  equity share holders in proportion to the capital paid up  on the shares at that date.  The Division Bench noted that  this was provided in Section 81 of the Companies Act.  However, because Section 81(3) does not apply to a  private limited company (which the company was at that  stage) and since  according to the Division Bench, the  Articles of Association did not require such further issue  of shares to be allotted in any particular manner to the  existing share holders, the allocation of the further issue  to the respondent No. 5 and his group was not illegal or  contrary to law.   

V.6.2  As a matter of fact the finding as to the absence of such  a requirement in the Articles of Association of the  Company was erroneous. Increase of share capital is  dealt with in Articles 14 and 15 .  Article 15 says:  " Subject to the directions that may be given  by the meeting that sanctions the increase of  capital (i) such new shares shall be offered to  the persons who are at the date of the offer  members of the Company in proportion as  nearly as circumstances admit to the capital  paid up on their shares at that date, (ii) the  offer aforesaid shall be made by notice  specifying the number of shares to which the  member is entitled and limiting a time not less  than fifteen days from the date of the offer,  within which the offer, if not accepted, will be  deemed to have been declined, (iii) after  expiry of the time specified in the notice  aforesaid or on the earlier intimation from the  member to whom such notice is given that he  declines to accept the shares offered, the  Directors may dispose of the same in such  manner as they think most beneficial to the  Company." (emphasis added)

V.6.3           No offer was made by notice in writing in terms of  this Article. The fresh shares were, as we have seen,  allotted on the  day they were issued before the expiry of  15 days without waiting for the expiry of the period.  The  allocation of shares to the Pawars’ group contrary to this  Article was invalid.

V.6.4           No court could possibly object to a decision on  merits provided it is taken in accordance with law.  The  decision to issue all the additional shares to the Pawar  Group at par may not by itself have warranted  interference were it not  for the manner in which the  entire exercise was undertaken. V.6.5 During the course of the hearing both before the  Division Bench and before this Court, the respondents  offered to make an allotment of the issued capital to  the appellants to participate prorata in the additional  issuance.  The offer did no more than what the

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company’s articles required to have been undertaken.  VI      Having effectively held in favour of the appellants, the  question finally to be determined is what reliefs can be  granted to them.                 Reliefs VI.1   The respondents contended that the relief of  cancellation of 17,666 shares cannot be granted in a  petition under Section 155 petition as any reduction of  capital must be made strictly in accordance with  Sections 100 to 104 or Section 402 of the Companies  Act.   VI.2.   The issue need not detain us as there was no such  prayer made by the appellants.  They have asked only  for rectification of the share register by deletion of the  names of the Pawar Grpoup as shareholders in the  company.  The learned Single Judge merely directed  the Board of Directors to dispose of the fresh shares,  one can only assume, in accordance with the Articles  of the Company and the Act.

VI.3.   Having effectively held on all issues in favour of the  appellant the question remains as to whether we should,   in exercise of our discretion under Section 155, grant the  appellant the relief of rectification of the shares as  claimed.    Although the logical conclusion of our findings  would be to set aside the transfers and restore the status  quo ante, the question is should the share register of the  company be directed  to be rectified now in respect of  shares, the impugned transfer of which took place more  than 20 years ago?  The respondents have submitted in  the course of the hearing that this Court should not in any  event disturb the status quo but should mould the relief by  awarding compensation, if necessary as prayed for by the  appellant.  They have referred to the decision in Needle  Industries (India) Ltd. V. Needle Industries (Newey)  India Holding Ltd. 1981 (3) SCC 333 in support of this  submission. We agree.   There has been a sea change in  the factual scenario. Shantha has died.  The company  has become a public limited company.  The respondents  have been at the helm of the company  more than, two  decades during the legal struggle.  Many decisions must  of necessity have been taken and implemented.  The  situation cannot now be unscrambled. It is a course of  action which would make the company disfunctional  harming the interests of the whole body of share holders,  affect  company’s employees, its creditors and customers.   It is not as if we are  able to grant any relief directly to the  appellant except to the extent of setting  aside the  transfer.  The appellant will still have to pursue her  remedies for effective relief in the two pending suits in the  District Court of Pune in which the appellant has prayed  for specific performance of the contracts for sale of the  shares.  The outcome of the suits is uncertain. What is  certain is that whatever the outcome of the litigation it will  be another long round of litigation.  Yet another factor to  be borne in mind is that the appellant had her own role to  play in contributing to the situation which she had to face  eventually. Admittedly, Shanta and the appellant  ultimately accepted the Chartered Accountant’s report.   As we have noted, no reason whatsoever was given for  the sudden change of attitude.  If they could agree  subsequently to pay the price they could have done so  earlier, paid the price and then challenged the value.   Further, the Single Judge also gave the appellant and

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Shanta an opportunity of paying the share price into the  Court within a period of six weeks.  Had the appellant and  Shanta done so, they might have been in a stronger  position vis-‘-vis- the Pawars in the appeal Court.  VI.4  In these circumstances and weighing in the balance the  comparative advantages and disadvantages  of granting  the appellant the relief of rectification, we are of the view  that it would not be appropriate at this stage to exercise  our discretion to grant the relief of rectification.  However,  the fact remains that the appellant has been wronged and  she is entitled to be compensated.  Section 155 of the  Companies Act, allows the  giving of damages in addition  to or in lieu of rectification. In the pending suits, the  appellant has put forward alternative prayers for payment  of compensation of Rs. 3 crores on account of the 3417  shares and Rs. 1 crore for the transfer of the 93 shares in  the event specific performance of the contracts was not  grantable. It was pointed out by some of the respondents’  counsel, without prejudice to their contentions on merits,  that the figure specified in the plaint, though on the higher  side, could form a rough and ready basis to quantify the  compensation.  Having due regard to these submissions  and in order to give a quietus to the litigation we are of the  view that the ends of justice would be met by directing  that the appellant should be compensated with an amount  of Rs.3 crores to be paid by the company to the appellant  in full and final settlement of the appellant’s claims in  respect of the 3417 and 93 shares.  Additionally, the  company will also allot shares to the appellant out of the  17,666 shares on par proportionate with the appellant’s  present share holding.  We are told that the appellant is at  present employed by the company and is also a Director  of the company.  The appellant shall continue in this  capacity for the appellant’s life time.   VI.5.  The appeals are accordingly disposed of without any  order as to costs.