Kothari Industrial Corporation Ltd. vs Lazor Detergents Private Ltd. and others

Srinivasan, J.—Facts : Kothari Industrial Corporation Limited is the appellant in all these appeals. It will be referred as ""the appellant"" in this

judgment. The second respondent in all the appeals is Kothari Orient Finance Limited. The first respondent in these appeals are different

companies, who are the only contesting respondents. There are 11 such companies. In this judgment, they will be referred to as ""the respondent

companies"".

The respondent companies lodged 4,77,560 shares of the appellant for registration of the transfer of these shares in their names, on June 29,

1991, June 11, 1992, and September 21, 1992. The transfers were approved for registration by the board of directors after the one-man

committee appointed by it, viz., Sri B. P. Saxena, approved of the same. The transfers were accordingly registered in the names of the respondent

companies. Pursuant thereto, the respondent companies have been receiving dividends. On October 15, 1992, the appellant offered a rights issue

of partly convertible debentures (PCDs) to the shareholders in the ratio of one PCD of the face value of Rs. 400 each for every 17 shares held on

the expiry of six months from the date of allotment of Rs. 250 to be adjusted towards adjustment of ten equity shares of Rs. 10 each at a premium

of Rs. 15 per share. The respondent companies applied not only for the rights but also for additional PCDs before the closure of the issue on

December 15, 1992. The appellant claims to have scrutinised the share transfers in favour of the respondent companies and found that the

adhesive stamps on most of the transfer deeds had not been cancelled and on the remainder, the stamps had been partly or fully cancelled by the

staff of the second respondent in these appeals, who is the registrar of the appellant-company. The details thereof are as follows :

List A : 2,721 share transfer instruments, where the stamps had not been cancelled, and remained uncancelled throughout, pertaining to 3,00,393

shares.

List B : 2,955 share transfer instruments, where the stamps had been fully cancelled by the staff of the second respondent pertaining to 1,73,604

shares.

List C : 53 share transfer instruments where the stamps had been partly cancelled by the staff of the second respondent pertaining to 3,563 shares.

The appellant filed 11 petitions before the Company Law Board on January 25, 1993, u/s 111 of the Companies Act, 1956, seeking the

deletion of the names of respondent companies from the register of members for reasons set out in the petitions. The case of the appellant in short

before the Board was that the share transfer instruments were not duly stamped as per the provisions of the Indian Stamp Act, which require the

cancellation of stamps prior to or at the time of the execution of the documents with the result, the registration of transfers was void ab initio and

illegal. The cancellation of some of the instruments partially or fully by the staff of the second respondent would not validate the deeds. As the

respondent companies were not legally members of the appellant-company and as their names had been entered in the register without sufficient

cause, the register shall be rectified and their names deleted. It was the further case of the appellant that the respondent companies were not

entitled to the issue of any further rights. A prayer was also made for refund of the dividends paid to the respondent companies on their shares so

that the dividends could be paid to the transferors of the shares.

The appellant-company prayed for interim order directing the company not to do any act or deed in pursuance of the letter of offer dated

October 15, 1992, in regard to the respondent companies and to restrain the company from allotting any PCDs, shares - including bonus and

rights - to the respondent companies in relation to their alleged entitlement of shares in respect of the shares covered by the petitions. The

Company Law Board passed an interim order on February 5, 1993, keeping allotment of rights and additional PCDs to the respondent companies

in abeyance until the disposal of the main petitions. It gave liberty to the respondent companies to inspect the original instruments of transfer. After

such inspection, the respondent companies filed a reply. Their case was that the petitions for rectification were not maintainable in law and barred

by limitation. It was also their contention that the board of directors had a discretion to register a transfer u/s 22A of the Securities Contracts

(Regulation) Act, 1956, which was introduced in 1985 and having exercised such discretion and registered the transfers, it was not open to the

appellant to seek rectification of the register by deletion of the names of the respondent companies. They had also challenged the bona fides of the

appellant in filing the applications for rectification and contended that the conduct of the appellant disentitled it to get any relief in the petitions. The

respondent companies also raised the plea of estoppel. They submitted that the equitable jurisdiction of the Board could not be exercised in favour

of the appellant. They also contended that without impleading the transferors of the shares, the applications were not maintainable.

The Company Law Board passed its final order on October 20, 1993, directing rectification of the register of members by deletion of the names

of the respondent companies in respect of the shares covered by List A and List C. The prayer of the appellant for rectification was negatived with

respect to the shares in List B. The Board gave the following directions in the said order :

(a) The register of members shall be rectified by removing the names of the respondents in respect of the shares covered in Lists A and C of

annexure I within ten days of receipt of this order.

(b) The rights PCDs in respect of shares covered in Lists A and C of annexure I which have been kept in abeyance shall be allotted to the

respondents. However, in respect of the convertible portion, as the date of conversion is already over, the shares for the converted portion along

with the non-convertible portion of the PCDs, will be allotted within ten days of the receipt of this order.

(c) The additional rights PCDs in respect of shares covered in Lists A and C which are kept in abeyance will be allotted to all the existing members

who have applied for additional rights, in consultation with the Madras Stock Exchange.

(d) The rights PCDs and the additional rights PCDs kept in abeyance in respect of shares covered in List B in view of our decision that there need

be no rectification, shall be allotted to the respective respondents. Here also, as in (b) above, the shares for the converted portion along with the

non-convertible portion of the PCDs, will be allotted to the respective respondents within ten days of the receipt of this order.

(e) The respondents shall not be entitled to any interest on the application money for PCDs and additional PCDs whether allotted or not inasmuch

as the entire amount was remitted through stock invests which have not been encashed by the company so far.

(f) The respondents will retain the dividends they have received in the past in respect of all the shares covered in Lists A, B and C of annexure I

and there is no need for them to refund the same.

(g) In regard to registration of transfers in respect of shares in Lists A and C, the respondents may lodge the instruments afresh in accordance with

section 108 of the Act for consideration by the company.

Both parties were aggrieved by the order of the Board with reference to the portions respectively against them. Appeals were filed u/s 10F of

the Companies Act against the order of the Board. The appeals filed by the appellant were numbered as C.M.A. Nos. 1245 to 1255 of 1993.

The appeals filed by the respondent companies were taken on file as C.M.A. Nos. 1412 to 1422 of 1993. All the appeals excepting four which

were omitted to be posted by oversight were heard by a learned single judge of this court and a common judgment was rendered on April 7,

1994. The learned judge has allowed the appeals filed by the respondent companies and dismissed the appeals filed by the appellant in the

following terms (at p. 698) :

(a) the orders of the Company Law Board, dated October 20, 1993, directing the rectification of the share register of the appellant-company in

respect of the shares falling under Lists A and C (categories I and III) are hereby set aside and the appeal filed by the 11 respondent companies

against the direction of the Company Law Board directing rectification of the share registers with regard to the shares falling under Lists A and C,

namely, C.M.A. Nos. 1412 to 1422 of 1993 are allowed;

(b) the appeals preferred by the appellant-company, namely, C.M.A. Nos. 1245 to 1251 of 1993, challenging the decision of the Company Law

Board refusing to rectify the register in respect of the shares falling under List B are dismissed;

(c) the appellant-company, Kothari Industrial Corporation Limited, shall proceed to finalise and allot rights PCDs and additional rights PCDs to

the extent of the entitlement of the 11 respondent companies pursuant to their applications in terms of letter of offer dated October 15, 1993,

within two weeks from today; and

(d) the other directions of the Company Law Board shall stand vacated. In the circumstances of the case, each party will bear their own costs.

Aggrieved thereby, the appellant has preferred these letters patent appeals under clause 15 of the Letters Patent. When we found that four of

the C.M.As., viz., C.M.A. Nos. 1252 to 1255 of 1993, continue to be pending, we had them posted for orders on July 19, 1994. Counsel on

both sides represented that no separate argument is necessary in those C.M.As. and we could render a judgment common to all the L.P.As. and

the four C.M.As. Accordingly, we have included the said C.M.As. in this judgment.

II. Rival contentions. - The contentions of the appellant are as follows :

(1) The provisions of section 108 of the Companies Act are mandatory, according to which a company shall not register a transfer of shares unless

a proper instrument of transfer duly stamped and executed by or on behalf of the transferor has been delivered to the company along with the

certificates relating to the shares. In the present case, with reference to the shares mentioned in Lists A, B and C, the instruments were not duly

stamped, as the stamps thereon were not cancelled as required by the provisions of the Indian Stamp Act which are also mandatory. According to

section 12 of the Indian Stamp Act, if the stamp is not cancelled at or about the time of execution of the instrument, the instrument shall be deemed

to be unstamped.

(2) The provisions of section 108 of the Companies Act are not overridden or modified by section 22A of the Securities Contracts (Regulation)

Act, 1956. The provisions of section 22A of the Securities Contracts (Regulation) Act, 1956, shall be construed harmoniously with the provisions

of section 108 of the Companies Act.

(3) The said section 22A has no application in a case where a company has registered the shares and thereafter seeks rectification u/s 111, sub-

sections (4) and (5). The construction sought to be placed on the said section 22A by the respondent companies is erroneous.

(4) There can be no estoppel against a statute and the fact that the registration was effected by the appellant-company earlier will not prevent it

from pointing out that the same is void.

(5) There were no mala fides whatever on the part of the appellant-company in seeking rectification of the register. There was no pleading in this

regard by the respondent companies.

(6) The doctrine of laches cannot be applied as no rights have accrued in favour of any third party.

In reply thereto, the following contentions are urged on behalf of the respondent companies :

Section 22A has been deliberately introduced by the Legislature in the Securities Contracts (Regulation) Act with a view to govern transfer of

shares and provide for free transferability and registration of transfers of securities of listed companies. After the introduction of the said section

22A, the provisions of section 108 cannot be invoked with respect to listed companies as the later legislation on the same subject-matter will

prevail. It gives a discretion to the company to register or refuse to register any transfer on any one or more of the grounds mentioned therein. The

change in the language of the section from that found in section 108 of the Companies Act is significant.

The appellant-company being a wrongdoer, as it has contravened the provisions of law, cannot invoke the equitable jurisdiction of the Company

Law Board.

The purpose of the Stamp Act is only to collect revenue and to prevent the cheating of the Revenue and the provisions thereof cannot be used

to defeat the substantive rights of parties.

The petition for rectification is not maintainable as the transferors have not been impleaded as parties. The transferors cannot be traced after

such a long lapse of time and irreparable prejudice would be caused to the respondent companies if the prayer of the appellant-company is

granted.

The definition of the expression ""duly stamped"" found in the Indian Stamp Act is not applicable to the said expression found in section 108 of the

Companies Act and section 22A of the Securities Contracts (Regulation) Act as the said Acts do not contain any definition of the said expression.

Even if the definition contained in the Stamp Act is applied, section 12 thereof is not applicable and the expression ""not duly stamped"" cannot be

equated with the expression ""unstamped"".

The action on the part of the appellant is mala fide as admittedly one of the grounds relied on by the appellant for rectification is the allegation

that the respondent companies belong to the Reliance group. Mala fides have been clearly pleaded and relevant facts and particulars have been

placed before the Company Law Board.

No relief shall be granted to the appellant as it is guilty of laches and it is barred by the principle of estoppel.

III. Issues. - On the above contentions, the following issues arise for decision :

A. What is the effect of section 22A of the Securities Contracts (Regulation) Act, hereinafter referred to as the SCRA, on section 108 of the

Companies Act ?

B. Whether the company''s power to refuse to register transfers u/s 22A(3) of the SCRA is discretionary ?

C. What is the meaning of the expression ""duly stamped"" in section 108 of the Companies Act and section 22A of the SCRA ?

D. Is the appellant entitled to the relief of rectification on the footing that the stamps on the instruments of transfer were not cancelled ?

E. Is the appellant guilty of mala fides ?

F. Are the applications for rectification unsustainable for non-joinder of the transferors ?

G. Is the appellant entitled to any relief ?

IV List B. - Before taking up the issues seriatim for consideration, it is easy to dispose of the dispute relating to the shares comprised in List B. It is

not in dispute that as they stand, all the relevant transfer instruments are fully cancelled. But, according to the appellant, they were cancelled by the

employees of the second respondent and as there was no cancellation at the time of execution of the instruments, they are void. The Company

Law Board has rejected the contention of the appellant after giving a finding of fact that the appellant has not proved its case that the stamps were

cancelled by the employees of the second respondent. The Company Law Board has taken into account the circumstance that about 2,500

transfer instruments were lodged on June 29, 1991, and only 15 of them remained uncancelled. The Board pointed out that the transfers were

approved on July 1, 1991, itself and within two days it was not possible to cancel stamps on all the instruments. Again, about 3,000 transfer

instruments were lodged on June 11, 1992, and approved on June 15, 1992. It is pointed out that the stamps on about 500 instruments were only

cancelled though there was a gap of four days. The Company Law Board observed that the documents have to be considered on their face value

and when the one-man committee approved the instruments, the stamps on the instruments had been cancelled. In the circumstances, the Board

gave the benefit of doubt in favour of the respondent companies and held that the instruments covered by List B were duly stamped and were as

such registered with sufficient cause. u/s 10F of the Companies Act, a person aggrieved by the decision of the Board may file an appeal to this

court on any question of law arising out of such order. Hence, there can be no appeal on a question of fact. In view of the finding of fact given by

the Company Law Board, the appeals filed by the appellant in this court are unsustainable in so far as the shares in List B are concerned.

Consequently, we hold that the appellant is not entitled to get any relief with reference to the shares set out in List B.

V. Issue A. - For deciding this issue, we have to look into the relevant statutory provisions. Prior to the introduction of section 22A by the

Securities Contracts (Regulation) Amendment Act, 1985, the provision relating to transfer of shares and debentures was found only in the

Companies Act. Sections 108 to 111 dealt with the subject of transfer. Sections 108A, 108B and 108C relating to restriction on acquisition of

certain shares were incorporated in the Companies Act by the Monopolies and Restrictive Trade Practices (Amendment) Act, 1991, with effect

from September 27, 1991. As much of the arguments turns on the language of section 108 of the Companies Act, it is necessary to extract the

section in so far as it is relevant :

(1) A company shall not register a transfer of shares in, or debentures of the company, unless a proper instrument of transfer duly stamped

and executed by or on behalf of the transferor and by or on behalf of the transferee and specifying the name, address and occupation, if any, of the

transferee, has been delivered to the company along with the certificate relating to the shares or debentures, or if no such certificate is in existence,

along with the letter of allotment of the shares or debentures :

Provided that where, on an application in writing made to the company by the transferee and bearing the stamp required for an instrument of

transfer, it is proved to the satisfaction of the board of directors that the instrument of transfer signed by or on behalf of the transferor and by or on

behalf of the transferee has been lost, the company may register the transfer on such terms as to indemnity as the board may think fit :

Provided further that nothing in this section shall prejudice any power of the company to register as shareholder or debenture-holder any person to

whom the right to any shares in, or debentures of, the company has been transmitted by operation of law.

(1A) Every instrument of transfer of shares shall be in such form as may be prescribed, and -

(a) every such form shall, before it is signed by or on behalf of the transferor, and before any entry is made therein, be presented to the prescribed

authority, being a person already in the service of the Government, who shall stamp or otherwise endorse thereon the date on which it is so

presented, and

(b) every instrument of transfer in the prescribed form with the date of such presentation stamped or otherwise endorsed thereon shall, after it is

executed by or on behalf of the transferor and the transferee and completed in all other respects, be delivered to the company, -

(i) in the case of shares dealt in or quoted on a recognised stock exchange, at any time before the date on which the register of members is closed,

in accordance with law, for the first time after the date of presentation of the prescribed form to the prescribed authority under clause (a) or within

twelve months from the date of such presentation, whichever is later.

(ii) in any other case, within two months from the date of such presentation.

Section 111 dealt with the power of the company to refuse registration of transfer of shares and provided for an appeal to the Central

Government against such refusal. As per sub-section (1) of the said section, the provisions in sections 108 to 110 shall not prejudice the power of

the company under its articles to refuse to register the transfer of, or the transmission by operation of law of the right to, any shares or interest of a

member in, or debentures of, the company. Under sub-section (2), the factum of refusal shall be notified to the transferee and the transferor or the

person giving intimation of transmission by operation of law, within two months from the date on which the instrument of transfer or the intimation

of the transmission, as the case may be, was delivered to the company, whether the refusal was in pursuance of any power under the articles or

otherwise. The default is punishable under the said sub-section with fine. Sub-section (3) provided for an appeal to the Central Government. This

section was substituted by the Companies (Amendment) Act, 1988, with effect from May 31, 1991. The very same Amendment Act deleted

section 155 from the statute book which related to the power of the court to rectify the register of members. The provisions of section 155 were

incorporated in the new section 111 as sub-sections (4) and (5) with the difference that the power of rectification was conferred on the Company

Law Board instead of the court.

Section 22A of the Securities Contracts (Regulation) Act, 1956, was introduced by the Securities Contracts (Regulation) Amendment Act,

1985. Sub-sections (1) to (4) are relevant and they read as follows :

(1) In this section, unless the context otherwise requires, -

(a) ''company'' means a company whose securities are listed on a recognised stock exchange;

(b) ''security'' means security of a company, being a security listed on a recognised stock exchange but not being a security which is not fully paid-

up or on which the company has a lien;

(c) all other words and expressions used in this section and not defined in this Act but defined in the Companies Act, 1956 (1 of 1956), shall have

the same meanings as are assigned to them in that Act.

(2) Subject to the provisions of this section, securities of companies shall be freely transferable.

(3) Notwithstanding anything contained in its articles or in section 82 or section 111 of the Companies Act, 1956 (1 of 1956), but subject to the

other provisions of this section, a company may refuse to register the transfer of any of its securities in the name of the transferee on any one or

more of the following grounds and on no other ground, namely :

(a) that the instrument of transfer is not proper or has not been duly stamped and executed or that the certificate relating to the security has not

been delivered to the company or that any other requirement under the law relating to registration of such transfer has not been complied with;

(b) that the transfer of the securities is in contravention of any law or rules made thereunder or any administrative instructions or conditions of listing

agreement laid down in pursuance of such laws or rules;

(c) that the transfer of the security is likely to result in such change in the composition of the board of directors as would be prejudicial to the

interests of the company or to the public interest; and

(d) that the transfer of the security is prohibited by any order of any court, Tribunal or other authority under any law for the time being in force.

(4) A company shall, before the expiry of two months from the date on which the instrument of transfer of any of its securities is lodged with it for

the purpose of registration of such transfer, not only form, in good faith, its opinion as to whether such registration ought or ought not to be refused

on any of the grounds mentioned in sub-section (3) but also -

(b) if it has formed the opinion that such registration ought to be refused, effect such registration;

(b) if it has formed the opinion that such registration ought to be refused on the ground mentioned in clause (a) of sub-section (3), intimate the

transferor and the transferee by notice in the prescribed form about the requirements under the law which has or which have to be complied with

for securing such registration; and

(c) in any other case make a reference to the Company Law Board and forward copies of such reference to the transferor and the transferee.

Under sub-section 10 it is provided that the section shall not apply in relation to any securities in respect of which the instrument of transfer had

been lodged with the company before the commencement of the Amendment Act. In other words, the section became operative prospectively.

There can be no doubt that section 108 of the Companies Act before the introduction of section 22A of the Securities Contracts (Regulation)

Act was a complete code with reference to transfer and registration of securities. It applied to both listed and unlisted securities. The terms of the

section were mandatory as declared by several judicial pronouncements including that of the Supreme Court. In Union of India v. Kulu Valley

Transport Ltd. [1958] 28 Comp Cas 29, the Punjab High Court held that the statute was mandatory in its terms and the company could not legally

give effect to the transfers and register the shares in the name of the transferee unless the provisions of section 108(1) of the Companies Act were

complied with. But, the stamps on some of the transfer deeds were not cancelled and they were not, therefore, duly stamped. It was also found

that the share certificates were not produced along with the applications and the provisions of section 108 of the Companies Act were not

complied with.

In Mannalal Khetan and Others Vs. Kedar Nath Khetan and Others, , the section was held to be mandatory in view of the negative,

prohibitory and exclusive words used therein. The court rejected the argument that the provisions in the section were directory because non-

compliance therewith was not declared as an offence. The court referred to section 629A of the Companies Act prescribing penalty, whereas no

specific penalty is provided elsewhere in the Act. Referring to the provisions in section 108, the court said (at page 191 of 47 Comp Cas) :

There are two provisos to section 108 of the Act. We are not concerned with the first proviso in these appeals. The second proviso states that

nothing in this section shall prejudice any power of the company to register as shareholder or debenture-holder any person to whom the right to

any shares in, or debentures of, the company has been transmitted by operation of law. The words ''shall not register'', are 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 emphasised by the negative language. Negative language is worded to emphasise the insistence on compliance with the

provisions of the Act. (See The State of Bihar Vs. Maharajadhiraja Sir Kameshwar Singh of Darbhanga and Others, ; M. Pentiah and Others Vs.

Muddala Veeramallappa and Others, and unreported decision dated April 18, 1976, in Criminal Appeal No. 279 of 1975 (SC), etc., Additional

District Magistrate, Jabalpur Vs. Shivakant Shukla, . Negative words are clearly prohibitory and are ordinarily used as a legislative device to make

a statutory provision imperative ...

Therefore, negative, prohibitory and exclusive words are indicative of the legislative intent when the statute is mandatory. (See Maxwell on the

Interpretation of Statutes, 11th edition, page 362, et seq; Crawford on Statutory Construction, Interpretation of Laws, page 523, and Seth Bikhraj

Jaipuria Vs. Union of India (UOI), ...

If anything is against law, though it is not prohibited by the statute but only a penalty is annexed, the agreement is void. In every case where a

statute inflicts a penalty for doing an act, though the act be not prohibited, yet the thing is unlawful, because it is not intended that a statute would

inflict a penalty for a lawful act ...

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

In the case before the Supreme Court, the question whether the instruments of transfer were duly stamped did not arise. A Division Bench of

the Calcutta High Court had to consider in Nuddea Tea Co. Ltd. v. Asok Kumar Saha [1988] 64 Comp Cas 775, where the company could be

directed to rectify its register of shares, the stamps on which were not duly cancelled and answered the same in the negative. In holding that the

provisions of section 108 of the Companies Act were mandatory and the instruments of transfer should be duly stamped before any effect could be

given to them, the Bench dealt with the law in extenso and also referred to the judgment of the Supreme Court in, Mannalal Khetan and Others Vs.

Kedar Nath Khetan and Others, . The Bench said (at page 791 of 64 Comp Cas) :

In these circumstances, if the company is asked to rectify the register by accepting such instrument not duly stamped, the company will be acting

contrary to law.

The Bench had also referred to the observations of Stone C.J. in New Citizen Bank of India Vs. Asian Assurance Co. Ltd., , that even if the

omission was due to the company''s own default, the company could not be directed to act in contravention of the statute and rectify the register.

The court rejected the argument that the instrument may be impounded and the penalty provided in the Indian Stamp Act could be collected. The

court said that the only question was whether the company was bound in law to accept any instrument not duly stamped within the meaning of

section 108 of the Companies Act or section 12 of The Indian Stamp Act and rectify the register.

In Mathrubhumi Printing and Publishing Co. Ltd. v. Vardhaman Publishers Ltd. [1992] 73 Comp Cas 80, the Kerala High Court rendered a

similar judgment. That was a case in which the adhesive stamps on the instruments of transfer of shares had not been cancelled at the time of

execution but only at the time of lodgement with the company, and the court held that the board of directors of the company was justified in

rejecting the request of the transferees to have their names entered in the register. Reliance was placed on Mannalal Khetan and Others Vs. Kedar

Nath Khetan and Others, .

A Division Bench of the Karnataka High Court took a similar view in Muniyamma v. Arathi Cine Enterprises (P.) Ltd. [1993] 2 Comp LJ

327; [1993] 77 Comp Cas 97. In that case, the stamps were not cancelled. The court held that the provisions of section 108 of the Companies

Act were not complied with. Reference was made to Nuddea Tea Co. Ltd. Vs. Asok Kumar Saha and Others, and Mathrubhumi Printing and

Publishing Co. Ltd. Vs. Vardhaman Publishers Ltd. and Others, .

It is the contention of the appellant that the law settled as above was not in any way disturbed or altered by section 22A of the Securities

Contracts (Regulation) Act introduced in 1985. It is submitted that there is a presumption that the previous law is not altered by subsequent

legislation except by express language or by irresistible implication. Reliance is placed on the judgment of the Privy Council in Murugiah v.

Jainudeen [1954] 3 WLR 682. The Judicial Committee quoted with approval the following passage in Maxwell on the Interpretation of Statutes,

10th edition, page 81 (at page 687) :

Presumption against implicit alteration of law. - One of these presumptions is that the Legislature does not intend to make any substantial alteration

in the law beyond what it explicitly declares, either in express terms or by clear implication, or, in other words, beyond the immediate scope and

object of the statute. In all general matters outside those limits the law remains undisturbed. It is in the last degree improbable that the Legislature

would overthrow fundamental principles, infringe rights, or depart from the general system of law without expressing its intention with irresistible

clearness.

Their Lordships agreed that the law was correctly stated in the above passage.

Learned counsel for the appellant drew our attention to the principles of interpretation submitted for consideration by the defendants in Cricket

Club of India Ltd. and Others Vs. Madhav L. Apte and Others, . The four principles were set out as follows at page 591 :

(1) There is a presumption against the alteration of well-settled law by implication and such a change should be either by explicit or express words

or only if such inference of alteration is irresistible.

(2) If the matter is evenly balanced or fairly arguable on either side, then that interpretation should be preferred which would involve the least

alteration of the existing law.

(3) If one of the two possible constructions would lead to startling or bizzare results, or to any absurd or harsh consequences, then that

construction is one which ought not to be preferred and is one which ought to be avoided.

(4) The intention of the Legislature is primarily to be gathered from the actual words used and not from any words not to be found in the statute,

but which are required to be added to make the statute clear and to bring out the policy intention.

It is further argued that the law declared by the Supreme Court in Mannalal Khetan and Others Vs. Kedar Nath Khetan and Others, , was

clear and categorical and it was not doubted or diluted at any time. The Legislature did not intend to nullify the judgment of the Supreme Court

after it held sway for about a decade. There was no reference to or mention of the judgment in the Statement of Objects and Reasons of the

Securities Contracts (Regulation) Amendment Act of 1985. Nor was there any reference to it in the Speech of the Finance Minister. Learned

counsel drew our attention to the Statements of Objects and Reasons of some of the Amendment Acts and in particular the Land Acquisition

Amendment Acts XXXI of 1962, and XIII of 1967, which expressly refer to the judgments of the Supreme Court which were sought to be

overcome by the amendments. Significantly, section 22A(3) of the Securities Contracts (Regulation) Act which contains a non-obstante clause

refers only to sections 82 and 111 of the Companies Act and does not refer to section 108. It cannot be said that the provisions in section 108 of

the Companies Act and section 22A of the Securities Contracts (Regulation) Act are contradictory or repugnant to each other and they cannot

stand together. In such circumstances, the doctrine of implied repeal does not come into play in the present case.

The relevant principles on this aspect of the matter are set out in Broom''s Legal Maxims, 10th edition, page 347. The maxim reads : leges

posteriores priores contrarias abrogant. Later laws repeal earlier laws inconsistent therewith.

The Legislature, which possesses the supreme power in the State, possesses, as incidental thereto, the right to change, modify, and abrogate the

existing laws ...

''It is, then, an elementary rule that an earlier Act must give place to a later, if the two cannot be reconciled - lex posterior derogat priori - non est

novum ut priores legs ad posteriores trahantur - and one Act may repeal another by express words or by implication; for it is enough if there be

words which by necessary implication repeal it. But a repeal by implication is never to be favoured, and must not be imputed to the Legislature

without necessity, or strong reason, to be shown by the party imputing it. It is only effected where the provisions of the later enactment are so

inconsistent with, or repugnant to, those of the earlier that the two cannot stand together; unless the two Acts are so plainly repugnant to each other

that effect cannot be given to both at the same time a repeal cannot be implied; and special Acts are not repealed by general Acts unless there be

some express reference to the previous legislation, or a necessary inconsistency in the two Acts standing together which prevents the maxim

generalia specialibus non derogant from being applied.

In G. P. Singh''s Principles of Statutory Interpretation, 5th edition, the law is stated thus :

There is a presumption against a repeal by implication; and the reason of this rule is based on the theory that the Legislature while enacting a law

has a complete knowledge of the existing laws on the same subject-matter, and therefore, when it does not provide a repealing provision, it gives

out an intention not to repeal the existing legislation. When the new Act contains a repealing section mentioning the Acts which it expressly repeals,

the presumption against implied repeal of other laws is further strengthened on the principle expressio unius est exclusio alterius. Further, the

presumption will be comparatively strong in case of virtually contemporaneous Acts. The continuance of existing legislation, in the absence of an

express provision of repeal, being presumed, the burden to show that there has been a repeal by implication lies on the party asserting the same.

The presumption is, however, rebutted and a repeal is inferred by necessary implication when the provisions of the later Act are so inconsistent

with or repugnant to the provisions of the earlier Act ''that the two cannot stand together.'' But, if the two may be read together and some

application may be made of the words in the earlier Act, a repeal will not be inferred.

In Life Insurance Corporation of India Vs. D.J. Bahadur and Others, , the court observed that an implied repeal is the last judicial refuge and

unless driven to that conclusion, is rarely resorted to. It was also pointed out that the general rule that prior statutes should be held to be repealed

by implication by subsequent statutes if the two are repugnant will not apply if the prior enactment is special and the subsequent enactment is

general. The court said that in determining whether a statue is a special or a general one, the focus must be on the principal subject-matter plus the

particular perspective.

In K.P. Varghese Vs. Income Tax Officer, Ernakulam and Another, , the court held that the speech made by the Finance Minister who moved

the Bill explaining the reason for the introduction of the Bill could be referred to for ascertaining the mischief sought to be remedied by the

legislation as well as the object and purpose for which the legislation was enacted, though the speeches made by the Members of the Legislature

on the floor of the House when a Bill for enacting a statutory provision was being debated are inadmissible for the purpose of interpreting the

statutory provision.

In Dr (Mrs) Sushma Sharma and Others Vs. State of Rajasthan and Others, , where the court held that the principle that when a legislative

enactment has received authoritative interpretation whether by judicial decision or by a long course of practice is again adopted in the framing of a

later statute, it is sound rule of construction to hold that the words so adopted were intended by the Legislature to bear the meaning which has

been so put upon them, is only a presumption and it is not an absolute rule. In that connection, the court said (at page 1374) :

It was observed by Lord Scarman in the case of R. v. Chard [1984] AC 279, that the theory which has been noted hereinbefore was not a canon

of construction of absolute obligation but only a presumption in the circumstances to be taken in judicial interpretation. This proposition, according

to Lord Scarman, is well settled.

In Yogender Pal Singh and others Vs. Union of India others, , the court observed that when a competent authority makes a new law, which is

totally inconsistent with the earlier law and the two cannot stand together any longer, it must be construed that the earlier law had been repealed by

necessary implication by the later law.

In Ratan Lal Adukia and Another Vs. Union of India, , the question was whether section 80 of the Railways Act as introduced by Act 39 of

1961 was a complete code and it excluded the operation of section 20 of the CPC and section 18 of the Presidency Small Cause Courts Act. The

court traced the case law relating to the doctrine of implied repeal as well as the relevant treatises on statutory interpretation and said (at page 110)

:

The doctrine of implied repeal is based on the postulate that the Legislature which is presumed to know the existing state of the law did not intend

to create any confusion by retaining conflicting provisions. Courts in applying this doctrine are supposed merely to give effect to the legislative intent

by examining the object and scope of the two enactments. But in a conceivable case, the very existence of two provisions may, by itself, and

without more, lead to an inference of mutual irreconcilability if the later set of provisions is by itself a complete code with respect to the same

matter. In such a case the actual detailed comparison of the two sets of provisions may not be necessary. It is a matter of legislative intent that the

two sets of provisions were not expected to be applied simultaneously. Section 80 is a special provision. It deals with a certain class of suits

distinguishable on the basis of their particular subject-matters.

The High Court has come to the conclusion that new section 80 made a conscious departure on the law as to the place of suing in respect of suits

of a particular subject-matter envisaged by that section. The High Court has held that the new section 80 is a self-contained provision in regard to

the choice of forum for such suits. According to the High Court, there was a need for the Legislature to specify the places of suing which would

otherwise be covered by section 20 of the Civil Procedure Code, unless the special prescription as to places of suing was considered to be

necessary in derogation to the general law as the matter contained in section 20 of the CPC or the provisions in the Small Cause Courts Acts"".

In Keshavji Ravji and Co. v. CIT : [1990]183ITR1(SC) , the contention was that where the meaning of a word used in a statute had been

judicially ascertained by a court and where the Legislature, while re-enacting the law on the subject, uses the same word, it must be taken to have

been aware of the meaning so judicially ascertained earlier and not to have used the word with a different content. While acknowledging the fact

that the principle was a well recognised guide to construction, the court held that there were limitations to its application. In that case, it was held

that the said principle of construction was out of place. The court said (at page 11 of 183 ITR) :

The rules of interpretation are not rules of law; they are mere aids to construction and constitute some broad pointers. The interpretative criteria

apposite in a given situation may, by themselves, be mutually irreconcilable. It is the task of the court to decide which one, in the light of all relevant

circumstances, ought to prevail. The rules of interpretation are useful servants but quite often tend to become difficult masters"".

Bearing the above principles in mind, our task is to find out the object and purpose of the amendment in introducing section 22A in the

Securities Contracts (Regulation) Act and the mischief sought to be remedied thereby. We must also have in mind the language of the new section

and decide whether the section could stand together with section 108 of the Companies Act. The Statement of Objects and Reasons of the

Amendment Act is in the following terms :

At present, sections 82 and 111 of the Companies Act, 1956, permit boards of directors of companies to assume powers under the articles of

association to refuse registration of transfer of securities without assigning any reason. Though there is a provision for appeal against such a refusal

to the Company Law Board, it places an undue burden on an aggrieved person who often happens to be a small investor. The present position is

also not conducive to the free marketability of listed securities and healthy growth of the capital market. Unrestricted transferability is particularly

necessary for securities of public limited companies which are listed on the Stock Exchanges.

It was in the above context that it was announced in the Budget Speech dated March 16, 1985, that the Securities Contracts (Regulation) Act,

1956, would be amended to ensure free transferability of securities of public limited companies whose securities are listed on the Stock Exchanges.

For this purpose, it is proposed to incorporate a new section, namely, section 22A, in the Securities Contracts (Regulation) Act, 1956, and also

make necessary consequential amendments in the Act to provide for free transferability of listed securities with adequate safeguards against

undesirable take-over bids or destabilisation of management. Under the proposed provision, companies would be entitled to refuse registration of

transfer in certain circumstances only, such as that the instrument of transfer is not proper or has not been duly stamped and executed or that the

transfer is in contravention of any law or is likely to result in change in the composition of the board of directors in such a way that it would be

prejudicial to the interests of the company or to public interest. In case a company wishes to refuse transfer of securities on the ground that any

requirement under law has not been complied with, it has to notify the transferor and the transferee of the same within two months from the

lodgement of the instrument of transfer. In other cases, the company will have to make a reference to the Company Law Board and act according

to the directions of the Board.

The Bill seeks to achieve the above objective.

The statement refers to the Budget Speech of the Finance Minister dated March 16, 1985, in which it was announced that the Securities

Contracts (Regulation) Act would be amended to ensure free transferability of securities of public limited companies whose securities are listed on

the stock exchanges. It is quite obvious that the object of the amendment is to bring about unrestricted transferability which was felt necessary for

securities of public limited companies listed on the Stock Exchanges. Consequently, under the new provision, the power of refusal to register

transfers was restricted to four grounds as set out in the section. The change in the language adopted in the new section is significant. We have

already seen that section 108 of the Companies Act was negative and prohibitory by using the expression ""shall not register"". But, section 22A

uses the expression ""may refuse to register"". Four grounds are set out in sub-section (3) on which the company may refuse to register. The

question whether the provisions in sub-section (3) are directory or mandatory will be considered under the next issue. Suffice it for the purpose of

this issue to note that there is a deliberate deviation in the new section from the method adopted in the old one. No doubt, there is considerable

force in the contention that the non-obstante clause in sub-section (3) makes a reference only to sections 82 and 111 and omits to mention section

108 of the Companies Act. But, the court must have regard to all the relevant circumstances to decide the applicability of the doctrine of ""implied

repeal"" in the present case.

The scheme of the section is also significant in that it contains specific definition for the expressions ""company"" and ""security"" while adopting the

definitions in the Companies Act for the other words and expressions. Section 22A is confined in its application to a company whose securities are

listed on a recognised stock exchange and to securities which are fully paid up and on which the company does not have a lien. Sub-section (2)

contains the key to the new scheme. It declares that securities of companies shall be freely transferable subject to the provisions of the section. In

other words, the said securities are governed only by the provisions of section 22A and no other provision of law in respect of their transferability.

Though sub-section (3) does not expressly refer to section 108 of the Companies Act, it excludes the operation of section 108 by necessary

implication on account of the language used with reference to the securities governed by the section. Both the expressions ""notwithstanding"" and

subject to"" are used in the said sub-section. In fact, the provisions of section 108(1) of the Companies Act are virtually rewritten in sub-section

(3)(a) of section 22A. The non-obstante clause begins with the word ""notwithstanding"" and refers to sections 82 and 111 of the Companies Act.

The next part of the sub-section adds immediately that the provisions contained therein are subject to the other provisions of the section, which

means that if there is any other provision of law, which is in conflict with the provisions of section 22A, the latter will govern and the former will not

apply. Dealing with the expressions ""notwithstanding"" and ""subject to"" found in articles 278 and 372 of the Constitution of India, the Supreme

Court stated the law thus in The South India Corporation (P) Ltd. Vs. The Secretary, Board of Revenue Trivandrum and Another, :

The expression ''subject to, conveys the idea of a provision yielding place to another provision or other provisions to which it is made subject.

Further, article 278 opens out with a non-obstante clause''. The phrase ''notwithstanding anything in the Constitution'' is equivalent to saying that in

spite of the other articles of the Constitution, or that the other articles shall not be an impediment to the operation of article 278. While article 372

is subject to article 278, article 278 operates in its own sphere in spite of article 372.

In Chandavarkar Sita Ratna Rao Vs. Ashalata S. Guram, , the principle was reiterated in the following terms (at page 134) :

A clause beginning with the expression ''notwithstanding anything contained in this Act or in some particular provision in the Act or in some

particular Act or in any law for the time being in force, or in any contract'', is more often than not appended to a section in the beginning with a

view to give the enacting part of the section in case of conflict an overriding effect over the provision of the Act or the contract mentioned in the

non-obstante clause. It is equivalent to saying that in spite of the provisions of the Act or any other Act mentioned in the non-obstante clause or

any contract or document mentioned the enactment following it will have its full operation or that the provisions embraced in the non-obstante

clause would not be an impediment for an operation of the enactment. See in this connection the observations of this court in The South India

Corporation (P) Ltd. Vs. The Secretary, Board of Revenue Trivandrum and Another, .

It is well-settled that the expression ''notwithstanding'' is in contradistinction to the phrase ''subject to'', the latter conveying the idea of a provision

yielding place to another provision or other provisions to which it is made subject.

Sub-section (4) of the section prescribes a time-limit within which the company shall form, in good faith, its opinion as to whether registration

of transfer as applied for ought not or ought to be refused. The sub-section emphasises that refusal can be only on one of the grounds set out in

sub-section (3). In fact, sub-section (3) itself permits the company to refuse to register on any one or more of the four grounds set out therein and

prohibits the company from refusing registration on any other ground. u/s 111 of the Companies Act, the company had a wide discretion to refuse

registration on any ground. Prior to May 31, 1991, there was no necessity for the company to give reasons for such refusal. But, by the

Companies (Amendment) Act, 1988, which came into force on May 31, 1991, the company is bound to give reasons for such refusal under the

amended section 111(1). u/s 22A(4 of the Securities Contracts (Regulation) Act, if the company decides in favour of registration, it may do so.

However, if it forms the opinion that registration ought to be refused on the ground mentioned in sub-section (3), clause (a), it should intimate the

transferor and the transferee by notice in the prescribed form about the requirements under the law for securing such registration. The Central

Government published the Rules under Notification No. G.S.R. 33(E), dated January 17, 1986 (See [1986] 59 Comp Cas (St.) 166), whereby

the form of notice was prescribed. If the company forms an opinion that registration should be refused on grounds set out in clauses (b), (c) and

(d) of sub-section (3), it shall make a reference to the Company Law Board and forward copies of such reference to the transferor and the

transferee. Thereby, a procedure different from that prescribed u/s 111 of the Companies Act providing for an appeal to the Central Government

by the transferor or transferee against any refusal of the company to register the transfer or transmission of shares, is laid down. Necessarily, the

Legislature had to mention section 111 in the non-obstante clause.

Sub-sections (5), (6) and (7) are consequential to sub-section (4). Sub-section (3) prescribes a penalty to the company and every officer of

the company in case of default in complying with the provisions of the section. Under the Companies Act, there was no penalty for violation of

section 108 until section 629A was introduced by an amendment in 1960. That is also a general residuary provision in the matter of penalty. Sub-

section (9) provided for penalty to any person who makes a false statement or omits to state material facts in a reference to the Company Law

Board under sub-section (4)(c). Sub-section (10) makes the section operative prospectively and inapplicable to any securities the instrument of

transfer in respect whereof had been lodged with the company before the commencement of the Amendment Act. Thus, the scheme of the section

reveals that the Legislature intended to make a special provision, enabling free transferability and registration of transfers of listed securities. It can,

therefore, be said that section 22A of the Securities Contracts (Regulation) Act is a special law pertaining to the securities and companies

mentioned specifically therein, while section 108 of the Companies Act is a general law applicable to all companies. The maxim specialia

generalibus derogant (special excludes general) can be invoked in this case. See Municipal Board, Bareilly Vs. Bharat Oil Company and Others,

and Jogendra Lal Saha Vs. The State of Bihar and others, .

One of the learned senior counsel appearing for the respondent companies drew our attention to certain passages in Bharat''s Transfer and

Transmission of Shares, 2nd edition, and submitted that the Amendment Act brought about changes of far reaching implications with regard to

transfer of shares of listed companies. Annexure 3 in the book has reproduced the recommendations of the Sachar Committee on Transfer of

Shares contained in para 7.21 of the report. We do not think it necessary to refer to either the passages in the text book or the contents of the

report of Sachar Committee. We have already set out in detail the contents of section 22A of the Securities Contracts (Regulation) Act, which by

themselves show that the Legislature intended to change the law relating to transfer and registration of listed securities.

Having regard to the purpose and object sought to be achieved by the introduction of section 22A and the mischief sought to be remedied

thereby as well as the deliberate change in the language adopted in the new section, we hold that the doctrine of implied repeal will come into play

and the provisions in section 22A of the Securities Contracts (Regulation) Act will prevail over the provisions of section 108 of the Companies Act

in relation to listed securities to the extent to which they are inconsistent.

VI. Issue B : We have already seen that the company''s power of refusal to register transfers is restricted to the four grounds set out in sub-section

(3) of section 22A of the Securities Contracts (Regulation) Act. The sub-section uses the expression ""may refuse to register"". The contention of the

appellant is that ""may"" in the context means ""shall"". According to the appellant, the company is bound to refuse registration, if any one or more of

the grounds mentioned in clauses (a), (b), (c) and (d) subsist or exist. In the present case we are concerned only with clause (a) of sub-section (3).

According to learned counsel for the appellant, if the instrument of transfer does not satisfy the requirements of law relating to registration of such

transfer, the company has no discretion and it has to refuse registration. In view of the legislative history of the section, the decision of the Supreme

Court in Mannalal Khetan and Others Vs. Kedar Nath Khetan and Others, , and in the context of the subject-matter, the word ""may"" in the sub-

section has to be construed as ""shall"". Any other construction will lead to uncertainty and anomalous consequences. Learned counsel placed

reliance on the nature of the four grounds set out in the sub-section and submitted that could in no case the company be said to have any discretion

in the matter. He drew our attention to the judgments of the Supreme Court in Raza Buland Sugar Co. Ltd. Vs. Municipal Board, Rampur, and

Sardar Govindrao and Others Vs. State of Madhya Pradesh, , and submitted that the word ""may"" can be construed as ""shall"" having regard to the

context.

On the other hand, learned senior counsel for the respondent companies contended that the word ""may"" in certain situations may mean ""shall

and the word ""shall"" may in certain situations mean ""may"". However, according to him, if in the same provision in a statute, both the words ""may

and ""shall"" appear, it is a very strong circumstance to indicate that the Legislature intended ""may"" to mean ""may"" and ""shall"" to mean ""shall"". While

sub-section (3) uses the word ""may"", sub-section (4) uses the word ""shall"". Learned counsel added that if the statutory provisions confer power

and if the power is to be exercised in favour of certain persons for their benefit under certain circumstances in a given set of facts, such power is

one coupled with a duty to exercise it in their favour. Whenever a statutory provision intends a power coupled with a duty, the word used will only

be ""may"" and not ""shall"". Depending upon the object for which it has to be exercised, the conditions on which it has to be exercised and the types

of persons for whose benefit it has to be exercised, the power has to be exercised when the facts establish the circumstances and legal conditions

to be fulfilled calling for the exercise of such power. In such situations, ""may"" will again mean ""shall"". In section 22A, the word ""may"" confers a

discretion on the company and it cannot be construed as mandatory. He referred to several rulings in support of his contentions.

In Chief Controlling Revenue Authority v. Maharashtra Sugar Mills Ltd. AIR 1950 SC 218, the court referred to the judgment of the Privy

Council in Spooner v. Juddow [1850] 4 MIA 353 and quoted a passage therefrom. In the passage extracted, the Privy Council had quoted Lord

Cairns in the case of Julius v. Bishop of Oxford [1880] 5 AC 214 (HL), which reads as follows :

There may be something in the nature of the thing empowered to be done, something in the object for which it is to be done, something in the

conditions under which it is to be done, something in the title of the person or persons for whose benefit the power is to be exercised, which may

couple the power with a duty, and make it the duty of the person in whom the power is reposed to exercise that power when called upon to do

so.

After extracting the passage from the judgment of the Privy Council, the Supreme Court said :

This reasoning and conclusions although they have not now the compelling force they had before January 26, 1950, are entitled to great respect.

The court expressed its agreement with the line of reasoning and the conclusion.

In Labour Commissioner, Madhya Pradesh Vs. Burhanpur Tapti Mills and Others, , the relevant statutory provisions used both the words

shall"" and ""may"" and the court construed the word ""shall"" as ""shall"" and ""may"" as ""may"".

In Raza Buland Sugar Co. Ltd. Vs. Municipal Board, Rampur, , the court dealt with section 131(3) of the U.P. Municipalities Act (2 of 1916).

The section read thus :

The Board shall, thereupon, publish in the manner prescribed in section 94 the proposals framed under sub-section (1) and the draft rules framed

under sub-section (2) along with a notice in the form set forth in Schedule III.

The court held that the first part of the section dealing with taxation was mandatory and the second part of the section dealing with the manner

of publication was directory. With reference to the first part, the court said that it considered the language of the section, the purpose for which it

was enacted, the setting in which it appeared and the intention of the Legislature for deciding that part to be mandatory. Thus, the test prescribed

was to take into account the aforesaid factors to decide the question.

In Sardar Govindrao and Others Vs. State of Madhya Pradesh, , section 5 of the C.P. and Berar Revocation of Land Revenue Exemption Act

(37 of 1948), came up for consideration. The word ""may"" in sub-section (3) of the said section was held to mean ""must"". The word ""may"" in sub-

section (2) was held to mean ""may"". The following passage can be quoted with advantage :

The word ''may'' is often read as ''shall'' or ''must'' when there is something in the nature of the thing to be done which makes if the duty of the

person on whom the power is conferred to exercise the power. Section 5(2) is discretionary because it takes into account all cases which may be

brought before the Government of persons claiming to be adversely affected by the provisions of section 3 of the Act. Many such persons may

have no claims at all though they may in a general way be said to have been adversely affected by section 3. If the power was to be discretionary

in every case there was no need to enact further than sub-section (2). The reason why two sub-sections were enacted is not far to seek. That the

Government may have to select some for consideration under sub-section (3) and some u/s 7 and may have to dismiss the claims of some others

requires the conferment of a discretion and sub-section (2) does no more than to give that discretion to the Government and the word ''may'' in that

sub-section bears its ordinary meaning. The word ''may'' in sub-section (3) has, however, a different purport. Under that sub-section the

Government must, if it is satisfied that an institution or service must be continued or that there is a descendant of a former ruling chief, grant money

or pension to the institution or service or to the descendant of the former ruling chief, as the case may be. Of course it need not make a grant if the

person claiming is not a descendant of a former ruling chief or there is other reasonable ground not to grant money or pension. But, except in those

cases where there are good grounds for not granting the pension, the Government is bound to make a grant to those who fulfil the required

condition and the word ''may'' in the third sub-section though apparently discretionary has to be read as ''must''.

In Jamatraj Kewalji Govani Vs. The State of Maharashtra, , section 540 of the Code of Criminal Procedure came up for consideration and the

court held that the first part gives a discretionary power, but the latter part is mandatory as the word ""may"" is used in the first part and the word

shall"" is used in the second part.

A Full Bench of this court followed the above judgment of the Supreme Court in Parasurama Odayar Vs. Appadurai Chetty and Others, while

construing Order V, rule 19 of the Code of Civil Procedure.

Similarly, in T.R. Sharma Vs. Prithvi Singh and Others, , rule 3.14 of the Punjab Civil Services Rules, Volume I, Part I, used the word ""shall"" in

clause (a) and the word ""may"" in clause (b). The court held that clause (a) is imperative in nature.

In the The Official Liquidator Vs. Dharti Dhan (P) Ltd., , sections 442(b) and 446 of the Companies Act came up for consideration. The court

held that the word ""may"" used before the word ""stay"" in section 442 of the Act merely meant ""may"" and not ""shall"" in the context. The relevant

passage in the judgment reads thus (at page 425 of 47 Comp Cas) :

Sections 442 and 446 of the Act have to be read together. It is only where the object of the two sections, when read together, is served by a stay

order that the stay order could be justified. That object is to expeditiously decide and dispose of pending claims in the course of winding up

proceedings. A stay is not to be granted if the object of applying for it appears to be, as it does in the case before us, merely to delay adjudication,

on a claim, and thereby to defeat justice : In other words, a stay order, u/s 442, cannot be made mechanically, or, as a matter of course, on

showing fulfilment of some fixed and prescribed conditions. It can only be made judiciously upon an examination of the totality of the facts which

vary from case to case. It follows that the order to be passed must be discretionary and the power to pass it must, therefore, be directory and not

mandatory. In other words, the word ''may'' used before ''stay'' in section 442 of the Act really means ''may'' and not ''must'' or ''shall'' in such a

context. In fact, it is not quite accurate to say that the word ''may'' by itself acquires the meaning of ''must'' or ''shall'' sometimes. This word,

however, always signifies a conferment of power. That power may, having regard to the context in which it occurs, and the requirements

contemplated for its exercise, have annexed to it an obligation which compels its exercise in a certain way on facts and circumstances from which

the obligation to exercise it in that way arises. In other words, it is the context which can attach the obligation to the power compelling its exercise

in a certain way. The context, both legal and factual, may impart to the power that obligatoriness.

Thus, the question to be determined in such cases always is whether the power conferred by the use of the word ''may'' has, annexed to it, an

obligation that, on the fulfilment of certain legally prescribed conditions, to be shown by evidence, a particular kind of order must be made. If the

statute leaves no room for discretion, the power has to be exercised in the manner indicated by the other legal provisions which provide the legal

context. Even then the facts must establish that the legal conditions are fulfilled. A power is exercised even when the court rejects an application to

exercise it in the particular way in which the applicant desires it to be exercised. Where the power is wide enough to cover both an acceptance and

a refusal of an application for its exercise, depending upon facts it is directory or discretionary. It is not the conferment of a power which the word

''may'' indicates that annexes any obligation to its exercise but the legal and factual context of it. This, as we understand it, was the principle laid

down in the case cited before us - Frederic Guilder Julius v. The Right Rev. The Lord Bishop of Oxford; The Rev. Thomas Thellusson Carter

[1880] 5 AC 214 (HL).

In B.P. Khemka Pvt. Ltd. Vs. Birendra Kumar Bhowmick and Another, , the expression ""shall"" in section 17(3) of the West Bengal Premises

Tenancy Act (12 of 1956) was construed as ""may"" in order to give effect to the intention of the Legislature. The court observed that otherwise the

intendment of the Legislature would be defeated and the class of tenants for whom the beneficial provisions were made by the Ordinance and the

Amending Act will stand deprived of them.

From a reading of the above rulings, it is clear that the question has to be decided by taking into account the context in which the words ""may

and ""shall"" are used as well as the intention of the Legislature in enacting the provision.

Turning to the provisions of section 22A of the Securities Contracts (Regulation) Act, while sub-section (3) used the word ""may"", sub-section

(4) uses the word ""shall"" normally, it can be inferred that sub-section (3) is directory while sub-section (4) is mandatory. Apart from that, a reading

of sub-section (4) proves that sub-section (3) cannot but be directory. We have already referred to the object of the section which is to enable

free transferability and registration of transfers. The power of the company which was not previously statutorily restricted is expressly restricted by

the four grounds set out in sub-section (3). Even with reference to the said four grounds, the company is not allowed to reject the application for

transfer straightaway. If the company decides in good faith that registration should be granted, it can proceed to register the transfer. On the other

hand, if it comes to the opinion, again in good faith, that registration ought to be refused, in one case it has to issue notice to the transferor and the

transferee about the requirements of law for securing registration and in the other three cases it has to make a reference to the Company Law

Board and forward copies of such reference to the transferor and transferee. Thus, in no case, can the company can straightaway refuse to

register. If the ground for refusal falls under clause (a) of sub-section (3), intimation is to be given to the parties informing them about the

requirements which should be fulfilled, for the purpose of registration. That gives an opportunity to the party to rectify the defects in a manner

known to law. If the matter falls under clauses (b), (c) and (d) of sub-section (3), the only course open to the company is to make a reference to

the Company Law Board. The Board, after giving reasonable opportunity to the transferor and the transferee, passes an order either way. A time

limit is prescribed by sub-section (4) within which the company must form an opinion, in good faith, whether the transfer ought or ought not to be

refused. Thus, the only Act which can be performed by the company immediately after scrutiny of the instruments of transfer, etc., is the

registration of the transfer. The company cannot refuse to register without adopting the course prescribed in clauses (b) and (c) of sub-section (4).

Hence, the word ""may"" cannot be construed as ""shall"" having regard to the context and the object of the section. We hold that the power to refuse

registration under sub-section (3) of section 22A of the Securities Contracts (Regulation) Act is only directory and not mandatory.

VII. Issue C : Section 108 of the Companies Act as well as section 22A(3) of the Securities Contracts (Regulation) Act, use the expression ""duly

stamped"". But, neither the Companies Act nor the Securities Contracts (Regulation) Act, defines the same. The Indian Stamp Act defines the

expression in section 2(11) thereof as follows :

Duly stamped"", as applied to an instrument, means that the instrument bears an adhesive or impressed stamp of not less than the proper amount

and that such stamp has been affixed or used in accordance with the law for the time being in force in India.

Section 12 of the Indian Stamp Act provides for cancellation of adhesive stamps. Sub-section (2) thereof reads that any instrument bearing an

adhesive stamp which has not been cancelled so that it cannot be used again, shall, so far as such stamp is concerned, be deemed to be

unstamped. Section 63 of the Stamp Act prescribes a penalty of fine which may extend to Rs. 100 for failure to cancel the adhesive stamp in the

manner prescribed by section 12. It is the contention of the respondent companies that the definition contained in the Stamp Act cannot be

imported into the Companies Act. Reliance is placed on Msco. Pvt. Ltd. Vs. Union of India (UOI) and Others, , in which it was held that the term

industry"" found in a notification issued under the Customs Act cannot be given the meaning given to it in the Industrial Disputes Act. The court

referred to a passage in Craies on Statute Law, 6th edition, and said that it is hazardous to interpret a word in accordance with its definition in

another statute or statutory instrument and more so when such statute or statutory instrument is not dealing with any cognate subject. The ruling in

Msco. Pvt. Ltd. Vs. Union of India (UOI) and Others, , will not apply in the present context.

We are unable to accept this contention of the respondent companies. The Companies Act and the Securities Contracts (Regulation) Act use

the expression ""duly stamped"". But there is no provision whatever either in the Companies Act or in the Securities Contracts (Regulation) Act,

prescribing stamp duty for any instrument. The only enactment which prescribes stamp duty for instruments referred to in the two Acts is the Indian

Stamp Act. In order to find out the stamp duty, one has to refer to the provisions of the Stamp Act. It goes without saying that the expression ""duly

stamped"" used in the sections can only mean ""stamped in accordance with the law prescribing stamp duty for the instruments referred to"". It

follows that an instrument can be considered to be duly stamped only if it is stamped in accordance with the relevant provisions of the Indian

Stamp Act. Necessarily the definition contained in section 2(11) of the Stamp Act has to be adhered to for deciding whether an instrument is duly

stamped. Consequently, section 12 of the Stamp Act which brings in a legal fiction that the instrument bearing adhesive stamps which have not

been cancelled in accordance with that section will be deemed to be unstamped. There is no escape from the application of the legal fiction and if

an adhesive stamp on an instrument remains uncancelled, the instrument is, in the eye of law, unstamped with the result that it is not duly stamped as

contemplated by the sections in the Companies Act and the Securities Contracts (Regulation) Act.

We have already, while considering Issue ""A"", referred to the rulings in Union of India v. Kulu Valley Transport Ltd. [1958] 28 Comp Cas 29

(P&H), Nuddea Tea Co. Ltd. Vs. Asok Kumar Saha and Others, , Mathrubhumi Printing and Publishing Co. Ltd. Vs. Vardhaman Publishers Ltd.

and Others, and Muniyamma and others Vs. Arathi Cine Enterprises Pvt. Ltd. and others, , wherein the various High Courts have taken the view

that the definition of the expression ""duly stamped"" found in section 108 of the Companies Act should be given the same meaning as defined in the

Stamp Act. Learned counsel for the appellant has also drawn our attention to the judgment in In Re: Coronation Tea Co. Ltd., , wherein a similar

view was taken.

He also referred to the judgment of the Supreme Court in Life Insurance Corporation of India Vs. Crown Life Insurance Co., and submitted

that in that case the definition contained in an earlier enactment for the words ""life insurance fund"" was held to be applicable to the same words in

the later enactment. It is rightly pointed out by learned counsel for the respondent companies that there was a specific provision in the later

enactment that the words and expressions which had not been defined therein, but defined in the earlier enactment shall have the meanings

respectively assigned to them in that enactment. The ruling will have no application in this case.

A Division Bench of this court has applied the provisions of sections 12, 62(1)(c) and 63 of the Indian Stamp Act and held that the non-

cancellation of the stamps affixed to the proxies filed at the time of election in the general body meeting vitiated them and the instruments were not

valid. Vide Shanmugam (T.M.) v. Mylapore Hindu Permanent Fund Ltd. [1990] TLNJ 52.

We have no hesitation to hold that the expression ""duly stamped"" found in section 108 of the Companies Act and section 22A of the Securities

Contracts (Regulation) Act, has the same meaning as given to it in section 2(11) of the Indian Stamp Act and that the requirements of section 12 of

the Indian Stamp Act should also be satisfied.

VIII. Issue D : The next question is whether the prayer of the appellant for rectification can be granted on the ground that the instruments of

transfer were not duly stamped. The argument of the appellant is developed as follows :

The company does not have any responsibility to see that the transfer deeds are properly executed and duly stamped. It is the duty of the

transferee, who presents the instruments of transfer to the company for the purpose of registering the same. Reliance is placed on the judgment of

Chagla C.J. in In Re: Jagdish Mills Ltd., , where it was held that the company is not liable to pay stamp duty on the instrument of transfer and the

revenue authorities should only proceed against the person who was liable to pay the duty. Reliance is also placed on the judgments in Babulal

Choukhani Vs. Western India Theatres Ltd. and Another, and Nuddea Tea Co. Ltd. Vs. Asok Kumar Saha and Others, in support of the

contention. The registration of the transfers by the company was void inasmuch as the manner and mode of transfer prescribed by the statute was

not followed. The names of the respondents were entered in the register without sufficient cause, warranting rectification. The provisions of section

22A of the Securities Contracts (Regulation) Act, have no relevance in a proceeding for rectification as it is governed by section 111 (4) and (5) of

the Companies Act from May 31, 1991, and section 155 previously. The two sections operate in different spheres at different stages. While

section 22A of the Securities Contracts (Regulation) Act comes into play at the stage of consideration of an application for registration of a

transfer, section 111(4) of the Companies Act is attracted at a later stage, when after registration it is found that the name was entered in the

register without sufficient cause. An application for rectification could be filed by (1) a person aggrieved by the entry in the register, (2) any

member of the company or (3) the company. Thus, the company is entitled to seek rectification when it found that registration was not done in the

manner prescribed by law. There can be no estoppel against the statute and the application for rectification cannot be defeated on the ground of

estoppel. Nor can it be thrown out on the ground of laches as no time limit is prescribed in section 111. In support of the above arguments, learned

counsel drew our attention to the rulings in Amraoti Electric Supply Co. v. R. S. Chandak, AIR 1954 Nag 293; [1954] 24 Comp Cas 465 (Nag),

Union of India v. Kulu Valley Transport Ltd. [1958] 28 Comp Cas 29 (P&H) Babulal Choukhani Vs. Western India Theatres Ltd. and Another, ,

In Re: Coronation Tea Co. Ltd., , Nuddea Tea Co. Ltd. Vs. Asok Kumar Saha and Others, , Mathrubhumi Printing and Publishing Co. Ltd. Vs.

Vardhaman Publishers Ltd. and Others, and Muniyamma and others Vs. Arathi Cine Enterprises Pvt. Ltd. and others, . In the first six cases, the

applications for rectification were made for the purpose of compelling registration of transfers. They were rejected on the ground that the stamps

on the instruments not being duly cancelled, it would be unlawful to effect registration and the company could not be compelled to do it. In the

seventh case, the applications were filed by some of the transferors challenging the registration and seeking rectification. The court held that the

instruments of transfer were invalid as they did not fulfil the requirements of section 108 and, therefore, the register should be rectified. Learned

counsel referred also to Amrit Kaur Puri Vs. Kapurthala Flour, Oil and General Mills Co. P. Ltd. and Others, , wherein the court held that if a

transfer is illegal and invalid as it was not done in the manner prescribed by the articles of association, rectification of the register would have to be

ordered by the court. Reference is made to Seth Bikhraj Jaipuria Vs. Union of India (UOI), , wherein it was observed that if a statute prescribes

mandatorily the manner or form for doing a thing, it has to be done only in that manner or form as otherwise it will have no effect or validity.

Reliance is placed on AIR 1931 52 (Privy Council) and The Bihar Eastern Gangetic Fishermen Co-operative Society Ltd. Vs. Sipahi Singh

and Others, , in support of the contention that there could be no estoppel against the statute. Reference is made to Killick Nixon Ltd. and others

Vs. Dhanraj Mills Pvt. Ltd. and others, wherein a preliminary objection was raised that the application for rectification was barred by principles

analogous to those of res judicata and the principle of issue estoppel. The Bench, however, did not decide the question as the matter was being

considered at an interlocutory stage. Our attention is also drawn to Mahabir Singh v. Jai Singh [1978] 48 Comp Cas 558, in which the Delhi High

Court said that the Companies Act does not provide anywhere that the company to which share transfer documents are presented within the time

limit fixed by section 108(1A) of the Companies Act must make the entry in its register of members within any given time. In that case it was also

held that the transfer deed was not duly stamped within the meaning of section 108 and entries made in the register on the basis of such a deed of

transfer had to be rectified by restoring the original entries to the register.

Finally, reliance is placed on Shailesh Prabhudas Mehta v. Calico Dyeing and Printing Mills Ltd. [1993] 80 Comp Cas 64, wherein the

Supreme Court said that the power given to the board of directors of a company u/s 111(4) of the Companies Act to refuse to register the transfer

or the transmission by operation of law of any shares in the company does not come to an end after the expiry of the two month period given under

sub-section (2) for intimation of such refusal and failure on the part of the company to send such intimation does not create an absolute right in

favour of the transferee to have the shares registered in his name. Hence, the doctrine of laches will have no application in this matter.

Learned senior counsel for the appellant relied on the admission made by learned senior counsel, Sri K. S. Cooper, who appeared for the

respondent companies before the Company Law Board in this matter. In the order of the Company Law Board, the admission is recorded in the

following terms (at page 655 supra) :

The contention of Shri Cooper in this regard, according to us, has a lot of weight and merits very careful consideration. It should be said in all

fairness to Shri Cooper that even though he stressed the point that non-cancellation was only a procedural defect, yet he fairly admitted that in case

the transfer had not been registered, he perhaps could not approach the Company Law Board far a direction for registration, as such direction may

be considered to be a direction to do an unlawful act.

On behalf of the respondent companies the argument is developed as follows : If an instrument of transfer is not stamped, it will not invalidate

the transaction between the parties to the instrument. The Stamp Act is a measure to raise revenue for the public exchequer. Its enforcement is

primarily ensured by the sanction that a particular document not conforming to the requirements of the said Act, shall not be used in evidence in any

proceedings. There are civil, quasi-criminal and criminal sanctions. Even when there is a criminal sanction and the party is liable to be convicted,

the instrument could be validated by payment of duty and penalty and the instrument shall take effect from the date of its execution. The transaction

is never void or affected. A fortiori in a case where there is no criminal sanction but there is only a civil sanction or a quasi-criminal sanction such as

payment of additional duty or fine, the document could still be validated with effect from the date of its execution. Our attention is drawn to the

judgments of the Supreme Court of the United States in Guy T. Helvering v. Charles E. Mitchell, 303 US 391, and Spies v. United States, 317

US 492, wherein different types of sanctions in taxation laws were discussed. It was pointed out that some sanctions are punitive and some

sanctions are remedial. The maximum fine prescribed in section 63 of the Indian Stamp Act for failure to cancel the adhesive stamp on an

instrument is only Rs. 100. That indicates that it is not a serious offence. The time of cancellation prescribed in section 12 of the Stamp Act is not

mandatory and it would be sufficient compliance with law if the stamp is cancelled before the document is used. Reliance is placed on the judgment

of the Privy Council in Ma Pwa May v. S.R.M.M.A. Chettiar Firm, AIR 1929 PC 279, in which it was ruled that where a document not only duly

stamped was admitted for registration, the mistake was only an error in procedure and curable u/s 87 of the Registration Act. Our attention is also

drawn to Subramaniam Chettiar Vs. Revenue Divisional Officer and Another, , V.E.A. Annamalai Chettiar and Another Vs. S.V.V.S. Veerappa

Chettiar and Others, , Javer Chand and Others Vs. Pukhraj Surana, , Hindustan Steel Ltd. v. Dilip Construction Co. AIR 1969 SC 1238 and

Ram Rattan (Dead) by Lrs. Vs. Bajrang Lal and Others, , in which it was held that once an unstamped and insufficiently stamped document is

admitted in evidence, the same could not be questioned thereafter. It is not necessary for us to refer to those rulings in detail as they turned on the

provisions of sections 35 and 36 of the Stamp Act. We would, however, refer to the following passage in Hindustan Steel Ltd.''s case, AIR 1969

SC 1238 on which strong reliance was placed :

The Stamp Act is a fiscal measure enacted to secure revenue for the State on certain classes of instruments. It is not enacted to arm a litigant

with a weapon of technicality to meet the case of his opponent. The stringent provisions of the Act are conceived in the interest of the Revenue.

Once that object is secured according to law, the party staking his claim on the instrument will not be defeated on the ground of the initial defect in

the instrument.

Our attention is then drawn to Circular No. 15, dated December 28, 1993 (See [1994] 79 Comp Cas (St.) 55), issued by the Company Law

Board with reference to ""bulk lodgement of instruments of transfer of shares/debentures"". The following procedure is prescribed in the case of bulk

transfers :

(i) In respect of bulk transfers where there is a single transferee, the transferee, instead of signing each transfer deed, may fill up and sign a

covering transfer deed in the existing prescribed format complete in all respects, enclosing therewith all the related transfer deeds in the prescribed

format duly executed by the transferors.

(ii) The covering transfer deed shall contain, by way of an annexure, details of distinctive numbers and corresponding certificate numbers of

shares/debentures involved in transfer.

(iii) The part relating to ''transferee''s particulars'' in the individual transfer deeds (enclosed with the covering transfer deed) need not be signed by

the transferee and may be merely stamped with the name and address of the transferee.

(iv) Requisite amount of stamps may be affixed on the covering transfer deed or paid in a manner as otherwise prescribed by the Government.

It is submitted that the Board has not considered the provisions of section 108 of the Companies Act or section 22A(3) of the Securities

Contracts (Regulation) Act to be mandatory. Reliance is also placed on (1994) 80 CompCas 411 wherein the Company Law Board held that in

the case of blank transfers, the adhesive stamps have to be affixed only at the stage when the instrument is lodged with the company for transfer as

the document is deemed to be executed only when the ultimate transferee signs the same.

The second limb of the argument of the respondent companies is on the following lines. Rectification is an exercise of quasi-judicial power. It is

a discretionary power. Equitable considerations will arise before exercise of the power, which depends upon the facts and law. The equity and

justice of the case have to be decided before granting rectification. It is not a matter of right. Circumstances like delay, laches, conduct and

prejudice which may be caused to the parties shall all be taken into account. The principle of estoppel can also apply, if the facts of the case

warrant the same. In the present case, there is a long unexplained delay on the part of the company in seeking rectification. The claim that the

company did not notice the defect in the instruments of transfer is falsified by the fact that several instruments bear a rubber stamp ""not duly

stamped"" and yet the company registered the same. If the company had complied with the requirement of section 22A(4)(b) of the Securities

Contracts (Regulation) Act, the respondent companies would have had an opportunity to rectify the defects. It will be inequitable after such a long

time to cancel the registration and thereby putting the respondent companies to great jeopardy. The principle that he who seeks equity must do

equity, will apply and on that basis the application for rectification should be rejected. The company not having complied with the mandatory

provisions of section 22A(4) of the Securities Contracts (Regulation) Act, cannot make a complaint against the non-compliance with the directory

provisions contained in section 22A(3) of the Securities Contracts (Regulation) Act. Learned counsel invited our attention to different passages in

various text books and also cited relevant rulings touching on these aspects of the matter. We will refer to them at the appropriate place. It is also

contended that blank transfers of shares are very common in company jurisdiction and also recognised by the Supreme Court in Howrah Trading

Co. Ltd. Vs. Commissioner of Income Tax, Central, Calcutta., . The respondent companies will not be in a position to trace all their predecessors-

in-title and it will be wholly inequitable to grant rectification at this distance of time.

That rectification of the register should, if necessary, be resorted to without delay is not a matter in doubt. In Gore-Browne on Companies,

44th edition, volume 2, in para 20.10, the following passage occurs :

It is of the greatest importance that the register of members should be promptly and accurately entered up, as delay or inaccuracy may lead to an

expensive lawsuit.

The power of the court is discretionary, and regard must be had to the justice of the case.

In Palmer''s Company Law, 24th edition, volume 1, at page 809, it is stated thus :

The court has rarely declined, as between a member and the company, to exercise its jurisdiction under what is now section 359; but the court

had and has a discretion, although the words ''if satisfied of the justice of the case'' in section 35 of the Act of 1862 were not used in subsequent

Companies Acts. See Per Lord Macnaghten in Trevor v. Whitworth [1887] 12 AC 409(HL) as to the materiality of these words. Where justice

requires it, the order to rectify will be made nunc pro tunc.

In Bayle and Birds'' Company Law, similar passages are found at page 425. In Halsbury''s Laws of England, 4th edition, volume 7(1) reissue,

at page 253, in paragraph 372, it is stated thus :

The jurisdiction to rectify the register is discretionary. It is not limited by the provisions of the Companies Act, 1985, to the cases mentioned

above; thus the court will rectify the register, apart from the Act, to enable the members of a company to have a fair and reasonable exercise of

their rights.

When the court entertains the application, it is bound to go into all the circumstances of the case, and to consider what equity the applicant has to

call for its interposition.

Footnote 3 therein reads thus :

Trevor v. Whitworth [1887] 12 AC 409 ; Joint Stock Discount Co., In re : Sichell''s case [1867] 3 LR Ch. App. 119; Bellerby v. Rowland and

Marwood''s Steam Ship Co. Ltd. [1902] 2 Ch. 14 (CA); Onward Building Society, In re [1891] 2 QB 463. (CA); Hannan''s King (Browning

Gold Mining), In re [1891] 14 TLR 314 (CA). In the corresponding provision in the Companies Act, 1862, section 35 the court might make an

order for rectification ''if satisfied of the justice of the case''. The words last quoted have been omitted from the later Companies Act, but, semble,

without affecting the law. See also para 303 note 2 ante.

At page 254, in paragraph 373, it is stated therein that the application to rectify must be made promptly. Reference is made to Sewell''s case

[1868] 3 Ch. App. 131 .

It is also well-settled that rectification is not a matter of course. In Trevor v. Whitworth [1887] 12 AC 409 (HL) , Lord Macnaghten said thus

with reference to the power of rectification u/s 35 of the Companies Act, 1862 :

But it is a judicial power, as it has been called, and it is to be exercised by the court, to use the language of section 35, ''if satisfied of the justice of

the case''. Those are not mere idle words. They mean, I think, what they say. Although they have been sometimes overlooked, Lord Cairns, I may

observe, relied upon them in Joint Stock Discount Co., In re : Sichell''s case [1867] 3 LR Ch. App. 119, as showing that the court is bound to go

into all the circumstances and to consider what equity the applicant has to call for its interposition.

In London, Hamburgh and Continental Exchange Bank, Ward and Henry., In re [1866] 2 LR Ch. App. 431. Turner L.J., referring to section

35, Companies Act, 1862 said that the jurisdiction given by section 35 to rectify the register is general, and not confined to cases where there has

been error, mistake or default on the part of the company, but that the court has a discretion whether it will exercise the jurisdiction. Lord Cairns,

L.J., said :

In the next place, the act to be done under the powers of that section is the ''rectification'' of the register, a term which of itself implies that the

register, either in what is, or what is not upon it, is wrong; but the register cannot be wrong unless there has been a failure on the part of the

company to comply with the directions in the Act as to the kind of register to be kept; for if the Act has been complied with, the register must be

right and not wrong.

The above observation of Lord Cairns is very relevant in the context of section 22A(4) of the Securities Contracts (Regulation) Act. We have

already pointed out that the sub-section is mandatory in its terms and the company has to form an opinion, in good faith, whether registration ought

or ought not to be refused on any of the grounds set out in sub-section (3), before the expiry of two months from the date of lodgement. In the

present case, the registration was effected within the period prescribed by the sub-section. It is not the case of the appellant-company that it did

not act in good faith while forming an opinion that registration ought not to be refused for the respondent companies. `Good faith'' in the sub-

section has to be understood in the light of the definition found in the General Clauses Act. Section 3(22) of the General Clauses Act reads that ""a

thing shall be deemed to be done in ""good faith"" where it is in fact done honestly, whether it is done negligently or not"". Mere negligence does not

negative good faith. In fact the Company Law Board has found in this case that the company acted bona fide in registering the transfers. We have

already noted the fact that the board of directors had nominated Mr. D. B. Saxena, one of the directors, as the one man committee to scrutinise

the instruments of transfer and approve or disapprove the same. Admittedly, some of the instruments were sent back for rectification of certain

defects and they were again lodged for transfer after rectification. This shows that the company had acted in good faith, before it formed its opinion

as required by sub-section (4) of section 22A of the Securities Contracts (Regulation) Act. Under clause (a) of sub-section (4), if the opinion is

that the registration ought not to be refused, the company has to effect registration. What the company has done in this case is to register the

transfers after forming its opinion, in good faith, thus acting strictly in accordance with the provisions of the sub-section. In such circumstances, if

the test prescribed by Lord Cairns, L.J., is applied, the register of members cannot be said to be wrong requiring rectification.

We do not accept the contention of learned senior counsel for the appellant that the proceeding for rectification should be dealt with exclusively

u/s 111(4) and (5) of the Companies Act, corresponding to section 155 prior to May 31, 1991, without having any regard to section 22A of the

Securities Contracts (Regulation) Act. The two sections cannot be put in two different separate compartments for the purpose of considering an

application for rectification. The language of section 111(4) of the Companies Act shows that even the person who seeks rectification has to rely

upon the provisions of section 22A of the Securities Contracts (Regulation) Act for the purpose of showing that the name of any person is entered

in the register without sufficient cause. After the introduction of section 22A(3), registration could be refused only on the four grounds expressly set

out therein. Sub-section (4) of section 22A provides that with reference to one of the grounds, the transferor and the transferee have to be given

notice about the requirements of law and with reference to three other grounds the company has to make a reference to the Company Law Board.

It is necessary for the Company Law Board to consider, before granting any relief u/s 111(4) of the Companies Act to the applicant, whether the

applicant has fulfilled the requirements of section 22A(3) and (4) of the Securities Contracts (Regulation) Act. As pointed out in the passages

extracted from the text books already, the jurisdiction being an equitable one and the Board being obliged to take into account all the facts and

circumstances of the case, the requirements of sections 22A(3) and (4) cannot be ignored.

In Benarsi Das Saraf and Others Vs. Dalmia Dadri Cement Ltd. and Another, , the words ""sufficient cause"" have been considered in detail.

Reference was also made to the observations of Lord Cairns L.J. extracted above. The court said (at p. 443) :

The word ''sufficient'' means ''adequate'', ''enough'', ''as much as may be necessary to answer the purpose intended''. It embraces no more than

that which provides a plenitude which, when done, suffices to accomplish the purpose intended in the light of existing circumstances and when

viewed from the reasonable standard of practical and cautious men"".

In T.V. Somasundaram Pillai Vs. Official Liquidator, , a learned single judge of the Madras High Court held that a claim to rectify the Register

cannot be asked for ex debito justitiae, and that it must be based on certain accepted principles, particular care being taken to find whether the

applicant who is seeking such a discretionary and equitable relief is guilty or not guilty of laches. The learned judge said that the doctrine of laches

has a very great significance. The learned judge quoted the following observation made by Lord Romilly M.R., in Walker''s case : Anglo-Danubian

Stem Navigation and Colliery Co., In re [1868] LR 6 Eq 30, 35 :

Where there has been no fault on either side, the register remains as it was - where the fault is on both sides, the register also remains as it was"".

The above principle does apply in this case.

Learned senior counsel for the respondent companies drew an analogy from a suit for specific performance where the grant of relief is

discretionary and unexplained delay will disentitle the person concerned to the relief of specific performance. In this connection he referred to the

decision in Madamsetty Satyanarayana Vs. G. Yellogi Rao and Others, , where the court held that the field of discretion cannot be defined; but the

court would not grant relief if it would be inequitable.

Learned counsel for the respondent companies referred to Bajaj Auto Ltd. Vs. N.K. Firodia and Another etc., , wherein even before the

introduction of section 22A of the Securities Contracts (Regulation) Act and the amendment to section 111(1), the Supreme Court held that

though article 52 of the articles of association of the company provided that the directors might at their absolute and uncontrolled discretion decline

to register any transfer of shares, the discretion did not mean a bare affirmation or negation of a proposal and it implied just and proper

consideration of the proposal in the facts and circumstances of the case. The court pointed out that the directors were in a fiduciary position both

towards the company and towards every shareholder and, therefore, had to act bona fide and not arbitrarily and not for any collateral motive.

Reference is made to the judgment in Roshanlal Kuthalia and Others Vs. R.B. Mohan Singh Oberoi, in support of the contention that equitable

jurisdiction is not hide-bound but flexible in order to meet the challenge of a new situation. Our attention is drawn to the following passage in the

judgment (at p. 836) :

Precedents in profusion were cited on both sides bearing on court deposits as security for decree amounts and for allied positions. While we will

presently refer only to a few of them inhibited by space and relevance, it falls to be mentioned at the threshold, contrary to the tenor of Shri Sen''s

contention, that equity jurisprudence is flexible and meets the challenge of new situations without the law. `New days may bring the people into

new ways of life and give them new outlooks; and with these changes there may come a need for new rules of law. Current Legal Problems, 1952,

volume 5, Stegens and Sons Ltd. London P.1''. But legislation lags. Here steps in equity for the role of a judge, is to develop the law and adapt it

to the needs of the members of his society (see Modern Law Review, 1971), volume 34, page 28. Nor is Shri Sen right when he contends that his

client admittedly not being guilty of any blamable conduct, therefore should not be deprived of any part of his decree. Equity is not penalty but

justice and even where neither party, as here, is at fault, equitable considerations may shape the remedy. Lord Denning spoke of the new equity

that was needed (5 Current Legal Problems 1952 P.1) and Marshall said that the time to write finis to the role of the judiciary in the field of equity

had not come (see Law Justice and Equity - Essays in Tribute to Keeton - p. 66). Of course not novel sentiments but well-settled rules, (not novel

sentiments), not the Chancellor''s foot but standard - sized shoes, serve the judge in these pathless woods. True, as Keeton said : Keeton Sheridan

on ''equity'', page 37, 1969 edition. Sir Isaac Pitman and Sons Ltd. London.

''An equitable doctrine may prove malleable in the hands of Lord Denning but intractable in the hands of Lord Justice Harman''.

In short, our equitable jurisdiction is not hide-bound by tradition and blinkered by precedent, though trammelled by judicially approved rules of

conscience"".

It is submitted that courts in India are courts of equity and they will not permit the invocation of weak and inequitable rights to defeat the right

of the other party. Reference is made to Indira Bai Vs. Nand Kishore, , wherein the court said (at p. 1058) :

Even otherwise on the facts found that the respondent knew of the sale deed, assisted the appellant in raising the construction and after the

construction was completed in the month of June, he gave the notice in the month of July, for exercise of the right and filed the suit in January,

would itself demonstrate that the conduct of the respondent was inequitable and the courts in this country which are primarily courts of equity,

justice and good conscience cannot permit the respondent to defeat the right of appellant and invoke a right which has been called a weak and

inequitable right.

It is argued by learned counsel that the principle of estoppel will be available against a weak and inequitable right. According to him, the right

put forward by the appellant-company is weak and inequitable and should not be countenanced.

We accept the above arguments of learned counsel for the respondent companies. Taking into consideration all the facts and circumstances of

the case, in the light of the provisions contained in section 22A(3) and (4) of the Securities Contracts (Regulation) Act, we have no hesitation to

hold that the appellant is not entitled to the relief of rectification and it will be wholly unjust and inequitable to grant the same.

IX Issue E. - It is the contention of learned counsel for the appellant that there is no specific pleading of mala fides in the pleadings before the

Company Law Board. It is well-settled that mala fides should be pleaded with proper particulars. In any event, no particulars have been given in

the pleadings as regards mala fides on the part of the appellant. The contentions urged before the Board across the Bar without there being a

pleading, ought not to have been entertained.

It is vehemently argued that the appellant is guilty of mala fides as it has not disclosed the real reason for which it seeks rectification. One of the

arguments advanced by the appellant before the Company Law Board was that the respondent companies had hidden the fact that they belonged

to the Reliance group of companies and had the said fact been known to the company at the time of registration, it would have rejected the request

for registration. It is submitted by the respondent companies that the appellant has deliberately omitted to mention that real reason for seeking the

equitable relief of rectification. Learned counsel for the appellant submitted that there was no pleading at all before the Board and in the absence a

specific plea with full particulars the case of mala fides should have been thrown out. He took exception to the finding of the learned single judge in

the C.M.As.

We find that the relevant pleading is found in the counter statements of the first respondent-company. In the counter filed on March 3, 1993, in

C.P. No. 11/III/SRB of 1993, the following passages are found :

At the outset it is respectfully submitted that the petition filed seeking for deletion and rectification of the register of members of the petitioner

company is not maintainable in law, lacks bona fides and is based on disputed facts and as such is liable to be dismissed.

The obvious defects discovered now as pleaded by the petitioner were ""not noticed then which is beyond a reasonable man''s comprehension.

This conduct itself would go to show that the petitioner has not come before this Board with clean hands and with bona fides and that it had

deliberately filed this petition only in order to defeat the rights of the first respondent to be entitled to the rights issue of partly convertible

debentures, which has been resorted to by the petitioner.

It is also curious to note that the petitioner had noticed certain defects in respect of some shares but had not noticed defects in respect of

shares which are the subject matter of the present petition which would not only go to show that the action of the petitioner is not bona fide and is

borne out by a deep rooted conspiracy to deny the legitimate entitlement of the respondent to be entitled to participate in and exercise its rights in

the ''rights issue'' of partly convertible debentures. Thus the petitioner company should not be allowed to take advantage of its own wrong after a

considerable lapse of time to nullify a bona fide registered transfer in favour of respondent No. 1 which was otherwise valid.

The fact which remains is that there are no bona fides in the action of the petitioner which is manifest from the delay in filing of the present

petition.

The petitioner-company has done so mala fide and with ulterior motives.

Learned senior counsel referred to the civil application filed before the Board by the respondent companies raising preliminary objections. In

para 5B, it is stated that the petition is actuated by mala fides such as would render the same liable to be rejected in equity. In para 6B, the same is

elaborated in about six pages. The relevant part of it reads thus :-

What renders the said action on the part of the company even more suspect and focuses with startling clarity on the mala fide and oblique motives

with which the said petition has been filed is the fact that the petition is sought to be filed and is affirmed by one Mr. D. B. Saxena, a whole-time

director of the petitioner company. Significantly, it is the same Mr. Saxena, who was the one man committee who scrutinized the said transfer-

deeds and approved the transfer in favour of the first respondents and who now pleads ignorance and/or mistake in permitting such transfer-deeds

to have been entertained by the company. It is further significant to note that, in the event of the vested rights of the first respondents being allowed

to be thus defeated by the mala fide action on the part of the petitioners, the inevitable result will be that those in management of the petitioner

company, including the said Mr. Saxena and others, who have applied for additional quota of partly convertible debentures beyond their rights

entitlement, will benefit, inasmuch as the rights entitlement of the first respondents would lapse and would be available for distribution to the very

directors, who had earlier approved the said transfer, and thereafter by precluding the transferors from applying therefor, and now seeking to

deprive the transferees also of the said rights, thereby gaining an unfair advantage, which, it is respectfully submitted, is grossly inequitable, unjust,

unfair and which conduct, it is respectfully submitted, this court should not sanction or confer its imprimatur upon, which would tantamount to

putting a premium on dishonesty.

Again it is averred :

It is further respectfully submitted, and it is pertinent to note, that the mala fides of the company in filing the said rectification application is borne

out by the subsequent conduct of the petitioner-company as more particularly set out hereinafter. In this connection, it is significant to note that, in

respect of shares which are sought to be registered by respondent No. 1/applicants in their favour, the petitioner-company has rejected the said

applications and have filed applications u/s 22A of the Securities Contracts (Regulation) Act, wherein the petitioner-company has contended that

transfers in favour of the first respondents would be such as would be likely to result in a change of the composition of the board of directors,

which change would be prejudicial to the interests of the company and/or public interest. In the said reference application filed u/s 22A of the

Securities Contracts (Regulation) Act, the petitioner-company has significantly adverted to the rectification application in respect of shares

constituting the subject-matter of the present petition. The nexus is clear. It is obvious that the intent of the petitioner-company is to meet the

imagined threat of the alleged destabilisation campaign on the part of respondent No. 1/applicants herein and has not been filed bona fide, as

claimed by the petitioners in order to comply with the provisions of section 108 of the Companies Act, as alleged by the petitioner-company.

In the counters filed by the appellant the averments are denied. It is also pointed out that arguments had already begun and in the midst thereof

there could be no application for preliminary objections. It is further stated as follows :

The petitioner submits that the first respondent cannot claim rights in equity having failed to come with clean hands by cornering the shares of the

petitioner-company along with others in the Reliance group surreptitiously with a view to dislodge the management of the petitioner-company.

Excepting drawing our attention to the relevant pleadings, learned counsel did not refer to any evidence on record. The Company Law Board

after referring to the rival contentions has refrained from expressing any opinion on the matter inasmuch as the rectification is not sought on that

basis.

In Needle Industries (India) Ltd. and Others Vs. Needle Industries Newey (India) Holding Ltd. and Others, , the court held that it is generally

unsatisfactory to record a finding on the question of mala fides on the basis of affidavits and documents without asking the person concerned to

submit to cross-examination. When the Company Law Board has chosen to refrain from giving a factual finding on the question, the learned single

judge ought not to have ventured a finding against the appellant particularly when an appeal u/s 10F of the Companies Act is confined to questions

of law. The proper course would have been to call for a finding on the facts from the Company Law Board. But, in view of our conclusions on the

other issues, we do not think it necessary to adopt such a course.

X Issue F. - The Supreme Court has elucidated the law on this aspect of the matter in the following words in Udit Narain Singh Malpaharia Vs.

Additional Member, Board of Revenue, Bihar, :

The law on the subject is well-settled : it is enough if we state the principle. A necessary party is one without whom no order can be made

effectively; a proper party is one in whose absence an effective order can be made but whose presence is necessary for a complete and final

decision on the question involved in the proceedings.

In Lumxi Tea Co. Ltd. v. Pradip Kumar Sarkar [1990] 67 Comp Cas 518, the Supreme Court held that in an application filed by a transferee

of shares for rectification of the register of the company by insertion of his name therein, the transferor was not a necessary party since the transfer

was not disputed by him.

In this case, the contention of the respondent companies is that transferors are necessary parties to the application for rectification in order to

decide the equity. The learned single judge has accepted the said contention and observed as follows (at page 695) :

Further the appellant-company as well as the Company Law Board has failed to give notice to the transferor and the transferee who are also

vitally interested in the matter in view of the relief sought for by the appellant-company and this would also be very vital going to the root of the

matter rendering the very petitions filed before the Company Law Board being not at all maintainable. In this connection reference may be made to

the decision of this court in Jawahar Mills Ltd. v. Official Receiver, Sha Mulchand and Co. Ltd. [1949] 19 Comp Cas 138 (Mad), where the

court observed (at page 156) that ""the court cannot order rectification of the register in respect of the particular shares claimed by the applicant in

the absence of third parties whose rights will be affected by rectification"". It is also important to add that the transferors are parties not only in the

light of the SCRA, but also in the light of the Stamp Act because under the provisions of the Stamp Act the liability for payment of stamp duly on

the instrument transferred would fall on the transferors and this principle has been accepted in the case of on AIR 1949 211 (Federal Court) ,

wherein the court has held that as a matter of law in cases of transfer of shares of a company, it is the vendor by whom the stamp duty is payable.

The same is the effect of the decision of the Punjab High Court in G. R. Parry v. Union of India [1962] 32 Comp Cas 145. Therefore, I am of the

view that equitably the matter does not warrant a discretion to be exercised in favour of the appellant-company, because if at this stage rectification

is done, that would amount to un-settling various transfers that had taken place long back and that would also create confusion and instability in the

stock market.

We are unable to agree with the reasoning of the learned judge. In Jawahar Mills Ltd.''s case [1949] 19 Comp Cas 138, it was a case of

forfeiture of shares and allotment of forfeited shares to third parties. When the company had already allotted the shares to third parties it was held

that in the absence of such allottees whose rights will be affected, the relief of rectification could not be granted. That ruling has no relevance in this

case. Nothing has been placed before us in this case to show how the transferors are necessary parties to the application for rectification. The only

ground on which rectification is sought is that the instruments of transfer are not duly stamped. Whether it is the duty of the transferor to affix

stamps and cancel the same or the duty of the transferee it is wholly irrelevant for deciding the application. If the test prescribed in Udit Narain

Singh Malpaharia Vs. Additional Member, Board of Revenue, Bihar, , is applied, there can be no doubt that the transferors are not necessary

parties to the proceedings.

XI. Issue G. - We hold that the appellant is not entitled to any relief in the applications for rectification and they deserve to be dismissed. In fine the

appeals are dismissed. No costs.

ORDER

Srinivasan, J.

Learned counsel for the appellant makes an oral application for grant of a certificate of fitness to appeal to the Supreme Court of India. We are

of the view that the case involves a substantial question of law of general public importance as contemplated by article 133(1) of the Constitution of

India and in our opinion, the question needs to be decided by the Supreme Court. Hence, we grant leave to appeal to the Supreme Court of India.

Learned counsel also prayed for grant of stay of the operation of our judgment till the filing of appeal. We are not inclined to grant stay as we

have dismissed the applications for rectification and there is nothing to be stayed.