The Hindu Business Line : CLB directs Sterling Holiday to register transfer of shares to GIIC

THE requirement as to the time limit for delivery of instruments of transfer with a company for registering the transfer of shares under Section 108(1C)(2) of the Companies Act, 1956 was "directory in nature and not mandatory," the Southern Region Bench of the Company Law Board, Chennai, has held.

Directing the Chennai-based Sterling Holiday Resorts (India) Ltd to register the transfer of 22,93,000 shares of the company (pledged by three other companies) in the name of the petitioner, Gujarat Industrial Investment Corporation Ltd, the Board said that the company could not refuse to effect the transfer of shares, after having waived the requirements of sub-section (1C).

The petitioner had extended a corporate loan of Rs 5 crore in October 1996 to the company against security of the impugned shares held in the name of the respondents 2 to 4 (Dove Investments Pvt Ltd, Maxworth Investments Pvt Ltd and Mr P.N. Mohan), the company's promoters and associates, by way of pledges of 8,39,800 and 17,53,000 shares.

According to the petitioner, when the company defaulted in repayment, the petitioner was constrained to lodge with the company the original share certificates of the pledged shares together with duly stamped and executed instruments of transfer for effecting registration of the transfer thereof in the name of the petitioner.

The company, however, had registered the transfer of only 2,99,800 shares pledged by respondents 2 and 3, but did not effect the transfer of the remaining shares. The company advised the petitioner that the process of transfer of the remaining shares was on. But it did not do so despite the petitioner's request to effect the transfer. Meanwhile, respondents 2 to 4 filed suits in the City Civil Court, Chennai, for a permanent injunction restraining the company from effecting the transfer of the pledged shares in favour of the petitioner.

On behalf of the petitioner, it was submitted that the impugned shares were freely transferable. The action of the respondents in not effecting registration of the transfer of the pledged shares in favour of the petitioner was with an oblique motive as well as without sufficient cause and, therefore, was contrary to law and unjustified, especially when the petitioner, being a pledgee, was entitled for registration of the transfers.

The respondents submitted that the petitioner failed to comply with the provisions of sub-section (1C), according to which the instruments of transfer ought to have been stamped or endorsed by the petitioner.

The petitioner contended that the plea of non-compliance with the requirements of Section 108(1C) had neither been raised before the civil court nor in the present proceedings. At the same time, the company had given effect to the transfer of 2,99,800 shares. Also, the company had admitted that it was in the process of transferring the balance 22,93,000 shares.

The Board said that according to sub-section (1C), if the transfer of shares fell within any one of the exempted cases mentioned in the sub-section, the requirements as to presentation of the instrument of transfer were not applicable.

Quoting a decision of the Karnataka High Court, the Boardheld that the analogy adopted for sub-section (1A) shall be applicable to cases falling under sub-section (1C)(2), which dealt with specified transfers, and therefore, the requirement as to the time limit for delivery of the instrument of transfer was directory in nature and not mandatory.

It was on record that the instruments of transfer were already delivered to the company in accordance with the requirements of Section 108(1).

Moreover, the company had already effected the transfer in respect of 2,99,800 pledged shares in the name of the petitioner, though the instruments of transfer were admittedly delivered beyond the time limit prescribed under sub-section (1C).

Thus, the Board said, the company having waived the requirements of sub-section (1C), could not now take a different stand. The civil suits filed by the respondents, in the absence of any restraining order against the company, did not have any bearing on the prayer made by the petitioner.

For these reasons, the company was directed to register the transfer of 22,93,000 shares in the name of the petitioner within 30 days.