Case Law Companies Act Petitioner Vasudev Ramchandra Shelat Vs Respondent Pranlal Jayanand Thakar And Ors

Case Law Companies Act

Petitioner Vasudev Ramchandra Shelat Vs

Respondent Pranlal Jayanand Thakar And Ors







CITATION: 1974 AIR 1728    1975 SCR

(1) 534 1974 SCC  (2) 323 CITATOR INFO : RF1986 SC1370  (69,77,80) RF          1988 SC 782  (65) RF 1988 SC1353  (3)


ACT: Transfer  of Property Act, 1882 (4 of 1882) ss. 6,  122  and 123–Gift   of  shares  in  companies  by  registered   gift deed–Transfers   not  effected  before  donor’s   death–No question of competing equities–Whether rights of  ownership can be split into right to corpus and usufruct. Indian Companies Act, 1913–S. 28–Reg. 18 of Table A “title to  get  on  the register” and  “the full  property  in  the shares in a company”–Distinction. Interpretation–Harmonious interpretation.

HEADNOTE: By a registered deed, a donor gifted to the appellant shares in  various limited companies.  Before her death  the  donor had  signed several blank transfer forms to enable the  done to  obtain  transfer  of  the  shares  in  the  register  of companies  and  share  certificates in his  name.   She  had signed at the correct places showing that she meant to  sign transfer  of shares but the transfer could not  be  effected before  the  donor’s  death.  The  respondent  claiming  the shares filed an administration suit.  A single Judge of  the High  Court held that the appellant was entitled  to  shares covered by the gift deed to which blank transfer forms could be related.  A division bench of the High Court reversed the decision of the Single Judge on the ground that the gift was incomplete  for  failure  to  comply  with  the  formalities prescribed by the Indian Companies Act, 1913 for transfer of shares.  It further held that there was no equity in  favour of the appellant so that he may claim the right to  complete what was left incomplete by the donor in her life-time.   On appeal  it  was contended in this Court (1) that  since  the donor  had signed the blank transfer forms and  handed  them over  to the done, the gift deed and the signed blank  forms had  to  be  read together and (2)  that  the  transfer  was complete  with  the registration of the gift deed  and  even delivery of share certificates to the done was not necessary in view of s. 122 of the Transfer of Property Act. Allowing the appeal,

HELD:(1)  The  respondent  has  not  made  out  a  case  for defeating  the  clearly expressed intentions of  the  donor, coupled with the authority with which the donor was armed by reason  of  the signed blank transfer forms.  On  a  correct interpretation of the gift deed and other material the right to  obtain a transfer of shares was clearly  and  completely obtained  by the donee appellant.  There was no question  of competing.equities because the donee appellant was shown  to have obtained a complete legal right to obtain shares  under the gift deed and an implied authority to take steps to  get his name registered. [549B-D]

The  fact  that the relevant provisions of the  Transfer  of Property  Act  and  the Companies Act  must  be  interpreted harmoniously does not mean that a provision of one Act could be  nullified by any provision of the other Act.   It  means that   the  provision  of  the  two  Acts  should  be   read consistently  with  each other so far as  it  is  reasonably possible  to  do  so.   This end can  be  best  achieved  by examining  the  objects  and  the  subject-matter  of   each enactment  and by viewing each relevant provision as a  limb of  an  integrated  whole  meant  to  serve  the  underlying purposes.  In this way their separable spheres of  operation will  be clarified so as to avoid possibilities of  conflict between  them  or any unnecessary overflow  of  what  really appertains to one field into another. [539H-540B] (2)  The Transfer of Property Act is an enactment meant  for defining certain basic types of transfers and lays down  the requirement  both of substance and of form for  their  legal recognition and effectiveness.  Section 5 of the Act gives a wide  connotation to “transfer of property”.  Section  6  of the  Act  lays  down  that “property  of  any  kind  may  be transferred”  subject  to certain exceptions.  Shares  in  a company are certainly a form of property.  Section 28 of the Companies 535

Act,  1913  says  that  they  “shall  be  movable  property, transferable  in  the  manner provided by  articles  of  the Company”.   A wide definition of “property” in s. 6  of  the Transfer  of  Property  Act includes not  merely  shares  as transferable,  movable  property.  but  would  cover  as   a separate form of property a right to obtain shares which may be antecedent to the accrual of rights of a shareholder upon the  grant  of a share certificate in  accordance  with  the articles of association of a company. [540B-E] There  is  a distinction between “the title to  get  on  the register”  and  “the  full  property  in  the  shares  in  a company”.  The first is acquired by mere delivery, with  the required intention of the share certificate and a blank form signed  by the transfer.  The second is only  obtained  when the  transferee,  in  exercise  of his  right  to  become  a shareholder,  gets his name on the register in place of  the transferor.  This antecedent right in the person to whom the share certificate is given with a signed blank transfer form under a transaction meant to confer right or title upon  him to  become  a  shareholder  is enforceable  so  long  as  no obstacle  to it is shown to exist in any of the articles  of association  of a company or a person with a superior  right or  title, legal or equitable, does not appear to be  there. Section  6 of the T.P. Act justifies such a splitting up  of rights  constituting property in shares just as it  is  well recognised that rights of ownership of property may be split up  into  a  right  to  the  “Corpus”  and  another  to  the “usufruct”  of the property and then separately dealt  with. [541C-E]


M.P.  Barucha & Anr.  V. V. Sarabhai & Co. & Ors. 53  Indian Appeals P. 92 @ 97-98, relied on. Section  122  of  the Transfer of  Property  Act  defines  a “gift”. Section 123 of the T. P. Act prescribes the mode  of transfer by gift.  No special mode of delivery is specified in the section.  On the other hand it is indicated that  the delivery “may be    made in such a way as the goods sold are delivered”. [541E-G]

In the instant case the registered document was signed  both by  the donor and donee and is attested by  witnesses.   The donor specified and gave particulars of the shares meant  to be  gifted.   The donor delivered the registered  gift  deed together with the share certificates to the donee.  On these facts  the donation of the right to get  share  certificates made  out  in the name of the donee  became  irrevocable  by registration  as well as by delivery.  The actual  transfers in  the  registers  of  the  companies  concerned  were   to constitute  mere  enforcement  of  this  right.   They  were necessary to enable the donee to exercise the rights of  the shareholder.   The mere fact that such transfers had  to  be recorded in accordance with the Company Law did not  detract from the completeness of what was donated. [541G-542B] The broadly indicated requirements of regulation 18 of Table A  of  1st  Schedule to the Companies Act,  1913  were  also complied  with  by  the contents of the gift  deed.   It  is immaterial  that the gift deed deals with a number of  items so long as the requirements of Regulation 18 are  fulfilled. The  observance of a form whether found in the  Transfer  of Property  Act or in the Companies Act is meant to serve  the needs  of  the  substance  of  the  transaction  which  were undoubtedly  shown to have been completely  fulfilled  here. There  is nothing in Regulation 18 to indicate that  without strict  compliance  with some rigidly prescribed  form,  the transaction   must  fail  to  achieve  its   purpose.    The subservience  of substance of a transaction to some  rigidly prescribed  form  required  to  be  meticulously   observed, savors of archaic and outmoded jurisprudence. [543G-544A] Re  Nose, Midland Bank Executer & Trustee Co. Ltd. v.  Rose. 1949   Ch.   D.  78,  Re  Rose,  Rose  v.  Inland   Renvenue Commissioners, 1932 (1) Ch.D. 499, M/s.  Howrah Trading  Co. Ltd.  v.  The Commissioner of Income-tax,  Calcutta,  [1959] Supp. (2) SCR 448 @ 453 referred to.


JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2515 of 1973, (From the judgment and Decree dated the 11th/12th July, 1972 of the Gujarat High Court in L.P. A. No. 40 of 1969.) S. T, Desai and H.S. Parihar for the appellant. M.C.  Bhandare,  P.  H.  Parekh  and  Manju  Jetley   for respondent No. 1. 536

The Judgment of the Court was delivered by BEG, J. This appeal, after certification by the Gujarat High Court  of  fitness  of  the case for  it,  I  rises  in  the following circumstances:

Uttamram Mayaram Thakar, a flourishing lawyer, made a  will, on  10-6-1945 and died childless on 20-8-1946.   His  widow, Bai  Ruxmani, obtained, under the will, inter alia,  certain shares the right and title to which are disputed before  us. On  6-3-1948,  Bai Ruxmani executed a registered  gift  deed purporting to donate the disputed shares in various  limited companies, of which details were given in the gift deed,  to her  brother,  Vasudev  Ranichandra  Shelat,  the  appellant before  us (hereinafter referred to as “Shelat”).  On  18-4- 1948,  Bai Ruxmani also expired.  But, before she died,  she had signed several blank transfer forms,apparently  intended to be filled in by donee so as to enable him. to obtain  the transfer  of  the  donated shares in the  registers  of  the various  companies and share certificates in his  own  name. She  had  put her signatures in the correct  places  showing that  she meant sign as the transferor of the  shares.   The shares  could not, however, be transferred in the  registers of  the various companies, in accordance with  the  relevant provisions   of  Company  law,  before  the  lady’s   death. Therefore,  the  respondent  before  us,  Pranlal   Jayanand Thakar,  a  nephew  of the  late  Uttamram  Mayaram  Thakar, disputed  the  claim  of the  appellant  Vasudev  Ramchandra Shelat to these shares in an administration suit which  came up  before  a  learned Judge of the Gujarat  High  Court  in second  appeal  together with other  matters.   The  learned Single  Judge  held that Shelat was entitled to  the  shares covered  by  the  registered gift deed to  which  the  blank transfer  forms could be related but not to others  said  to have  been  orally gifted with which we  are  not  concerned here.   The  learned Judge having granted leave  to  file  a Letter’s Patent Appeal, a Division Bench of the Gujarat High Court,  which  considered  the rival  claims,  reversed  the decision of the learned Single Judge even with regard to the shares  covered  by the registered gift deed on  the  ground that the gift was incomplete for failure to comply with  the formalities prescribed by the Companies’ Act for  “transfer” of  shares.  It held-that there was no equity in  favour  of Shelat  so  that he may claim a right to complete  what  was left  incomplete  by the donor in her lifetime  even  though there  could  be no doubt that Bai Ruxmani had  intended  to donate the shares to Shelat.

We  think Mr. S.T. Desai, learned Counsel for the  appellant Shelat,  rightly pointed out that every material finding  on questions  of  fact, given in favour of the  appellant,  was upheld by the Division Bench.  After indicating the terms of the gift deed, the Division Bench held: “Thus, it is undoubtedly true that the deed of gift   discloses        a  clear   and   unequivocal intention        on  the part of  Bai  Ruxmani  that Vasudev  should  become  the  owner  of  these shares and he should for all future time enjoy the  fruits  thereof.  it is  a  well  settled position in  law  that  unless  the  gift  it completed  as required by law, mere  intention to  make a gift cannot pass any title  to the donee and does not make the 537

donee the owner of the property gifted by  the donor.  The registered gift deed itself cannot create   any  transfer  and  so  it  was not competent to the donor to divest the title  in her merely by the execution of the gift  deed. She  was required  to  execute  the   regular transfer  deeds or instruments of transfer  in favour of Vasudev Shelat and hand them over to the  donee, Vasudev Shelat, together with        the share certificates.” It went on to say:

“The circumstances as they clearly emerge  and the facts as found by the Courts below, go  to show  that  the deed of gift was        executed  on March 6, 1948, and, at the same time, the re- levant share-certificates were handed over  by the donor to the donee; and, sometime  between March   6,  1948,        when  the  gift  deed   was executed, and April 18, 1948, when Bai Ruxmani died  blank  transfer  forms  signed  by         Bai Ruxmani  were  handed over by Bai        Ruxmani  to vasudev Shelat, the donee.” The   appellant’s  submissions,  on  facts  found,  may   be summarised as follows:

(1)  As  between  the donor and the donee the  transfer  was complete  with  the registration of the gift deed;  and,  as there  was  a registered document, even  delivery  of  share certificates  to  the  donee was not necessary  in  view  of Section 122 Transfer of Property Act. (2)  Assuming,  without conceding that the donor had  to  do something  more than to execute a registered document,  this too  was  done when the shares certificates and  the  signed “blank transfer” forms were handed over to the donee by  the donor.  It did not matter if the name of the donee and other particulars are wanting in these blank forms.  All necessary particulars  of shares involved were expressly mentioned  in the gift deed which specifies and identifies each individual share  meant  to be donated.  The gift deed and  the  signed blank forms had to be read together.  The donor had done all that  reasonably  lay  with- in her power  to  complete  the donation.

(3)The  conduct  of  the donor, in handing  over  the  share certificates to the donee and the blank transfer forms, read in the context of the expressly laid down intentions of  the donor in the gift deed, raised the presumption of an implied authority  to  fill  in the details and  to  submit  to  the companies  concerned the forms given by the donor to  Shelat before her death.

(4)  There  was no evidence whatsoever in the case to  repel the irresistible inference of an implied authority given  to the donee to fill in and submit the transfer forms so as  to obtain the necessary entries in the registers of the various companies concerned.

(5)  The Division Bench had, after giving all the  necessary findings  of  fact in favour of the  appellant,  misdirected itself by resorting to the doctrine that there is no  equity to  complete an incomplete transaction, as there is  when  a bonafide purchaser for value comes before the Court. 538 There  was  no question of any equity  involved  here.   The simple  question was one of fact.  Did the inference  of  an implied authority of the donee to fill in the forms and take other  steps  necessary  to  get his  name  entered  in  the registers   of  shareholders  arise  or  not?   Instead   of considering  and deciding whether such an  inference  arose, the  Division Bench had failed to decide the real  issue  on the  erroneous view that equity debars it from inferring  an implied  authority  because the donee, unlike  a  bona  fide purchaser  for  value, had paid nothing for  the  rights  he could get from the donor. All  that could be urged on behalf of the respondent may  be summed up as follows :

(1)  The facts found make out, at best, an intention of  Bai Ruxmani  to  donate  but not the completion  of  a  donation required  by law for divesting the donor of interest in  the property under consideration which consisted of shares.

(2)  Although  shares are goods, as defined by the  Sale  of Goods  Act, yet, they are ‘goods’ of a special kind.   Their transfer  is  not  completed merely by the  execution  of  a registered  document or by delivery but the correct mode  of transfer  is  determined by the character of  these  “goods” Sec.  123 of the Transfer of Property Act lays down  only  a general  mode of transfer by gift for goods in ‘general  but not  for the transfer by gift of shares which are a  special type of ‘goods’ capable of transfer only in accordance  with a  special  mode prescribed by the Companies  Act  of  1913, which was applicable at the relevant time.  In other  words, an  adoption  of the prescribed form of transfer is  of  the essence  of  a transfer for all purposes and not  merely  as between the shareholder and the company concerned.

(3)  Sections 122 & 123 of the Transfer of Property Act  had to  be  read  harmoniously with Sections 28 and  34  of  the Companies Act, 1913.

(4)  Since  material portions of the transfer form given  in regulation  19  of  Table A of the  first  Schedule  of  the Companies Act of 1913 were never filled in, the doctrine  of “substantial  compliance” with the required form  could  not come to the aid of the appellant.

(5)  The gift deed itself does not empower the donee to take any  of those steps which remained to be taken  to  complete the  ‘transfer’, so that the doctrine of  implied  authority would  be excluded by the ex. press terms of the  gift  deed which  not  only do not confer any such authority  Upon  the donee but indicated that the donor was to take the necessary steps herself.

(6)  Inasmuch  as acceptance of the gift “during  the  life- time of the donor” is a condition precedent to the  validity of  the gift as a transaction, and the appellant Shelat  did not apply for the transfer of shares, so as to indicate  his acceptance  of the gift before the dono died, the  purported donation  was  frustrated by reason of Sec. 122  of  of  the Transfer of Property Act. 539

(7)  Even  if  we  were  to assume  that  the  facts  proved disclosed that the appellant donee was armed with an implied authority  to  obtain  a transfer, yet  that  authority  not having  been acted upon during the life-time of  the  donor, lapsed  with  the donor’s death.  The result  was  that  the donation, even if intended, was imperfect or infructuous  in the  eye  of law and could not be  perfected  or  completed. Equity  does not aid a merely purported donee who has  given no  consideration  to  obtain any right.   In  other  words, equitable considerations would not be irrelevant in deciding the question before us.

(8)Even apart from equity, under the  law of agency, found in sec.   201  of  our Contract Act, the  Principal’s  death terminates the agency,   so  that  the doctrine  of  implied authority does not help the appellant.

(9)  Section  202 of the Contract Act could not apply  to  a case  where the subject-matter of the alleged agency is  the taking  of steps to complete a transfer and not  the  rights which could only accrue after the necessary steps are taken. Hence,  the  appellant donee could not be said  to  have  an interest  in  the “subject-matter of the  agency”  which  is distinct  from rights which could have arisen if the  object of the agency had been fulfilled.

(10) Section  202 of the Contract Act could apply to a  case where  an  agent has an actual or existing interest  in  the subject-matter of the agency.  Even if the subject-matter of the  agency  could be said to be “Property”,  consisting  of shares,  there could be no question of applying Section  202 of the Contract Act before an “‘merest” in the shares arose. Such “interest” could only arise after a completed transfer.

(11)  Section 202 of the Contract Act contemplated cases  of termination  of agency in ways other than death.   It  meant that,  so  long  as  a Principal  is  alive,  he  could  not terminate  an  agency so as to injure the interests  of  the agent in “the subject matter of the agency”. But, in   the case  of  the  death  of  the  Principal,  the  relationship terminated     ipso facto or automatically by death.

(12) A  resort  to the very concept of agency in  this  case presupposes that some interest of the Principal or the donor in  the property said to be donated continued,-or, in  other words,  the  assumption behind it was that the  donation  of shares  was not complete in the eye of law.  Its  completion was not possible after the death of the donor.


We  think  that questions to be really decided in  the  case before  us  have  tended to  become  needlessly  clouded  by references  to  statutory  provisions and  to  doctrines  or concepts  which  really  operate in  separate  and  distinct fields  of  their  own.   It  is  true  that  the   relevant provisions of the Transfer of Property Act and the Companies Act  must be interpreted harmoniously.  But, this  certainly does not mean that a provision of one Act could be nullified by  any  provisions  of the other Act.  It  means  that  the provisions of the two Acts should be- read consistently with each other so far as it is reasonably possible I to do SO. 540 We  think  that  this  end can  be  best  achieved  here  by examining  the  objects  and  the  subject-matter,  of  each enactment  and by viewing each relevant provision as a  limb of  an  integrated  whole  meant  to  serve  the  underlying purposes.  In this way, their separable spheres of operation will  be clarified so as to avoid possibilities of  conflict between  them  or any unnecessary overflow  of  what  really appertains to one field into another.

No doubt the Transfer of Property Act is not exhaustive.  It does not deal with every kind of transfer of property  which the  law permits.  Nor does it prescribe the mode for  every legally   recognised  transfer.   Nevertheless,  it  is   an enactment meant for defining certain basic types of transfer and  it lays down the requirements both of substance and  of form for their legal recognition and effectiveness.  Section 5 of this Act gives a wide connotation to “transfer of  pro- perty”.  All that it requires is that the transferor must be living  at the time of the transfer recognised by  the  Act. Section  6 of the Act lays down that “property of  any  kind may  be transferred” subject to certain exceptions.   Shares in  a company are certainly a form of property.  Section  28 of the Companies Act, 1913, says that they “shall be movable property,  transferable  in  the  manner  provided  by   the articles of the company”.  Both sides accept as correct  the view of the Division Bench of the High Court-that the shares are  “goods”  within the meaning of the Sale of  Goods  Act. The point which, however, deserves to be noted here is  that wide definition of “property” in Section 6 of the  Transfer. of Property Act includes not merely shares as  transferable, movable  property, but would cover, as a separable  form  of property,  a right to obtain shares which may be  antecedent to the accrual of rights- of a shareholder upon the grant of a  share  certificate  in accordance with  the  articles  of association of company.


In M.P. Barucha & Anr. v. V. Sarabhai & Co.’& Ors.(1)  which was a case of handing over share certificates together  with blank  signed transfer forms, the Privy Council said (at  p. 97-98): “But” further, there seems to their  Lordships a        good  deal of confusion  arising  from  the prominence  given        to the fact that  the  full property,        in shares in a company is  only  in the  registered holder.  That is        quite  true. It  is ture that what Barucha had was not        the perfect right of property, which he would have had  if he had been the registered  holder  of the shares which he was selling.  The  company is  entitled to deal with the shareholder who Is  on the register, and only a person who  is on  the register is in the full sense  of  the the word owner of the share.  But the title to get on the register consists in the possession of  a  certificate, together with a  transfer signed by the registered holder. This is what Barucha  had.   He had  the  certificates        and blank  transfers,        signed  by  the  registered holders.  It would be an upset of  all  Stock Exchange        transactions  if it  were  suggested that  a  broker  who sold        shares  by  general description (1)   53 Indian Appeals P. 92 @ P. 97-98. 541 did not implement his bargain by supplying the buyer  with certificates and blank  transfers, signed by the registered holders of the shares described.  Barucha sold what he had got.  He could  sell no more.  He sold what in  England would  have  been chooses in  action,  and  he delivered chooses in action.  But in India, by the  terms of the Indian Contract  Act,  these chooses in   action  are  goods.    By   the definition  of goods as every kind of  movable property it is clear that not only  registered shares,  but  also this class  of        chooses  in action,  are   goods.  Hence, equitable considerations not applicable to goods do  not apply to shares in India.”

Thus, we find that, in Barucha’s case (supra), a distinction was made between “the title to get on the register” and “the full  property in the shares in a Company.,’ The  first  was held  to  have  been acquired by  mere  delivery,  with  the required  intention,  of the share certificate and  a  blank form signed by the transferor.  The second is only  obtained when  the transferee, in exercise of his right to  become  a shareholder,  gets his name on the register in place of  the transferor.  This antecedent right in the person to whom the share certificate is given with a signed blank transfer form under a transaction meant to confer right or title upon  him to  become  a  shareholder, is enforceable  so  long  as  no obstacle  to it is shown to exist in any of the articles  of association  of a company or a person with a superior  right or  title, legal or equitable does not appear to  be  there. We  think  that Section 6 of the Transfer  of  Property  Act Justifies  such  a  splitting up of  rights  constituting  ” property”  in  shares  just as it is  well  recognised  that rights  of  ownership of a property may be split up  into  a right  to the “corpus” and another to the “usufruct” of  the property and then separately dealt with. Sec. 122 of the Transfer of Property Act defines a  “,gift”. its  substantial  requirements  are :  (1)  the  donor  must transfer  “property”,  which is the  subject-matter  of  the gift,  voluntarily and without consideration; (2)  and,  the donee  must accept it during the life-time of the  donor  or while the donor’s competence to give exists.  Section 123 of the Transfer of Property Act prescribes the mode of transfer by  gift.  It lays down that “the transfer may  be  effected either  by  registered instrument signed by  the  donor  and attested  by  at least two witnesses or  by  delivery”.   No special  mode of delivery is specified.  On the other  hand, it is indicated that the delivery “may be made in such a way as the goods sold are delivered”.

In the case before us, the registered document was signed by the  donor  as “the giver” as well as by the donee  as  “the acceptor” of the gift, and it is attested by six  witnesses. In  it,  the  donor specified and gave  particulars  of  the shares  meant to be gifted and undertook to get the name  of the  donee  put  on  to  the  registers  of  the   companies concerned.  The donor even said that she was, thenceforth, a trustee  for  the benefit of the donee with  regard  to  the income  she may get due to the fact that her name was  still entered  in  the registers of the companies concerned  as  a shareholder.   The donor delivered the registered gift  deed together with the share certificates to the donee.  We 542 think that, on these facts, the donation of the right to get share certificates made out in the name of the donee  became irrevocable  by  registration as well as by  delivery.   The donation  of such a right, as a form of property, was  shown to be complete so that nothing was left to be done so far as the vesting of such a right in the donee is concerned.   The actual transfers in the registers of the companies concerned were  to constitute mere enforcements of this  right.   They were necessary to enable the donee to exercise the rights of the  shareholder.  The mere fact that such transfers had  to be  recorded  in  accordance with the company  law  did  not detract from the completeness of what was donated. We  think  the  learned Counsel for  the  appellant  rightly contended  that, even in the absence of registration of  the gift deed, the delivery of the documents mentioned above  to the  donee  with  the clear intention to  donate,  would  be enough  to confer upon the donee a complete and  irrevocable right,  of  the  kind indicated above, in  what  is  movable property.   He  relied  upon  :  Kalyanasundaram  Pillai  v. Keruppa Mooppanar & Ors.(1); Venkatsubba Shrinivas Hegde  v. Subba  Rama  Hegde;(2)  Firm Sawan Mat Gopi  Chand  v.  Shiv Charan Das(3).

The  requirements  of form or mode of  transfer  are  really intended to ensure that the substantial requirements of  the transfer have been satisfied.  They subserve an object.   In the case before us, the requirements of both Section 122 and Section 123 of the Transfer of Property Act were  completely met so as to vest the right in the donee to obtain the share certificates  in  accordance  with  the  provisions  of  the Company  law.   We  think that such a  right  is  in  itself “property” and separable from the technical legal  ownership of the shares.  The subsequent or “full rights of ownership” of  shares would follow as a matter of course by  compliance with  the  provisions  of Company law.  In  other  words,  a transfer of ” ‘property” rights in shares, recognised by the Transfer  of Property Act, may be antecedent to  the  actual vesting of all or the full rights of ownership of shares and exercise  of the rights of shareholders in  accordance  with the provisions of the Company law. The  Companies  Act of 1913 was meant  “to  consolidate  and amend  the  law  relating to  trading  companies  and  other associations”.    It   is  concerned  with  the   acts   and proceedings   relating  to  the  formation,   running,   and extinction   of   companies,  with   rights,   duties,   and liabilities  of those who are either members or officers  of such  companies,  and of those who deal  with  companies  in other  capacities.   Its subject-matter is not  transfer  of property in general.  It deals with transfers of shares only because  they give certain rights to the legally  recognised shareholders  and  imposes some obligations upon  them  with regard to the companies in which they hold shares.  A  share certificate  not merely entitles the shareholder whose  name is  found  on it to interest on the share held but  also  to participate in certain proceedings relating to the company (1)  54 I. A. 89. (2) ILR 52 Bom. 313. (3) AIR 1924 Lab. 173. 543 concerned.

It is for this purpose that Section 34  of  the Companies  Act, 1913 enables the making of  “an  application for  the  registration  of  the  transfer  of  shares  in  a Co  either by the transferor or the transferee”.   A share  certificate is a prima facie evidence, under Sec.  29 of  the Act, of the title to a share.  ‘Sec. 34 of  the  Act does not really prescribe the mode of transfer but lays down the  provisions for “registration” of a transfer.  In  other words,  it  presupposes that a transfer  has  already  taken place.   The manner of transfer of shares, for the  purposes of Company law, has to be provided, as indicated by Sec. 28, by the articles of the Company, and, in the absence of  such specific provisions on the subject, regulations contained in Table ‘A’ of the 1st Schedule of the Companies Act apply. Table ‘A’ of the 1st Schedule to the Companies Act of 1913 gives regulation 19 as follows “19.    Shares   in  the company   shall   be transferred  in the following form, or in any usual or common form which the directors shall approve :


1,  A.  B. of in consideration of the  sum  of rupees   paid to me by C. D. of (hereinafter called  “the  said  transferee”), do   hereby transfer to the said transferee the share (or shares) numbered in the undertaking called the Company, Limited,  to  hold  unto  the   said transferee, his executors, administrators  and assigns, subject to the several conditions  on which  I        held  the same at the  time  of  the execution thereof, and I (the said transferee) do  hereby  agree to take the said  share        (or shares)  subject to the conditions  aforesaid. As witness our hands the day of Witness to the signatures of, etc.” Apparently,  the form given here is  only        for sales.  In the case of a gift the more general provisions of regulation 18 would apply.        This regulation says : “The  instrument of transfer of any  share  in the  company  shall be executed  both  by  the transferor and transferee, and the  transferor shall be deemed to remain holder of the  share until the name of the transferee is entered in the register of members in respect thereof.” We  find  from the gift deed that both the  donor  and  the. donee   have  signed  the  document,  under   two   headings respectively  :  “giver of the gift” and  “acceptor  of  the gift”.    Hence,  we  think  that  the   broadly   indicated requirements of regulation 18 were also complied with by the contents ‘of the gift deed.- It is immaterial that the  gift deed   deals  with  a  number  of  items  so  long  as   the requirements of regulation 18 are fulfilled.  After all, the observance  of  a  form, whether found in  the  Transfer  of Property Act or in the Companies Act, is meant to serve  the need of the substance of the transaction which were  undoub- tedly  shown to have been completely fulfilled here.   There is nothing in regulation 18 or anywhere else in our  Company law to indicate that, 544

without strict compliance with some rigidly prescribed  form the  transaction  must  fail to achieve  its  purpose.   The subservience  of substance of a transaction to some  rigidly prescribed form required to be meticulously observed  savors of archaic and outmoded jurisprudence. Buckley  on the Companies Acts (XIII-Edn. p. 813) was  cited before  us for the proposition-that “non registration  of  a transfer of shares made by a donor does not render the  gift imperfect”.   Considerable  argument was  advanced  by  both sides  on the correct interpretation of the leading  English case  mentioned  there : Re Nose, Midland  Bank  Executor  & Trustee  Co.  Ltd. v. Rose,(1) where Jenkins  J.,  after  an exhaustive  discussion  of  the  English  case  law  on  the subject, held that when a testator had done everything  that lay  in  his  power  to divest  himself  of  his  Fights  in preference   shares  “completion  of  the  legal  title   by registration  could only be the act of a third  party  which did  not  affect the efficacy of the gift of  shares  inter- vivos”.  The Court of Appeal upheld this decision in : In Be Rose  V. Inland Revenue Commissioners.(2) It held that  “the deceased  was  in the position of. a trustee  of  the  legal title in the shares for the transferees”, pending the  entry of  the names of the donees in a company’s register and  the issue of share certificates to them.  In the case before us, we  find that Bai Ruxmani had actually stated in  the  gift- deed  that  her  position,  vis-a-vis  the  donee,  who  had accepted  the gift, was that of a trustee for  the  benefits received by her from the gifted shares until the  completion of  the  legal formalities so that appropriate  entries  are made  in’  the registers of companies  concerned  and  fresh share certificates are issued to the donee.  We,  therefore, think that this case helps the appellant. In  M/s.Howrali  Trading  Co. Ltd. v.  The  Commissioner  of Income-tax,   Calcutta(3),  considering  a  case  of   blank transfers,  Hidayatullah J., speaking for this  Court,  said (at p. 453) :

“In  such blank transfers, the  name  of  the transferor  is entered, and the transfer deed signed  by  the  transferee,  who,  if  he  so chooses,        completes the transfer  by  entering his  name and then applying to the company  to register his  name in place of  the  previous holder  of the share.  The company  recognises no  person  except one whose name  is  on  the register of members, upon whom alone calls for unpaid  capital can be made and to  whom  only the  dividend  declared  by  the  company   is legally  payable. of  course,  between   the transferor   and  the   transferee,   certain equities        arise  even  on  the  execution  and handing  over of a blank transfer’, and  among these equities is the right of the  transferee to claim the dividend declared and paid to the transferor  who  is treated as  a trustee  on behalf  of  the transferee. These  equities, however, do  not touch the  company,  and  no claim  by the transferee whose name is not  in the register of (1)  [1949] Ch.  D. 78.  (2) [1932] (1)  Ch. D. 499. (3)   [1959] Supp. (2) SCR 448 @ 453. 545 members  can be made against the company,  if the  transferor retains the money in  his own hands and fails to pay to it to him.”

This  case  also makes a distinction between  an  antecedent right and title of the transferee under a blank transfer and the  fully blossomed rights and title of such  a  transferee after the due registration of a transfer. Another case cited before us was : R. Subba Naidu v. Commis- sioner of Gift Tax, Madras,(1) where a distinction was  made between  a  transfer of the antecedent right to  the  shares which  operated  with  full force between a  donor  and  the donee,  “notwithstanding  that, vis-a-vis the  company,  the donor continued to be holder of the shares in the absence of transfer  of  shares”.   In  other  words,  the  fields   of operation  of the provisions of Sections 122 and 123 of  the Transfer of Property Act and the provisions of the Companies Act  1913  were different.  Each had different  objects  and legal  consequences.  The Companies Act did not prevent  the completion of a gift of the right to obtain the shares which could, in common parlance or loosely speaking, be spoken  of as a gift of shares themselves even before the gift is acted upon so that the donee obtains share certificates in his own name.   The  Transfer of Property Act could not  enable  the donee to exercise the rights of a shareholder, vis-a-vis the company,   until a transfer of shares is made in  accordance with the Company law.

other cases cited on behalf of the appellant, which we  will only mention without discussion, were 1.   Colonial Bank v. Hepworth(2); 2.   In Re.  Tahiti Cotton Company ex-parte Sargent(3); 3.   In Re.  Letheby & Christopher, Limited(4); 4.   In the matter of Bengal Silk Mills Co. Ltd.(5); 5.   The Bank of Hindustan Ltd. & Ors. v. Kowtha  Suryanara- yana Rao & Ors.(6); 6.   Arjun Prasad &.Ors. v. Central Bank of India Ltd. (7); 7.   Benode  Kishore  Goswani  v.  Ausutosh  Mukhopadhya   & Anr.(8). Learned  Counsel  for  the respondent  cited  the  following passage from the Palmer’s Company Law (21st edition-1968, p. 334). A   transfer  is  incomplete  until   registered.    Pending registration, the transferee has only an equitable right  to the shares transferred to him.  He does not become the legal owner until his name is entered on the, register in  respect of these shares.” (1)  [1969] (Vol. 73) I.T.R. 794. (2)  [1887] (36) Ch.  D. 36. (3) [1873] (17) Equity Cases 273@ 279. (4)  [1904] (1) Ch.  D. 815, (5)  AYR 1942 Cal. 461 @ 464. (6)  RR [1957] Mad 1958 @ 1072. (7)  AIR 1956 Pat. 32. (8)  16 C.W.N. 666. 546 This  statement  of  the law in  England  is  correct.   The transferee,  under  a gift of shares, cannot function  as  a shareholder  recognised  by company law until  his  name  is formally  brought  upon  the register of a  company  and  he obtains  a  share certificate as  already  indicated  above. indeed,  there  may be restrictions on transfers  of  shares either  by gift or by sale in the articles  of  association. Thus” we find in Palmer’s Company Law (at p. 336) : “There  is nothing to limit  the        restrictions which  a company’s articles may place  on        the right of transfer.  The articles may give        the directiors  power        to  refuse  to  register  a transfer in any specified cases, for instance, where  calls  are        in  arrear,  or  where  the company has a lien on the shares-and some such provisions are usually inserted. Thus article 24 provides that the directors may decline  to register any transfer of a share (not being  a fully paid share) to a person of whom they  do not approve, and may also decline to  register any  transfer of shares on which        the  company has a lien.  But the articles in many cases go far  beyond  this.   They        may  prohibit,  for example, the transfer of a share to any person who  is not a member of a specified class,  or provide,        as  they often do  in  private  com- panies, that  before  transferring   to   an outsider the intending transferor must  first offer  the  shares to the other  members, and give  them  a  right  of pre-emption. Such provisions,  though   permanent, do  not contravene the rule against perpetuities.”

In  the  type of cases contemplated above, where  there  are special  restrictions on the transfer of shares  imposed  by the  articles  of association, the difficulty or  defect  is inherent  in the character of such shares.  In  such  cases, the  donee  or  purchaser  cannot get  more  than  what  the transferor  possesses.   Therefore,  in such  cases,  it  is possible  to  hold that even the right and title  to  obtain shares,  which  we have viewed as separable from  the  legal right and title to function as a shareholder, is  incomplete because of a defect in the nature of shares held due to some special  restrictions  on their  transferability  under  the articles of association of the company concerned.  But, such is  not shown to be the case at all with any of  the  shares which  formed  the subject-matter of the gift in  favour  of Shelat.   Hence,  in  our opinion,  cases  which  deal  with inchoate  rights  to  shares do not  assist  the  respondent because at least a gift of the right to obtain the  transfer of shares in the books of the companies concerned was  shown to be complete on the terms of the gift deed of Bai  Ruxmani coupled with the handing over of the share certificates  and the subsequent signing of the blank transfer forms.  It  was not  a ease of a bare expression of an intention to  donate. The donor had done everything which she could reasonably  be expected to do to divest herself of her rights in the shares donated. Ireland  v.. Hart'(1) relied upon by the respondent,  was  a case  in which a prior equitable title of a wife,  for  whom the husband was a (1)  [1902] (1) C.D. p. 522 @ 529. 547 trustee,

took  precedence over the claim  of  a  subsequent mortgagee.   This case was cited in Palmer’s Company Law  as an  instance of how delay in registration may  endanger  the claims  of  a transferee when some  already  existing  prior equity  comes to light  In upholding the wife’s claim  of  a prior equitable right the Court said (at p. 529) : “It  is  established by  Societe  Generale  de Paris  v. Walker (11 App.        Case 20), Roots  v. Williamson  (38  Ch.  D. 485);  and  Moore  v. North  Western  Bank [1891(2) Ch.   599]  that, where  the articles are in the form  in  which they are in the present case, a legal title is not  acquired  as against an  equitable  owner before  registration, or at all  events  until the  date when the person seeking to  register has a present absolute and unconditional right to  have the transfer registered.  I  am  not called upon to define the meaning of a present absolute   and unconditional right, but, as  it appears  to  me, I am not sure  that  anything short  of registration would do  except  under very special circumstances.  At all events,  I am of opinion that in this case, prior to  the

date of the injunction, the defendant Hart had not  a  ‘present   absolute  and  unconditional right’ to the registration of the transfer  of these  shares,  and that the  prior  equitable right  of  the plaintiff, Mrs.  Ireland,  must prevail.” Thus, what was disputed there was the right to obtain  registration of a transfer of  shares. The  husband’s  power to mortgage was  itself circumscribed by his position as a trustee. It  was also pointed out in  Palmer’s  Company Law (at p. 334) “It  has never been clearly decided  in  what circumstances    the    `present, absolute, unconditional  right  to  have  the   transfer registered’  to  which  Lord  Selborne  refers arises.  It is thought that in many  instances the  test is that indicated by Jenkins  J.  in Re. Rose. ‘I was referred on that to the well known case of Milroy v. Lord and also the recent case  of Re.  Fry, Chase National Executors &  Trustees Corpn.  v. Fry.  Those cases, as I  understand them, turn on the fact that the deceased donor had  not done all in his power,  according  to the nature of the property given, to vest        the legal  interest in the property in the  donee. In  such circumstances it is of  course,        well settled  that there-is no equity        to  complete the imperfect gift.  If any act remained to be done by the donor to complete the gift at        the date  of the donor’s death the court will        not compel his personal representatives to do that act and the gift remains incomplete and fails. In Milroy V. Lord the imperfection was due  to the  fact that the wrong form of transfer        was used  for the purpose of transferring  certain bank   shares,  The  document  was   not the appropriate  document to pass any interest  in the  property at all.  In Re Fry the  flaw  in the  transaction,        Which  was  a  transfer  or transfers of shares in a certain company, 548 was  failure  to obtain the  consent  of  the Treasury  which   in    the    circumstances surrounding  the transfers  in  question  was necessary   under   the   Defence    (Finance Regulations)  Act 1939, and, as  appearsfrom the  head-note,  what was held  was  that  the donor’s executors ought not to execute confir- matory   transfers. In  this  case, as      I understand   it, the   testator   had   done everything  in his power to divest himself  of the  shares in question to Mr. Hook.   He had executed a transfer.  It is not suggested that the  transfer was not in accordance  with        the company  regulations.   He  had  handed that transfer together with the certificates to Mr. Hook.   There  was nothing else  the  testator could do…. Therefore it seems to me that the present  case is not in pari materia with        the two cases to which I have been referred. The real  position,  in my judgment, is  that  the question here is one of construction  of  the will.   The testator says “if such  preference shares  have  not been  transferred  to   him previously  to  my death.”  The  position was that,  so far as the testator  was  concerned, they had been so transferred.

” Respondent’s  learned Counsel also relied on Re  Fry,  Chase National Executors & Trustees Corpn.  Ltd. v. Fry &  Ors.(1) which  has  been referred to by Jenkins J.  in  the  passage quoted above.  In that case, apart from other distinguishing features,  the  flaw in the purported transfer was  that  it contravened  the  Defence (Finance  Regulation)  Act,  1939, which  prohibited an acquisition of interest in  the  shares without  a licence from the Treasury.  Hence, the  purported transfer was really illegal.  No such illegality is shown to exist in the case before us. Respondent’s learned Counsel cited Amarendra Krishna Dutt v. Monimunjary Debi, (2) where, after a husband had executed  a document in favour of his wife, the parties had done nothing to  get  the transfer registered for nearly 2  years  during which  the dividend was received sometimes by the  wife  and sometimes  retained  by the husband with the  permission  or implied  consent  of  the wife.  The  Court  held  that  the purported  gift being an intended “transfer” only could  not operate as a “declaration of trust”.  Another ground for the decision  was that “the disposition of the shares failed  as being  imperfect voluntary gift”.  Here, the  Calcutta  High Court purported to follow Milroy v. Lord, (3) and,  Richards v.  Delbridge(4).   No such facts are present  in  the  case before us.  Moreover, we seriously doubt the correctness  of this  decision  of  the Calcutta High Court.   It  seems  to conflict  with  the law declared in the cases cited  by  the appellant which we approve. Another case relied upon by the respondent was: The Bank  of Hindustan Ltd.  V. Kowtha Suryanarayana Rao & Ors.  (supra), where  the  Court  refused,. to direct  rectification  of  a register of member s (1)  1946 (2) All.  E.R. 106. (2)  ILR [1921] Cal. 986. (3)  1862 (4) DEG.  F. & J. 264. (4)  1874 LR. 18 Eq.  II. 549

because  the  articles  of association  vested  an  absolute discretion  in  the  company  to  recognise  or  refuse   to recognise  a transfer.  The Company’s consent to a  transfer had  been  refused because the company did  not  accept  the correctness of the form of transfer deeds.  In other  words, this  was  a  case in which the provisions  of  articles  of association  stood  in  the  way  of  rectification  of  the register.  Such is not the case before us. The  result is that We do not think that the respondent  has made  out  a  case  for  defeating  the  clearly   expressed intentions  of  the donor coupled with  the  authority  with which  the  donee was armed by reason of  the  signed  blank transfer  forms.   We think that the implied  authority  was given  with regard to a subject matter in which  Shelat  had acquired  an interest.  On a correct interpretation  of  the gift  deed  and the other facts mentioned above, we  are  of opinion  that the right to obtain a transfer of  shares  was clearly  and  completely obtained by  the  donee  appellant. There was no question here of competing equities because the donee appellant was shown to have obtained a complete  legal right  to obtain shares under the gift deed and  an  implied authority  to take steps to get his name  registered.   This right could only be defeated by showing some obstacle  which prevented  it  from  arising  or  which  could  defeat   its exercise.   No  such  obstacle having been shown  to  us  to exist,  the rights of the donee appellant would  prevail  as against any legal rights which could have accrued to  others if the donee had not already acquired the legal right which, as held by us above, had become vested in him. We,  therefore, allow this appeal with costs and  set  aside the  judgment and decree of the Division Bench of  the  High Court and restore that of the learned Single Judge. Appeal allowed P. B. R. 3-MI85 Sup.  CI/75 550

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