Companies Act Case Law Smt. Claude-Lila Parulekar Vs M/s. Sakal Papers Pvt. Ltd. & Ors

Appeal (civil) 698-700 of 1995

Smt. Claude-Lila Parulekar

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

DATE OF JUDGMENT: 18/03/2005

Ruma Pal & P.Venkatarama Reddi


In 1933 Dr. N. B. Parulekar and his wife Shanta, started a
Newspaper called Sakal. In 1948, Dr. Parulekar and Shanta
promoted a company known as M/s. Sakal Papers Pvt. Limited,
which is the respondent No.1 and is referred to hereafter as ‘the
company”. Dr. Parulekar died in 1973. Shanta died during the
pendency of the appeal before this Court. The appeal which is
now being prosecuted by the daughter of Dr. Parulekar and
Shanta, arises out of proceedings initiated by Shanta and the
appellant under Section 155 (as it stood in 1986) of the
Companies Act, 1956 (referred to hereafter as ‘the Act’) in the
Bombay High Court.
The appellant was brought on record as Shanta’s only
legal heir and representative. As Shanta was alive during the
proceedings before the High Court, to avoid unnecessary
verbiage, the appellant and Shanta are referred to hereafter as
‘the appellants’.
One of the matters in dispute in this appeal relates to the
transfer of 3417 shares in the company belonging to the estate
of late Dr. Parulekar by three of the four executors of the will of
Dr. Parulekar. The executors named in the will were Shanta,
the respondent No. 2, the respondent No. 3 and the respondent
No. 4. There is also a challenge to the transfer of 93 shares by
the respondent Nos. 3 and 4 in the company. The basis of the
claim of the appellant and Shanta with regard to the 3417 and
93 shares was the failure to allow the appellants to exercise
their undisputed right of preemption in respect of the shares.
The second branch of the appellants’ grievance pertains to the
issue and allotment of 17,666/- shares of the company. The
beneficiary of these transfers/allotments is the respondent No.5
and his group represented by the respondents Nos. 6 to 16
(hereafter referred to collectively as the Pawar Group).
According to all the respondents briefly speaking, the
appellants were precluded from exercising any right of
preemption and had in any event failed to exercise their right of
preemption in respect of the 3417 and 93 shares. As far as the
issue of 17,666/- shares are concerned it is submitted that it
was validly done and the allotment of the shares was duly
made to the Pawar group.
The learned Single Judge held that the transfer of the
3417 shares was made contrary to the appellants rights of
preemption. He also held that the transfers had been made in
violation of the provisions of the Section 108 of the Companies
Act, 1956 and the Articles of Association of the Company. It
was held that the respondent No. 5 and his group were not
bonafide purchasers of the shares as they were aware of the
preemptive right of the appellants to the shares. On the issue
and allotment of 17,666/- shares the Trial Court held that they
were invalid. Having effectively held in favour of the appellants
on merits, the Trial Court did not set aside the transfer of the
3417 and 93 shares but set aside the transfer of 3417 and 93
shares to the respondent No. 5 and his group conditional upon
the appellants depositing a sum or Rs.80,73,000/- in the Court
within a period of six weeks. As far as the 17,666/- shares were
concerned, it was directed that they should be allotted to such
persons or persons at such price as the Board of Directors may
decide. The Company was directed to pay back the Pawar
group a sum of Rs.17,66,600/- in respect of the 17,666 shares.
It was then said that in the event the appellants did not deposit
a sum of Rs.79,86,110/- within six weeks the entire petition filed
by the appellants would stand dismissed. The appellants filed
an appeal from this order in so far as it was made conditional
on the deposit of the sum of Rs.79,86,110/-. They also filed an
application for extension of time for depositing the amount in
terms of the Trial Court’s order before the Trial Court. The
application was dismissed.
In the meanwhile the Appellants filed two suits being CS
225 and 226 of 1988 before the Court in Pune against the
respondents seeking specific performance of the contracts of
sale of 3417 and 93 shares to them. Alternatively for damages
by way of compensation of Rs.3 Crore or 4 Crore? The suits
are pending. Also between the decision of the single Judge and
the filing of the appeal by the appellants, the company became
a Public Limited Company by virtue of Section 43A of the Act.
At the time of admission of the appeal an interim order
had been passed by the Division Bench on 21st December,
1989 directing that pending disposal of the appeal, the
appellants’ right of preemption was not to be disturbed and the
company was directed not to issue or invite any fresh capital.
The appeal filed by the appellants against the Judgment
and order of the learned Single Judge as also cross appeals
filed by the respondents were heard and disposed of by a
common judgment. The Division Bench dismissed the
appellants’ appeal and allowed the cross appeals filed by the
respondents holding inter alia that the violation of S.108 was a
mere irregularity which was curable, that the sale of 3417
shares had been validly made to the Pawar group and that
although there was some irregularity in issuing the 17,666
shares, the irregularity had been cured by the subsequent
ratification of the decision. At the instance of the appellants the
interim order passed by the High Court on 21st December, 1989
was directed to continue for 8 weeks.
Before the eight weeks expired, the appellants filed the
present appeal and an interim order was granted on
16th September, 1991 in terms of the order passed by the High
Court on 21st December, 1989. That interim order is operating
till today. The matter has been pending before this Court since
1991 and has been heard in part by different Benches from
time to time. Efforts for an amicable settlement were not fruitful.
In the meantime several of the parties including Shanta died.
The applications for substitution were allowed.
The respondents have raised a preliminary objection
questioning the entertainment of the appellant’s application
under Section 155 of the Act in the first place. It is submitted
that complex questions of fact were involved and the ordinary
procedure of a civil suit as opposed to the summary remedy
available under Section 155 was more appropriate. This was
more so because not only had the appellant and Shanta
reserved their right to file a suit for transfer of the disputed
shares to them in the Section 155 application, they had in fact
filed suits being CS No. 225 of 1988 and 226 of 1988 before the
Courts in Pune claiming specific performance of the contract
alleged to be existing in favour of the appellants for transfer of
the 3417 and 93 shares. It is submitted that the issues involved
in the Civil Suits and the proceedings under S. 155 overlapped
in so far as the 3417 shares are concerned and that this appeal
should be considered only with regard to the challenge to the
issuance and allotment of the 17,666 shares.
The appellants have submitted that they had no
alternative but to file the Company Petition for rectification of
the company’s Register of Members by deleting the names of
the respondents No.5 and his group under Section 155 of the
Companies Act. Reliance has been placed on the decision of
this Court in the case of Ammonia Supplies Corporation (P)
Ltd. v. Modern Plastic Containers Pvt. Ltd. & Ors. 1998 (7)
SCC 105 in which this Court said that:-
“So far as exercising of power for
rectification within its field there could be
no doubt the court as referred under
Section 155 read with Section 2(11) and
Section 10, it is the Company Court
alone which has exclusive jurisdiction”.

It is also submitted that even if the jurisdiction under
Section 155 was not exclusive and the Company Court had
concurrent jurisdiction with Civil Courts, this Court should not
relegate the appellants to the alternative remedy of a Civil Suit
having regard to the facts of this case, especially, the pendency
of the matter before the different Courts from 1986.
The Trial Court had rejected the preliminary objection and
held that it was open to the parties to choose any one of the
remedies available to such party and that the remedy under
Section 155 of the Companies Act was equally “efficacious,
definitely more speedy and certainly appropriate”. The Division
Bench did not go into the issue having held in favour of the
respondents on the merits.
Section 155 of the Act (as it stood in 1986) provided inter
alia as follows:-
S.155, Power of Court to rectify register of members– If
(a) the name of any person
(i) is without sufficient cause, entered in the
register of members of a company, or

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

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

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

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

(3) On an application under this section, the

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

(b) generally, may decide any
question which it is necessary or
expedient to decide in
connection with the application
for rectification.
(4) From any order passed by the Court
on the application, or on any issue raised
therein and tried separately, an appeal
shall lie on the ground mentioned in
Section 100 of the Code of Civil Procedure
1908 (V of 1908)

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

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

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

The power of the Court under Section 155 is limited to the
rectification of the register of members of a Company in three
situations (a) when the name of a person is wrongly entered in
such register (b) when the name of a person, whose name
having been entered in the register is omitted therefrom and (3)
when default is made in entering the name of any person who
has already become or who has ceased to be a member. None
of the three situations envisaged under sub-section (1) of
Section 155 would allow the person whose right as a member
qua the disputed shares is yet to be established to apply for
rectification by inclusion of such person’s name. The
appellants could not, therefore have applied for transfer of the
disputed shares in their favour under Section 155 of the
Companies Act. They would have to establish that right by way
of a separate suit or otherwise. The appellants in paragraph 26
of the Company Petition correctly reserved their right to file
appropriate action for transfer of the 3,417 shares to
The relevant prayers in the appellants Company Petition
476/86 were as follows:-
” (a) That this Hon’ble Court be pleased
to order the rectification of the Register
of Members of the 1st respondent
Company and order that the names of
Respondent Nos. 5,6,8,11,12,13 and 14
be removed from the Register of
Members of the 1st Respondent
Company in respect of 3,417 shares
belonging to the estate of Dr. N.B.
Parulekar and 93 shares belonging to
the 2nd Respondent;

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

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

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

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

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

(c) that the 1st Defendant be directed to
register the said shares upon such
transfer under prayer (b) in favour of the
2nd Plaintiffs;

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

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

If there is any issue in the suit which was required to be
and has been determined in the Company Petition, the effect
of that determination would no doubt be the subject matter of
consideration by the Civil Judge, Pune, before whom the suits
are pending. But the possibility of overlapping of such issues
does not preclude the filing of the suits by the appellants. The
appellants advisedly did not pray for the transfer and
registration of the disputed shares in their favour in the
proceedings under Section 155. They could not have done so.
That the Court exercising jurisdiction under Section 155 of
the Companies Act was competent to entertain the applications
filed by the appellants cannot be disputed. The only question is
whether the discretion to do so was properly exercised.
Despite the respondents’ submissions to the contrary, we do
not consider this case as an appropriate one to decide whether
this Court’s decision in Ammonia Supplies Corporation
(supra) was correct in so far as it has held that the jurisdiction
to grant relief provided under Section 155 was exclusive. It may
be noted that the view has been reiterated by a larger Bench in
Canara Bank vs. Nuclear Power Corporation of India Ltd. &
Ors. JT 1995 (3) SC 42 (para 31). But assuming that the
decision is wrong and that jurisdiction of the Company Court
under S. 155 of the Companies Act and the Civil Court under
Section 9 of the Code of Civil Procedure is concurrent, there is
no reason for us to refuse to entertain the application under
Section 155 of the Companies Act. The questions raised in the
petition for rectification were determined on the basis of the
material available both by the Single and the Division Bench.
Neither of the Courts were of the view that the materials were
inadequate or that the disputes were such which could not be
resolved under Section 155. Apart from any other
circumstance, the fact that the matter has been awaiting
disposal by the Courts at the different levels for almost 18 years
would render it grossly inequitable and be an improper exercise
of judicial discretion if we were to turn the appellants away at
this stage to pursue an alternative remedy (if any) available
under the general law. The preliminary objection raised by the
respondents is accordingly rejected.
Moving to the merits of the appeals the various issues
raised relate to the appellants’ right to purchase the disputed
shares; the transfer of 3417 and 93 shares and the issue and
transfer of 17,666 shares.

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

“57-A. In the event of any member
of Company desires to transfer his
shares he shall be bound to offer the
same either to Dr. N.B. Parulekar or to
Madame Shanta Parulekar or such
other person or persons as Dr. N. B.
Parulekar or Madame Shanta Parulekar
may direct or may nominate and in
which event the transferee or
transferees shall pay such price as may
be certified by the Auditors of the
I.2 Analysed, the right contains four elements which are
(i) the desire of any member to sell his shares.
(ii) the offer by such member of the shares to Dr.
Parulekar or to Shanta or to their nominee.
(iii) the certification of the price by the Auditors of the

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

I.3 The other relevant Articles are Articles 58 to 64. All
these articles are under a group entitled “Transfer and
transmission of shares”. Article 57-A is the first of the
group. The remaining articles read as under:-
58. Subject to Cl.57A no shares shall be
transferred so long as any member or
any person selected by the Directors
as one to whom it is desirable in the
interest of the Company to admit to
membership, is willing to purchase the
same at the fair value as mentioned
herein below.
59. Except where the transfer is made
pursuant to Article 58 here of, the
person proposing to transfer any share
shall give notice in writing to the
Company that he desires to transfer
the same. Such notice shall constitute
the Directors his agents for the sale of
the share to any member or persons
selected as aforesaid, at a fair value to
be agreed upon between the
Transferor and the purchaser and in
default of such agreement to be fixed
by the Auditors of the Company. The
notice may include several shares and
in such case shall operate as if it were
a separate notice in respect of each
share. The notice shall not be
revocable except with the Sanction of
the Directors.
60. If the Directors, shall, within the space
of 30 days after being served with the
Transfer Notice, find a purchasing
member or a person selected as
aforesaid willing to purchase the share
and shall give notice thereof to the
proposing transferor, he shall be
bound upon payment of the fair value
fixed as aforesaid to transfer the
shares to the purchaser.
61. In case any differences arises
between the Transferor and the
Purchaser as to the fair value of a
share, the Auditors of the Company
shall certify in writing the sum which in
their opinion is the fair value and the
same be binding on the transferor and
the purchase. Provided however that
the Auditors so certifying shall not be
considered to be acting as Arbitrators
and the Indian Arbitration Act 1940
shall not apply. The Auditor shall be
considered to be acting as an expert.
62. If in case the proposing transferor,
after having become bound as
aforesaid, makes default in
transferring the share, the Directors
may receive the purchase money and
shall there upon cause the name of
the purchaser to be entered in the
Register as the holder of the share
and shall hold the purchase money in
trust for the Transferor. The Directors
may appoint any person to execute a
transfer of the said share on behalf of
the defaulting transferor. The receipt
of the Directors for the purchase
money shall be a good discharge to
the purchaser and after his name has
been entered in the Register in
purported exercise of the aforesaid
power the validity of the transfer shall
not be questioned by any person.

63. If the Directors, shall not, within the
time prescribed as aforesaid after
being served with the Notice, find a
purchasing member or select a person
as aforesaid willing to purchase the
shares or any of them and give notice
in manner aforesaid, the transferor
shall at any time within 30 days
thereafter be at liberty subject to
Article 65 thereof to sell and transfer
the shares to any person and at any
64. Every share specified in the Notice
given pursuant to the Article 59 hereof
shall be offered to the members in
such order as shall be determined by
the Directors and in such manner as
the Directors think fit. If no member is
ready and willing to take up such
shares the same may be offered to
any person selected by the Directors
as one to whom it is desirable in the
interest of the company to admit to its

I. 4.1 The Articles give the hierarchy of the persons
entitled to purchase shares upon transfer. The first right
is given to the preemptors under Article 57-A. Next in the
hierarchy is any member who is willing to purchase the
shares at a fair value. This follows from a reading of
Article 58 with Article 64. The third category is of any
person or persons selected by the Directors as being
desirable in the interest of the company to admit to
membership. The last category is the person to whom
the transferor may choose to sell the shares. As long as
there is any person in a higher category, there is no
question of sale or purchase by a person in a lower
category. Thus for example the right of a member or a
person in the 2nd category to purchase shares can arise
only in the event there is a default or refusal on the part of
the preemptor and so on. A person may fall within any
one or more of these four categories and would, by virtue
of these articles have distinct and separate rights to
purchase the shares in each of the four categories. So
even if a preemptor or a nominee of a preemptor does not
exercise his/her right under Article 57-A to purchase the
shares at a price certified by the company’s Auditors,
such person may choose to exercise the right as an
ordinary member and purchase the share at a fair value
or the transferor may choose to sell the shares to such
person under Article 63.
I. 4.2. In the case of a transfer to a person in the 2nd and 3rd
categories of putative purchasers, the Directors are
appointed agents of the transferor. The notice of transfer
is required to constitute the Directors as the transferor’s
agents. This notice is distinct from the other required to
be given under Article 57-A. In respect of these two
categories, the price of the shares is at first to be
negotiated with the transferor. It is only in the case of a
default in such agreement being reached that the
company’s Auditors step in and fix a “fair price”. The third
distinctive feature of these two categories is that upon
refusal/default of the preemptor , the transferor is required
to give a notice in writing of his desire to transfer. Giving
of this notice must necessarily be subsequent to the
failure of Article 57-A for whatever reason, as the
Directors are required to find a willing person either in the
2nd and if not the 3rd category within a period of 30 days.
There is no time limit specified for the completion of the
preemptive transfer under Article 57-A. Therefore unless
the transferor gives a separate notice of the failure of
Article 57-A how would a willing member know whether
he/she has a right or when the period fixed for intimating
their willingness to purchase was to lapse? Article 60 also
requires the Directors to give a notice to the transferor
after finding a willing purchasing member or selectee
under Article 58. Giving of this notice is important
because if 30 days expires without such notice by the
Directors, Article 63 would come into play and the
transferor would be at liberty to sell the shares to any
person and at any price, albeit also within a period of 30
days from the expiry of the first period of 30 days. It
follows that a notice issued prior to the preemptor
exercising or failing to exercise the right under Article
57-A would not be in keeping with Articles 59 and 60 as
this would make the period of 30 days uncertain if not
illusory. Thus the notice by the transferor under Article 58
must succeed the factual failure of Article 57-A and
notice, if any, under Article 60 must follow the failure of
Article 58.
I.4.3 Assuming there is a willing purchaser under Article 58,
there is no time limit fixed either for the parties to arrive at
a negotiated price or for the Auditor to fix a fair value. But
Article 63 indicates that the entire transaction envisaged
by Articles 59, 60, 61 and 62 would have to be completed
within a period of 60 days after Article 57-A failed to
I.4.4. Section 36 of the Companies Act, 1956 makes the
Memorandum and Articles of Company, when registered,
binding not only on the company but also the members
inter-se to the same extent as if they had been signed by
the company and by each member and covenanted to by
the company and each shareholder to observe all the
provisions of the Memorandum and of the Articles. The
Articles of Association constitute a contract not merely
between the shareholders and the company but between
the individual shareholders also. The Articles are a
source of powers of the Directors who can as a result
exercise only those powers conferred by the Articles in
accordance therewith. Any action referable to the Articles
and contrary thereto would be ultra vires.

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

I.4.6 A similar situation arose in the case Lyle and Scott
Ltd. Scott’s Trustee (1959) 2 All ER 661. There was a
similar article which provided for inter alia the preemptive
right in the existing shareholders to purchase shares.
There was no dispute that the article had been violated.
“The purpose of the Article is
plain: to prevent sales of shares to
strangers so long as other members of
the appellant company are willing to buy
them at a price prescribed by the Article.
And this is a perfectly legitimate
restriction by the Article. And this is a
perfectly legitimate restriction in a
private company”. (p.667)
The House of Lords was of the view that the Article
would have to be complied with in order to effect a valid
transfer. [See: Naresh Chandra Sanyal v. Calcutta Stock
Exchange Association Ltd. ( 1971) 1 SCC 50, 107; H.P.
Gupta vs. Heera Lal (1970) 1 SCC 437, 440 and 441).
With this prefatory statement of the relevant law we may
now look at the facts.
II Facts
II.1 The narration of facts starts with the will of Dr.
Parulekar by which he appointed the four Executors,
viz. Shanta and the respondents 2,3 and 4 as
Executors and Trustees of the will. The will inter alia
empowered the Executors and Trustees to sell or to
postpone the sale from time to time of all the properties
vested in them by the will for payment of estate duty
and to invest the same as the Executors and Trustees
thought fit. After providing for specific legacies, the
Executors and Trustees were directed to hold the rest
and residue of the estate on trust (1) for the spread of
education through newspapers, magazines and
periodicals (2) for effecting improvement of the quality
and standard of journalism and training of personnel in
journalism (3) for purchase of shares of concerns,
firms, companies or from persons or persons
interested in or concerned with newspapers,
magazines, periodicals and otherwise in journalism (4)
for publication of books and literature for masses at
low and reasonable prices, and (5) for such other
objects and acts that may be necessary to bring about
improvement of information amongst the masses and
also which may be incidental or conducive to the
above objects. The trust was to be known as “Sakal
Papers Trust”. Although the probate of the will had
been granted in 1975 to the four Executors and all four
of them had been entered in the register of members
of the company as joint shareholders of the 3417
shares belonging to the estate of late Dr. Parulekar on
26.4.1977, no steps were taken by the Executors to
convert the shares into money till 1984.

II.2 It is the claim of the respondent Nos. 2, 3 and 4 that in
1984 a company by the name of M/s. Jain Plastic Pvt.
Ltd. offered to purchase the 3417 and 93 shares at a
price of Rs.2250/- per share. The offer is not on record.
What is on record is a letter dated 10.11.1984 written by
the respondents Nos. 3 and 4 as the holders of 93 shares
to Shanta as well as the Board of Directors of the
Company offering to sell those shares to Shanta or her
nominee under Article 57-A at a price of Rs.2250/- per
share. The letter further stated that in the event Shanta
was not agreeable to pay the price, the letter should be
treated as notice to the Directors within the meaning of
Article 57-A to Article 61 who were called upon to take
steps to get the price fixed under Article 61. It was further
stated that if Shanta did not exercise her rights under
Article 57-A or was not willing to pay the price or not
willing to complete the transactions in accordance with
Article 61, then the respondent Nos.3 & 4 would be free to
sell the shares to any other person in accordance with
Articles of the company. Article 61, as we have already
seen, pertains to the valuation of shares when a
shareholder expresses his or her willingness to purchase
the shares.

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

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

II.5 Notice was given on 29.11.1984 by the Executors to
Shanta with the respondent No.2 signing on behalf of all
the Executors. The contents of the notice are materially
the same as the notice given by the respondent Nos. 3 &
4 in respect of the 93 shares. The company similarly
issued a notice to all share holders to indicate whether
they were willing to purchase the shares subject to
Shanta’s right under Article 57-A.
II.6 On 14.12.1984 the appellants wrote a letter
accepting the offer to sell the 3417 shares. The letter
stated that Shanta was agreeable to buy the shares by
herself/or her nominee and that her nominee was her
daughter, now the sole appellant. Shanta stated that she
was agreeable to pay such price as may be certified by
the Auditors of the company as stipulated in Article 57-A.
A copy of the letter was sent by Shanta to the Board of
Directors and countersigned by her daughter signifying
her assent.
II.7 The Company’s Chartered Accountant gave notice to
Shanta on 20.1.1985 stating that he had received several
documents from the company pertaining to the valuation
of the shares. A list of such documents was given.
Shanta was also called upon to submit any documents
that she may desire in that connection within seven days.
Shanta asked for an extension of time to submit such
information. This was granted by the Auditors upto
20.2.1985. By a letter dated 20.2.1985 Shanta called
upon the Auditors to submit a draft report and draft
certificate within seven days in order to enable her to
make her submissions in respect thereof. By a letter
written on the next date, Shanta asked for copies of the
documents submitted by the Company to the Auditors.
There was no response to either of these letters by the
Auditors who straightaway issued a certificate on
21.2.1985 certifying that the price of the 93 shares was
Rs.2,10,273/- and of the 3417 shares Rs.77,25,837/-.
II. 8 The respondent Nos. 3 & 4 then wrote to Shanta on the
same date calling upon Shanta to pay the sum of
Rs.2,10,273/- in respect of 93 shares on or before
2.3.1985 “time being of the essence” failing which they
would dispose of the shares in such manner as they
thought fit.
II.9 In the meanwhile, the appellants had protested against the
certification to the Auditors both with regard to the
procedure followed as well as the value certified. The
allegation against the Auditors was that the valuation had
been fixed collusively and was not just, fair or reasonable
according to the recognized principles of valuation. The
appellants called upon the Auditor to fix a fair valuation
after giving the appellants a proper opportunity of being
heard. They also wrote to the respondents Nos. 3 and 4
contending that there was no question of time being of the
essence either under Article 57-A or under the offer
letters. It was alleged that the stipulation of time could not
be imposed unilaterally. They also stated that the time
fixed was unreasonable and that in any event the
certificate issued by the Auditor could not be treated as a
final certificate. It was also stated that there was a final
and concluded contract between the parties for the
purchase of the said shares. Without prejudice to all that
was stated and also without prejudice to their legal rights
to take actions relating to the Certificate dated 21.2.1985
issued by the Auditors, the appellants wrote:
“We are willing to deposit with any
stakeholders of our mutual choice an
amount of Rs. twenty lacs as an earnest
of our bonafides and genuine desire to
purchase the said shares. The said
amount will be paid to the stakeholders
within three days from the receipt of
your confirmation that you are ready and
willing to accept this interim
arrangement. The stakeholder shall
hold these monies until such time, but
not later than one month within which
we hope the Company’s Auditors will
submit a just, fair and impartial
Certificate and it will be accepted by us.
In case a just, fair and impartial
Certificate is not issued by the
Company’s Auditors, within the said
period, then the stakeholder shall return
the said monies to us without any
objection immediately on a written
demand by us”.

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

II.11 On 2.3.1985 and 1.4.1985 two suits were filed by the
appellants before the Civil Judge, Pune praying for a
permanent injunction to restrain the respondents Nos. 2,
3 and 4 from selling the shares contrary to the concluded
contract with the appellants. The suits were rejected on
5.8.1985 by the Civil Judge on the application of the
respondents Nos. 2, 3 and 4 on the ground that the
subject matter involved in the suit was outside the
pecuniary jurisdiction of the Court.
II.12 According to the respondents, the 3417 and 93 shares
were then sold to the respondent No.5 and his group on
9.9.1985. There is no record when the offer of the
respondent No.5 or his group had been made either to
respondent Nos. 3 or 4 or to the Executors prior to the
sale nor of any further notice being given in respect of the
sale of the shares to the respondent No.5 and his group
to the appellant.
II.13 On 16.9.1985 a notice was issued by the Board of
Directors of the Company that a meeting would be held
on 21.9.1985. The appellants’ claim that the notice was
given by a telegram late in the night on 16.9.1985. On
the next date, the appellants sent a telegram to the
Company protesting against holding the meeting of the
Board of Directors at such short notice and requesting for
postponement. This was followed by a letter dated
21.9.1985 written by the appellants. The day before the
meeting was held, on 20.9.1985, the respondent No.5
and his group lodged transfer forms in respect of the 3417
and 93 shares with the company. The request of the
appellant for adjournment of meeting was not heeded to
and the meeting was held on 21.9.1985 as scheduled. At
the meeting, despite there being no item in the agenda
relating to the registration of the shares sold, a resolution
was passed to register the transfer of the 3417 equity
shares standing in the name of the four Executors as well
as the 93 shares to the respondent No.5 and his group
which included the respondent Nos. 11 to 16, all private
limited companies. The respondent No.5 himself was
appointed as an Additional Director of the Company
together with another member of the respondent No.5’s
group. The respondent No.2 was appointed as a
Chairman upon the retirement of the respondent No.3.
II.14 On 1.10.1985 the appellant wrote to the respondent Nos.
2, 3 and 4 stating that they were willing to purchase the
shares at the price fixed by the Company’s Auditors and
would pay the same immediately upon the modalities for
such payment being intimated. No reason was put
forward for this volte face by the appellant In response to
this letter, two letters dated 2.10.1985 and 3.10.1985
were written by respondent No.2 on behalf of the
Executors and by the respondent Nos. 3 and 4 as holders
of 93 shares intimating the appellant that the shares had
already been sold. It was however not intimated as to
whom the shares were sold.
II.15 On 13th October, 1985 a Board Meeting was held at which
the appellants were present. The appellants affirm that
they came to know of the transfers of the shares to the
Pawar group only when the Minutes of the earlier Meeting
held on 21.9.1985 were put up for approval. Despite their
protest the Minutes were approved.
II.16 It was in these circumstances that the application
under Section 155 of the Companies Act, 1956 was filed
by the appellants.
II.17 Before we close this chapter of facts on the transfer of
3417 and 93 shares, it may be noted that the District
Court at Pune recalled its order rejecting the plaints in the
two suits which had been filed by the appellants on a
review application filed by them. The respondents
challenged the order before the High Court. The High
Court set aside the order of the District Court and
remanded the matter to the Trial Court for re-deciding the
appellant’s application for review afresh.

III. Submissions

III.1 According to the appellants once Shanta had exercised
her rights under Article 57-A, there was a binding contract
in respect of the 3417 and 93 shares. With the exercise of
the right, notice to the other shareholders as required
under Article 58 being a conditional one ceased to
operate. It is submitted that there was no question of the
respondents Nos. 2, 3 and 4 fixing a time frame for the
implementation of the concluded contract unilaterally.
It is the case of the appellants that the contract had never
been repudiated. The conduct of the appellants spoke to
the contrary. Furthermore there was no acceptance of
the repudiation by the respondent Nos. 2, 3 and 4. While
denying the alleged repudiation of the contract, the
appellant contended that in any event in accordance with
Article 63, the Directors had to find a willing member or
desirable outsider to purchase the shares within 30 days.
Only after that could the transferor sell to any person
within 30 days. The sale to the respondent No.5 and his
group was beyond that date. As far as Shanta’s right to
purchase the shares offered, despite the fact that she was
herself one of the Executors/Trustees of the 3417 shares,
it is the appellant’s contention that Section 153 read with
Article 29 showed that the Company was not bound to
recognize any interest in shares other than that of the
registered shareholder. It is further averred that Dr.
Parulekar did not by his Will, seek to deprive Shanta of
her right to preemption by appointing her
Executor/Trustee. In any event there was nothing which
deprived the present appellant of her right to purchase the
shares independently, not only as a nominee under
Article 57-A but also as a “willing member” under Article
58. According to the appellants there was no bar either
under the Bombay Public Trust Act, 1950 or under the
Indian Trusts Act, 1982 allowing Shanta to exercise her
right under Article 57-A. It is contended that the three
trustees could not by themselves make any offer of sale
of the 3417 shares to the Pawar group. The power of the
Executor was not delegatable under the Will and the
authorization, if any, by Shanta to transfer the shares
stood revoked once she had exercised her option under
Article 57-A. It was argued that the transfer to the Pawar
group by three of the four joint shareholders of the 3417
shares was in any event contrary to Section 108 of the
Companies Act which mandatorily required all the joint
shareholders to execute the transfer forms. It is said that
the respondent No.5 and group were not bona fide
purchasers. This had been so held by the Learned Single
Judge which finding was not challenged before the
Division Bench.
III. 2 According to the respondents, as far as Article 57-A is
concerned, it is said that the article could not be
construed to provide for a concluded contract merely
upon the acceptance of the offer because in such event it
would be open to the transferee to file a suit challenging
the price and effectively subverting the transfer of shares
as a result of which the transferor would be deprived of
the immediate use of the funds. According to the
respondents, the contract under Article 57-A would be
concluded only after payment of the price. It is conceded
that this particular argument had not been raised in the
Courts below but being an argument on the interpretation
of Article 57-A, it is submitted that it should not be
excluded from consideration. According to the
respondents the appellant’s conduct clearly showed
repudiation of the contract. The appellants had failed to
perform their obligation by challenging the certificate of
the Auditor. It was submitted that the respondent Nos. 2,
3 and 4 were entitled to fix a time for the performance of
the contract not only under Section 32 of the Sales of
Goods Act but also under Article 57-A. By not paying the
certified price for the shares, the contract came to an end.
The respondents have said that by the resolution of the
executors dated 7.11.1984, the three executors had been
authorized to transfer the shares to a 3rd party under
Section 108 (1) of the Companies Act. The transfer could
be made by or on behalf of a shareholder. In fact the
respondent Nos. 2, 3 and 4 need not have signed the
transfer forms and any one of them could have done so.
The transfer was in keeping with Article 63. The
respondents then submitted that Shanta was a trustee
and she could not under any principle of law applicable to
trusts either herself or through a nominee purchase any
trust property as this would invariably lead to a conflict of
duty and interest. In fact by challenging the price fixed in
the shares by the Auditor and contending that it was too
high, the conflict between the interest of the beneficiary
and the interest of the trustee was manifest.
IV. Conclusion
IV.1 In our opinion the entire transaction of sale is riddled with
IV.1.1 The notices issued in respect of the 93 and 3417
shares were not in keeping with the Articles as far as
Articles 58 to 63 were concerned. As we have already
observed, notices to willing members or to selected
persons under Article 58 must succeed and not precede
the actual operation of Article 57-A. The notices issued
by the respondent Nos. 2, 3 and 4 also did not constitute
the Directors as the transferor’s agents for the purposes
of selling the shares in terms of Article 59. There was, in
the circumstances, no question of the transferors selling
their shares to any 3rd party under Article 63 unless
proper notice had been issued to the 2nd and 3rd
category of persons if any. There was also no question of
the transferor invoking Article 61 bypassing the right of a
willing member or selectee, if any, to negotiate a fair
IV.1.2 The Division Bench held that the notices dated 29.11.84
and 10.11.84 issued by the respondent Nos. 2,3 and 4 in
respect of the 3417 shares, and the 93 shares
respectively, were valid notices under Articles 57-A and
58 to the other shareholders in the company. But the
Division Bench erred in holding that none of the other
shareholders showed any interest in purchasing the
shares. In fact the conclusion of the Division Bench is
contradictory. If the notices could be combined notices
under Article 57-A and Article 58, then the appellants’
acceptance of the offer as made in the notices should
also be construed as a combined assent under both
the Articles. The Division Bench erred in holding that
there was no material before the Court to indicate that the
second appellant had at any time informed the
company that she proposed to exercise her rights as a
shareholder to purchase the shares. The
Division Bench should have considered whether there
was any offer to the second appellant as a shareholder to
purchase the shares. If there was not an offer to the
shareholders, obviously, there was no question of the
second appellant accepting the offer. But whatever offer
was made whether under Article 57-A or under Article 58
by the two notices, that offer was accepted by the
appellant. And upon such acceptance, there was a
concluded contract between the respondent Nos. 2,3 and
4 on the one hand and the second appellant on the other.
IV.1.3 The learned Single Judge correctly held that:-
“The offers being both under Article
57-A and Articles 58 to 64, the
acceptance by the second petitioner
must be deemed to be not only as a
nominee, but also as a member of the
first respondent-company entitled to
take up the shares in her own right.
There is a concluded contract to sell the
shares to the second petitioner. The
second petitioner was and is not an
executrix or a trustee. This contract
cannot, therefore, be said to be void or

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

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

IV.2.3 In Sudbrook Trading Estate Ltd. v. Eggleton &
Ors. (1982) 3 All ER 1, 64 a clause in the lease gave
the lessees an option to purchase the reversion in fee
simple at a price to be agreed by two valuers, one to be
nominated by the lessors and the other by the lessees
and, in default of agreement, by an umpire to be
appointed by the valuers, a minimum purchase price
being specified in the clause. When the lessees sought
to exercise the option in December 1979 the lessors
claimed that the option clauses were void for uncertainty
and refused to appoint a valuer. The lessors also
contended that the options were unenforceable as there
was no contract of sale since the purchase price had not
been fixed. It was held that since the contract between
the parties provided that the price was to be determined
by valuers, it necessarily followed that the contract was a
contract for sale at a fair and reasonable price assessed
by applying objective standards, and ” on the exercise of
the option clauses a complete contract for the sale and
purchase of the freehold reversion was constituted”.
IV.2.4 There was thus a concluded contract which was
breached by the respondent Nos. 2, 3 and 4 when they
purported to sell their shares to the Pawar group.
IV.2.5 If the notices issued by the respondent Nos. 2,3, and 4
were not under Article 58, then it was not open to the
respondent Nos. 2,3 and 4 to have sold the shares to the
Pawar Group without issuing such notices. Hence
irrespective of whether there was a concluded contract
between the appellants and the respondent Nos. 2,3 and
4 in respect of the 3417 and 93 shares, the shares could
not have been sold to the Pawar Group. Apart from the
lack of notice under Article 58, as we have already
noticed, the right of a transferor in terms of the Articles of
the company to sell the shares to a person of the
transferor’s choice is required to be exercised within the
period specified in the Articles. This is clear from Article
63. According to the respondents the appellants had
repudiated the contract by challenging the certification of
the auditor in February, 1985. If that were so then the
Directors were required to give the notice to the transferor
or if no such notices were given, the transferors could sell
within the period of 30 days thereafter. Those 30 days
had long since expired much before the date on which the
sale of the shares is said to have taken place between the
respondent Nos. 2,3 and 4 and the Pawar Group.
IV.3 We are of the view that there was also no repudiation
of the contract by the appellants as contended by the
respondents on account of the appellants alleged failure
to pay the price within the time fixed by the respondent
Nos. 2, 3 and 4 by their notices dated 21.2.1985.
IV.3.1 Section 11 of the Sale of Goods Act, 1930 expressly
“11. Stipulation as to time. – Unless a
different intention appears from the
terms of the contract, stipulations as to
time of payment are not deemed to be
of the essence of a contract of sale.
Whether any other stipulation as to time
is of the essence of the contract or not
depends on the terms of the contract”.

IV.3.2. As there was no time fixed either under
Article 57-A or in the offer letters, the question of time
being of the essence did not at all arise. As was held in
S.C.Gomathinayagam Pillai v. Palaniswami Nadar 1967
AIR 1967 SC 868 “the stipulation must show that the
intention was to make the rights of the parties depend on
the observation of the time limits prescribed in a fashion
which is unmistakable.” If there is no stipulation as to
time, it is not open to a party to unilaterally stipulate a
time and then cancel the contract because of an alleged
failure of the other party to act within the time stipulated.
[See: National Co-operative Sugar Mills Ltd., Alanganallur
v. M/s. Albert & Co. AIR 1981 MAD 172 (D.B.)
IV.3.3. Of course if time is fixed by the contract but it is not
originally of the essence, a party could by notice served
upon the other call upon him to complete the transaction
within the time fixed and intimate that in default of
compliance with the requisition the contract will be treated
as cancelled (ibid p.872). But where no time is fixed for
completion, it is not open to either the vendor or
purchaser to serve notice limiting a time at the expiration
of which he will treat the contract as at an end.

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

IV.4.I Repudiation of a contract is ” a serious matter, not to
be lightly found or inferred”. From the facts as narrated
earlier, it is clear that there was no such repudiation on
the part of the appellants. The letters exchanged, the
suits filed do not show that the appellants were
renouncing the contract nor that they were absolutely
refusing to perform the contract. The question is not
whether the valuation by the company’s auditors was
correct. The Division Bench held that it could not be
said to be incorrect. But the question which should have
been asked was, was the challenge permissible in law
and if so was it made bonafide? The Division Bench did
not answer this question in the negative. There was in
fact no refusal to perform the contract, but a questioning
of the mode of performance. It may be that they were
mistaken in their challenge to the Auditors’ certificate,
but that is a long way from saying that they were
unwilling to pay. As was said in Sweet & Maxwell Ltd.
vs. Universal News Services Ltd. 1964 QBD 699 (CA)
179 “their view might have been a wrong one, but that
does not justify it being treated as a repudiation of the
contract” . “.If A and B, parties to a contract, form
different views as to the construction and effect of their
contract, and A demands performance by B of some act
which B denies he is obliged to perform upon the true
interpretation of the contract, then, if B says “I am ready
and willing to “perform the contract according to its true
tenor, but I contend that what you, A, require of me is
not obligatory upon me “according to the true
construction of the contract,” and if in so saying he is
acting in good faith, he does not manifest the intention
to refuse to perform the contract. On the contrary, he
affirms his readiness to perform the contract, but merely
puts in issue the true effect of the contract.”(ibid pg.737)

IV.4.2 There would have been no point in the appellant
challenging the valuation of the shares by the auditors if
they were not interested in completing the transaction.
There would have been also no point in their offering to
deposit Rs.20 lakhs as proof of their continued interest in
purchasing the shares. The filing of the suit in Pune is not
conduct in keeping with an intention of not performing the
contract. If the offers were in terms of Article 58, as is
now contended by the respondents, then, as we have
said, the acceptance of that offer must also be
understood to be under Article 58. In that case it was for
the parties to negotiate the price for the shares and not
for the auditors to determine. The challenge to the
certification may be taken as a method of negotiating a
fair value under Article 58. Be that as it may, the
appellants in fact accepted the price as certified by the
auditors on 1st October, 1985.
IV.5 The respondents have relied on the resolution at the
Executor’s meeting on 27.11.1984 at which it was
determined that the sale of the shares would be made.
The resolution of the executors was that one of the
executors could implement the sale and execute the
transfer forms but did not name anyone. Before the sale
of the 3417 shares was made to the Pawars by the
Executors, it was abundantly clear from the conduct of
Shanta (i) that she had revoked consent she may have
given qua Executor and Trustee to the sale of the 3417
shares to third parties and (ii) that the appellants were
desirous of purchasing the shares themselves in
whatever capacity.
IV.5.1 In any event the Executors’ resolution dated 27.11.84
authorizing one of them to effect the transfer of the shares
could not override the provisions of Section 108 of the
Companies Act which prohibits a company from registering
or transferring of shares in the company “unless a proper
instrument of transfer duly stamped and executed by and
on behalf of the transferor and by and on behalf of the
transferee and specifying the name, address and
occupation if any of the transferee, has been delivered to
the company.
IV. 5.2 For the purposes of registration of the transfer under
Section 108 the instrument of transfer must be executed by
the transferor or it must be executed on behalf of the
transferor. But there must be execution. The learned single
Judge has found as a fact that the instrument of transfer
had been signed by only three of the joint shareholders.
Shanta had not signed. There were three signatures on
the transfer deed. Each transferor had therefore, executed
qua shareholders in respect of their own interest. There
was no 4th signature on behalf of the 4th joint shareholder.
This was also the finding of the Division Bench. But the
Division Bench held that it was a mere irregularity which did
not vitiate the registration. It was also held that the
irregularity could be cured by one of the Executors signing
on his behalf.
IV.5.3 But compliance with the provisions of Section 108 was
and is mandatory. As held in Mannalal Khetan & Ors. vs.
Kedar Nath Khetan & Ors. (1977) 2 SCC 424:-
“The words “shall not register” are
mandatory in character.. The
mandatory character is strengthened by
the negative form of the language. The
prohibition against transfer without
complying with the provisions of the Act
is emphasized by the negative
language. Negative language is worded
to emphasise the insistence of
compliance with the provisions of the
Act..The provisions contained in
section 108 of the Act are for the
reasons indicated earlier mandatory.
The High Court erred in holding that the
provisions are directory”.

(See also: Halsbury’s Law of England 4th edn.Vol.7 para
1632, Palmers Company Law 24th Edn. Pg.638, Jarnail
Singh Vs. Bakshi Singh (1960) 30 C.C. 192., L.
Janakirama Iyer Vs. P.M. Nilkanta Iyer and Others (1962)
Supp.1 SCR 206.)
IV.5.4. The power to act by majority qua executors and
authorizing someone to act as a shareholder on
another’s behalf are distinct. There is no question of
transferring shares by signature of a majority. Whatever
the agreement between the executors was inter-se, the
agreement could not over-ride the provisions of the
Companies Act and under Section 108 the Company is
bound to recognize only those transfers for the purpose
of registration which are executed in terms of that
section. It is true that they were in fact executors, and
that, with regard to the beneficiaries mentioned in the
will, they would be trustees of the stock, but the
company does not take notice of any trust, and must act
in accordance with the Act of Parliament, under which it
is constituted, with regard to placing persons upon the
register.” [See: Barton v. London and North Western
Railway Co. 1889 (24) QBD 77 (CA)].

IV.5.5 Even if the four executors had wanted registration
only in the capacity of executors and the company also
acquiesced in it, the four executors would continue to be
ordinary share holders and the limitation would be illegal
and of no effect. Being on the register as joint share
holders, there is no escape from the proposition that a
transfer by one of them only would be an invalid transfer.
[See: Barton v. London and Northern Western Railway Co.
(1889 24 QBD 77)]
IV.5.6 As far as the company is concerned, the requirement
of execution of the transfer form by each of the joint share
holders could not be met by execution of the transfer form
by one of the shareholders even though between the
share holders inter-se there was an agreement that one
share holder could sign on behalf of all the other share
holders unless the executant signs for himself and for on
behalf of the other share holders/transferors. It would be of
no consequence as far as Section 108 is concerned to
exclude the reluctant share holder on the ground that the
share holder had refused to execute the form. The remedy
of the other joint share holders to compel the reluctant
share holder to sign the transfer form would lie elsewhere
and not in a breach of the requirement of Section 108 of
the Companies Act.
IV.5.7 Here the instruments of transfer had admittedly
been improperly executed. Both the Courts have so held.
It was therefore not lawful for the company to register the
transfer. The principle that a Court will not interfere in the
affairs of the company if the defect complained of can be
cured would apply if the defect is a technicality and is
curable. The non-compliance of Section 108 is not a
IV.6 Apart from the violation of Section 108 as far as the
registration of shares is concerned, the meeting of the
Board of Directors at which the company recorded the
transfer was invalidly held.
IV.6.1. According to the Article 93 of the Articles of the
Association of the Company:-
“Every notice of a meeting of the
Company shall specify a place, date and
hour of the meeting, and shall contain a
statement of the business to be
transacted thereat. No General
Meeting, Annual or Extraordinary, shall
be competent to enter upon, discuss or
transact any business which has not
been specifically mentioned in the notice
or notices upon which it was convened.
In every notice there shall appear with
reasonable prominence a statement that
a member entitled to attend and vote is
entitled to appoint a proxy or, where one
or more proxies are allowed, to attend
and vote instead of himself and that the
proxy need not be a member of the
IV.6.2 In the notice for the meeting held on 21st September,
1985, there was no mention whatsoever, let alone a
statement, relating to the transfer of the 3417 and 93
shares to the Pawars. At the same meeting, the
respondents Nos.5 and 10, were appointed as Additional
Directors although their shares were not yet entered in
the Company’s register of members.
IV.7 As we have found several legal infirmities in the sale of
the 3417 and 93 shares to the Pawars, it is not necessary
to consider whether the respondent No.5 and his group
were purchasers of the shares.
IV.8. The Division Bench erred in holding that the violation of
Section 108 was ratified at the Board Meeting held on 13th
October, 1985. Ratification is possible in respect of an act
which is incompetent, by a person who would have been
competent to do such act. The violation of Section 108
could not be ratified by the Board of Directors as the act
was one which the Board was incompetent to allow. The
Board of Directors never had the legal capacity to direct
the registration of shares invalidly transferred.
IV.9 It is the respondent’s final submission that neither of the
appellants could have purchased the shares under Article
57A because Shanta was one of the named executors
and trustees of inter alia shares of Dr. Paruleker under
his will.
IV.9.1 A trust is created under Section 6 of the Indian Trust Act,
1882 “.. when the author of the trust indicates with
reasonable certainty by any words or acts (a) an intention
on his party to create thereby a trust, (b) the purpose of
the trust, (c) the beneficiary, and (d) the trust-property,
and (unless the trust is declared by will or the author of
the trust is himself to be the trustee) transfers the trust-
property to the trustee.” According to the appellant no
valid trust was created as the beneficiaries had not been
named. We do not propose to go into this question in
these proceedings.
IV.9.2 Under Sections 51 and 52 of the 1882 Act a trustee may
not use or deal with trust property for his own profit or any
other purpose in connection with the trust. And no trustee
whose duty it is to sell trust property may directly or
indirectly buy the same or any interest therein, on his own
account or through his agent or third person.
IV.9.3 Article 57-A does not envisage Shanta purchasing the
shares through her nominee. One of hers rights under
Article 57-A was no doubt to purchase the shares herself.
But she could also nominate any other person to
purchase the shares. The transferor then would have to
make an offer to such other person who would then,
independently of Shanta, be entitled to a transfer of the
shares. In the latter case there is no question of any
conflict of interest between Shanta in her capacity as
trustee under the will of Dr. Paruleker and as a nominator
under Article 57-A. Here, Shanta was not purchasing the
shares. It is true that she could have done so in exercise
of her preemptive right under Article 57-A, but she did not
and only nominated her daughter as the person to whom
shares should be sold.
IV.9.4. This was also how the parties understood the situation
as the correspondence exchanged between the parties
evidences. As we have noted the resolution relied upon
by the respondents authorizing one of them to sell the
trust shares, was taken of a meeting held on
27th November, 1984 which was attended only by two of
the four Executors. Shanta could not attend because she
was ill. Her prayer for adjournment was rejected by the
two executors on the ground that her interest would not
be jeopardized since she would be given notice under
Article 57-A. It was then resolved that notice should be
given under Article 57-A to Shanta. If she exercised her
right under that Article, the executor was to sell the
shares to her at Rs.2,250 per share. If she did not agree
to purchase the shares at the price of Rs. 2,250 then the
price should be fixed in accordance with Article 61. The
resolution further records that only if Shanta did not buy
the shares at such fixed price then the executors “do sell
the shares to any other person or persons at or for the
price of Rs. 2,250 per share”. Since the meeting was not
adjourned because Article 57-A protected Shanta, it
follows that if Shanta’s rights were not to be protected
under Article 57-A, then the meeting should have been
IV.9.5. Indeed the matter was referred to the company’s
auditors in purported compliance with Article 57-A.
Certification of the price was made by the auditors also
under that Article. The notice of the respondent Nos. 2,3
and 4 calling upon the appellants to pay the certified price
was also under Article 57-A. The present stand of the
respondent Nos. 2,3 and 4 with regard to the
disqualification of Shanta as a purchaser of the shares
under Article 57-A is thus wholly inconsistent with their
conduct ante litem.
IV.9.6. The respondents now say that Article 57-A has no
application. If it does not then Article 58 would. In that
event, the certification by the auditors was entirely
premature as the willing shareholder (the appellant No.2
in this case) would be at liberty to negotiate the price with
the respondent Nos. 2,3 and 4 and it would only be in
default of any agreement being reached that a “fair value”
would have to be fixed by the auditors. In the
circumstances the principle that the trustee not directly or
indirectly buying the trust property as contained in Section
57-A of the 1882 Act would also not have any application
because irrespective of her right as a nominee of Shanta,
the present appellant could undoubtedly have purchased
the shares being in the second category in the hierarchy
of purchasers provided under Articles 57-A to 64.

V. This bring us to the second branch of the appellant’s
challenge viz. the issuance of 17,666 equity shares.

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

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

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

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

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

b) xxx xxx xxx xxx

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

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

V.4.3 In Pacific Coast Coal Mines Ltd. vs. Arbuthnot &
Ors. (1917) AC 607 PC, the Privy Council was of the
” that to render the notice a compliance
with the Act under which it was given it
ought to have told the shareholders,
including those who gave proxies, more
than it did. It ought to have put them in
position in which each of them could
have judged for himself whether he
would consent, not only to buying out
the shares of directors, but to releasing
possible claims against them. Now this
is just what it did not do and therefore,
quite apart from the fact that the
meeting was held in half an hour from
the time the Act passed and before the
shareholders could have had a proper
opportunity of learning the particulars of
what the Legislature had authorized,
their Lordships are of opinion that the
notice was bad, and that what was done
was consequently ultra vires”. (pg.282)
V.4.4. Again in Baillie vs. Oriental Telephone and Electric
Company Ltd., (1915)1 Ch.D.503 (CA) it was said by
the Court of Appeal;
“I feel no difficulty in saying that
special resolutions obtained by means
of a notice which did not substantially
put the shareholders in the position to
know what they were voting about
cannot be supported, and in so far as
these special resolutions were passed
on the faith and footing of such a notice
the defendants cannot act upon them.”
(See also LIC vs. Escorts (1986) 1 SCC 246 at pg.
343] .
V.5.1 The respondents have relied on Article 94 (e) which
says that ” the company shall also carry out the
requirements of Section 188 of the Act” to contend that
due notice was given under Article 94 because the
letter of Modular Finance had been forwarded to the
V.5.2. Section 188 provides that a meeting could be
requisitioned by the prescribed number of members,
after notice of any resolution which may properly be
moved and is intended to be moved at a meeting
together with a statement with respect to the matter
referred to in any proposed resolution. Assuming that
Modular Finance’s letter was in fact circulated, this
could hardly be termed to be compliance with the
requirement of Section 188 of the Act which deals with
meetings called at the instance of requisitionist and
circulation of a statement by the requisitionist of a
proposed resolution and a statement in support
thereof. Moreover, such a notice in terms of the
proviso of Sub Section 3 of Section 188 is required to
be given “in the same manner and, so far as
practicable, at the same time as notice of the meeting,
and where it is not practicable for it to be served or
given at that time, it shall be served or given as soon
as practicable thereafter”. Further it is clear from
Article 94(e) that compliance with Section 188 was in
addition to the requirements with the other parts of
Article 94 which admittedly have not been complied

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

V.5.4 We are unable to accept the reasoning of the
Division Bench. The two grounds which persuaded
them not to interfere with the fresh issue are
questionable . For one, we have already come to the
conclusion that the sale of 3417 and 93 share to the
Pawar Group was bad. The Pawar group did not
legally have the majority to push through the decision
to increase the share capital or to allot the further
shares to themselves. For another, the majority
cannot be permitted to ride rough shod over the
provisions of the Articles and the Companies Act
merely because they could if they so desired follow the
proper procedure. The haste with which the Pawar
Group sought to ensure their position in the company
is evident from the fact that a Board Meeting was held
immediately after the Annual General Meeting on
16.11.1985 at which the Board resolved to issue the
additional 17,666 shares at par to the Pawar Group.
There was no notice given of the Board meeting at all.

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

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

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

V.6.4 No court could possibly object to a decision on
merits provided it is taken in accordance with law. The
decision to issue all the additional shares to the Pawar
Group at par may not by itself have warranted
interference were it not for the manner in which the
entire exercise was undertaken.
V.6.5 During the course of the hearing both before the
Division Bench and before this Court, the respondents
offered to make an allotment of the issued capital to
the appellants to participate prorata in the additional
issuance. The offer did no more than what the
company’s articles required to have been undertaken.
VI Having effectively held in favour of the appellants, the
question finally to be determined is what reliefs can be
granted to them.
VI.1 The respondents contended that the relief of
cancellation of 17,666 shares cannot be granted in a
petition under Section 155 petition as any reduction of
capital must be made strictly in accordance with
Sections 100 to 104 or Section 402 of the Companies
VI.2. The issue need not detain us as there was no such
prayer made by the appellants. They have asked only
for rectification of the share register by deletion of the
names of the Pawar Grpoup as shareholders in the
company. The learned Single Judge merely directed
the Board of Directors to dispose of the fresh shares,
one can only assume, in accordance with the Articles
of the Company and the Act.
VI.3. Having effectively held on all issues in favour of the
appellant the question remains as to whether we should,
in exercise of our discretion under Section 155, grant the
appellant the relief of rectification of the shares as
claimed. Although the logical conclusion of our findings
would be to set aside the transfers and restore the status
quo ante, the question is should the share register of the
company be directed to be rectified now in respect of
shares, the impugned transfer of which took place more
than 20 years ago? The respondents have submitted in
the course of the hearing that this Court should not in any
event disturb the status quo but should mould the relief by
awarding compensation, if necessary as prayed for by the
appellant. They have referred to the decision in Needle
Industries (India) Ltd. V. Needle Industries (Newey)
India Holding Ltd. 1981 (3) SCC 333 in support of this
submission. We agree. There has been a sea change in
the factual scenario. Shantha has died. The company
has become a public limited company. The respondents
have been at the helm of the company more than, two
decades during the legal struggle. Many decisions must
of necessity have been taken and implemented. The
situation cannot now be unscrambled. It is a course of
action which would make the company disfunctional
harming the interests of the whole body of share holders,
affect company’s employees, its creditors and customers.
It is not as if we are able to grant any relief directly to the
appellant except to the extent of setting aside the
transfer. The appellant will still have to pursue her
remedies for effective relief in the two pending suits in the
District Court of Pune in which the appellant has prayed
for specific performance of the contracts for sale of the
shares. The outcome of the suits is uncertain. What is
certain is that whatever the outcome of the litigation it will
be another long round of litigation. Yet another factor to
be borne in mind is that the appellant had her own role to
play in contributing to the situation which she had to face
eventually. Admittedly, Shanta and the appellant
ultimately accepted the Chartered Accountant’s report.
As we have noted, no reason whatsoever was given for
the sudden change of attitude. If they could agree
subsequently to pay the price they could have done so
earlier, paid the price and then challenged the value.
Further, the Single Judge also gave the appellant and
Shanta an opportunity of paying the share price into the
Court within a period of six weeks. Had the appellant and
Shanta done so, they might have been in a stronger
position vis-`-vis- the Pawars in the appeal Court.
VI.4 In these circumstances and weighing in the balance the
comparative advantages and disadvantages of granting
the appellant the relief of rectification, we are of the view
that it would not be appropriate at this stage to exercise
our discretion to grant the relief of rectification. However,
the fact remains that the appellant has been wronged and
she is entitled to be compensated. Section 155 of the
Companies Act, allows the giving of damages in addition
to or in lieu of rectification. In the pending suits, the
appellant has put forward alternative prayers for payment
of compensation of Rs. 3 crores on account of the 3417
shares and Rs. 1 crore for the transfer of the 93 shares in
the event specific performance of the contracts was not
grantable. It was pointed out by some of the respondents’
counsel, without prejudice to their contentions on merits,
that the figure specified in the plaint, though on the higher
side, could form a rough and ready basis to quantify the
compensation. Having due regard to these submissions
and in order to give a quietus to the litigation we are of the
view that the ends of justice would be met by directing
that the appellant should be compensated with an amount
of Rs.3 crores to be paid by the company to the appellant
in full and final settlement of the appellant’s claims in
respect of the 3417 and 93 shares. Additionally, the
company will also allot shares to the company out of the
17,666 shares on par proportionate with the appellant’s
present share holding. We are told that the appellant is at
present employed by the company and is also a Director
of the company. The appellant shall continue in this
capacity for the appellant’s life time.
VI.5. The appeals are accordingly disposed of without any
order as to costs.






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