INDIAN CHEMICAL PRODUCT LTD. v. STATE OF ORISSA

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Petitioner: Indian Chemical Product Ltd.

Respondent: State of Orissa and Oth.

Citation: 1966 Supp SCR 380; AIR 1967 SC 253

Decided by: Supreme Court of India

Judges: J. R. Mudholkar, R. S.  Bachawat and Raghubar Dayal, JJ.

INTRODUCTION

The demonstration of the development of a resource is named a transfer of shares. The development can be actual development or the responsibility for the title of the resource or both. For protection, this development can be deliberate or operational by law. The exchange of offers is a willful demonstration by the holder of offers and happens via an agreement. While the transmission of offers happens because of the activity of law that is on the passing of the holder of shares or on an occasion where the holder gets bankrupt or lunatic. These two domains are many times misinterpreted.

Transfer of offers alludes to the deliberate exchange of title of shares among the transferor (one who moves) and the transferee (one who gets). The portions of a public organization are openly adaptable except if the organization has a substantial motivation to refuse something similar. The portions of a private restricted company are not adaptable dependent upon specific exemptions. An exchange deed is executed for the exchange of shares.

While on the other hand transmission of shares happens because of the activity of law that is the point at which the holder is no more, or has gotten lunatic or bankrupt. It can likewise happen when the holder of shares is an organization, and it has twisted up. There is no exchange deed executed, and the transferee will be given the rights to the offers, and the transmission is recorded just when the transferee gives verification of qualification to the offers. If there should be an occurrence of the demise of the holder of the shares, it will be moved to the legitimate agent and in the event of bankruptcy to the authority trustee.[1]

In the present case these two domains are discussed by the court authorities. In this case the court has dealt with this issue along with other certain relevant issues as there has been change in the legal structure of the country after independence and how it has affected the membership of the company.

FACTS

  • The petitioner company was incorporated by having its registered offices in Baripada, Mayurbhanj, and in a town of Calcutta on 29th November 1947 with 7 shareholders of the company.
  • The authorized capital of the company of Rs. 25 Lakh was divided into 25000 shares with a share capital of Rs. 100 each.
  • As per the information produced the maharaja of Mayurbhanj has paid and subscribed for 7500 shares and the remaining 150 shares are held by other 6 shareholders as per the MOA of the company.
  • A claim was made by the State of Orissa on the shares which are hold by the Maharaja are now vested by him as per the operation based on the declaration of the independence as per the changes made by the constitution of India and the same is also based on the declaration of transfer of share which was initiated by the Maharaja.
  • The State of Orissa which also include Maharaja kept on requesting the Imperial Bank of India to also request the company to make the asked changes of transferring the shares of the Maharaja in the name of his secretary and a share script along with the transfer of deed with the company was also filed by the respondent on 16th March 1950.
  • On 16th May 1953 the request which was made by the respondent was rejected by the board of directors of the company.
  • After rejecting the above-made request of the respondent the Attorney for the State made another request to the company which stated to note the name of the State as the owner of the shares on 1st December 1953 which was also rejected by the company.
  • An application was filed under section 38 of the Companies Act, 1913 in the High Court of Orissa asking for the same rectification in the share register of the company.
  • An order was passed in the favour of the respondent while directing the company to make the asked rectification on 13th September 1957 which was challenged by the company later in the High Court but was dismissed.
  • This appeal is now challenged in the present court on the certificate issued by the High Court.

ISSUES

While dealing with the present case both the lower court have come upon certain conclusions as mentioned below which were questioned in the present court also:

  1. That the title to hold the share is vested with the respondent by operation of law.
  2. That the refusal of the Board of Directors to enlist the transfer of shares in the name of the respondent was mala fide.
  3. That the State of Orissa was qualified for amendment of the share register of the company and an appropriate case for the activity of the Court’s locale under Section 38 of the Act, 1913.
  4. That the petition filed was not obligated to be excused on the ground that the State had requested the organization to enroll the name from the Secretary to the Government of Orissa, as the investor instead of the Maharaja.
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JUDGEMENT

The Court in the present case has dismissed the petition filed by the petitioner against the holding of the lower courts. While dismissing the petition the court was of the view that the Maharaja of Mayurbhanj has stopped being the proprietor of the offers. The province of Orissa is presently their proprietor and has the legitimate right to be an individual from the company and is qualified for saying that the company ought to perceive its participation and make a section on the register of the reality of its turning into a part and its archetype in-title having stopped to be a part. The name of the State of Orissa has, without adequate explanation, been excluded from the register and there is the default in not entering on the register the reality of the Maharaja having stopped to be a part. The Court’s purview under Section 38 is, hence, attracted.

While agreeing with the statement of the High Court the court held that “The High Court rightly ordered the rectification in the exercise of its summary powers under Section 38. The jurisdiction created by Section 38 is very beneficial and should be liberally exercised. We see no reason why the Court should deny the applicant relief under Section 38. The Directors of the appellant company on the most frivolous of objections have prevented the State of Orissa from becoming a member for the last 16, years. It is a matter of regret that justice has been obstructed for so long. There is no merit in this appeal.”

ANALYSIS

After analysing all facts which were presented before previous courts the court authority took the note of certain facts which talks about the Maharaja control in an independent country. The State of Mayurbhanj was one of the feudatory States of Orissa under the suzerainty of the British Crown. As of August 15, 1947, with the revelation of autonomy, the centrality of the British Crown slipped by. On October 17,1948, the Maharaja of Mayurbhanj consented to an arrangement for the consolidation of the State with the Dominion. By Article 1 of this agreement, the Maharaja totally surrendered to the Dominion his power over the State of Mayurbhanj as from November 9, 1948. As per Article 4 of the arrangement which was signed by the Maharaja which permitted him to hold the responsibility for private properties just as similar from the State properties. By implementation of law in result of the difference in power, every one of the public properties of the State which were vested in the Maharaja as the sovereign ruler degenerated on the Dominion as the succeeding sovereign this transfer also consist of 7500 shares which he holds in the company.

Now the other question which comes into picture after the change in the control of power as per the operation of law is who has the control over the shares which were vested under the Maharaja control, Center or State Authorities. The Government of India in the activity of its forces under Section 3(2) of the Extra-Provincial Jurisdiction Act (47 of 1947) assigned to the Government of Orissa the ability to manage the regions of the combined State. Based on this understanding of laws the Government of India proclaimed that the 7500 shares which were held by the Maharaja and later taken over by the state government were not taken for central purposes. Under the Constitution which came into power on January 26, 1950, the regions of the blended State were remembered for the State of Orissa. Because of these progressive established changes, the shares of the company got vested in the State of Orissa. The State is presently the legitimate proprietor of the offers and the Directors of the organization will undoubtedly enter its name in the register of individuals except if there is some prohibitive arrangement in the articles approving them to decline the enrollment.

Article 11 of the Companies Memorandum states that “The Board of Directors shall have full right to refuse to register the transfer of any share or shares to any person without showing any cause or sending any notice to the transferee or transferor. The Board may refuse to register any transfer of shares on which the Company has lien.” This point was raised by the council of the petitioner in the court of law while justifying their act for not colliding with the request of the respondent. While analysing this section the court had a very different point of view. As per the authorities, Article 11 talks about the transfer of shares. A devolution of title by the applicability of law isn’t inside its domain. Being a prohibitive arrangement, the article should be stringently understood.

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In this case, the share ownership is legally owed to the State of Orissa and the State does not require a deed from the Maharaja to complete the ownership. Article 11 of the Company Memorandum does not authorize the Board of Directors to reject the acknowledgment of the transfer of ownership. We can add that we do not provide an opinion on whether the article applies to the involuntary transfer of shares through a judicial sale, taking into account the provisions of Order 21, Rule 80 of the Civil Procedure Code regarding the implementation of the required transfer. document.

In the present case, the title to the shares vested in the State of Orissa by the action of law, and the State didn’t need an instrument of move from the Maharaja to finish its title. It doesn’t present upon the Board of Directors an ability to decline acknowledgment of such devolution of title. We may add that we state no viewpoint on whether or not such an article applies to a compulsory exchange of offers by a Court deal having respect to the arrangements of Order 21 Rule 80 of the Code of Civil Procedure as to the execution of fundamental reports of transfer.

Articles 1-A draws on the guidelines in Table A of the First Schedule to the Companies Act, 1913 so exceptionally far as they are appropriate to privately owned businesses and are not conflicting with the articles. The Table A of the Schedule draws a difference between the transfer and transmission of the company shares. In regard to a transfer of shares, they necessitate that the instrument of the move will be executed both by the transferor and the transferee, the transfer by operation of law is not as such that the transmission. In the case of re Bentham Mills Spinning Company,[2] the authorities were of the view that “In Table A the word ‘transmission’ is put in contradistinction to the word ‘transfer.’ One means a transfer by the act of thepartners, the other means transmission by devolution of law.” As per Clause 22 of the guidelines in Table A read with Article 1-A gives power upon the Board of Directors to decay enlistment of transmission of title in the outcome of the demise of indebtedness of a part. In the present case, there is no transmission of title in the outcome of death or bankruptcy, and clause 22 cannot be applied. Under the articles, the Directors had, subsequently, no ability to reject enlistment of the devolution of title on the State of Orissa by the activity of law as a result of the established changes.

The authority under Section 11 to reject enrollment of the exchange is an optional force. The Directors should practice this power sensibly and in accordance with some basic honesty. The Court can handle their prudence on the off chance that they behave inappropriately. The Directors can’t decline to enroll in the exchange on the grounds that the transferee won’t go into an arrangement that the Directors consider to be for the interests of the organization.

After analysing these above-mentioned issues, the court was of the view that it can’t acknowledge the contention that the petitioner of the case was obligated to be excused on the grounds that the State of Orissa had requested enrollment for the sake of the Secretary, Finance Department. No such complaint was taken by the organization, despite the fact that it had taken various protests. In addition, by letter dated December 1, 1953, Shri S.K. Mandal, the Attorney for the State of Orissa, had certainly called upon the organization to record the name of the State as the proprietor of the shares in the register of share. Notwithstanding this letter, the company wouldn’t make the important enlistment.

CONCLUSION

In the present case, the court has dealt with various issues which were put before the lower courts which have given their holding. The Supreme Court authorities have relied upon the judgment by the lower court while dealing with all the issues as there is a difference between transfer and transmission of shares and it cannot be just denied by the board of directors on their own will without any proper reasoning. The present case of  Indian Chemical Product v State of Orissa cannot be taken as a proper rule. The board needs to stick to the rules covered under the legal provision.


[1] ClearTax, Difference Between Share Transfer and Share Transmission, https://cleartax.in/s/share-transfer-share-transmission-difference.

[2] re Bentham Mills Spinning Company, (1879) 11 Ch D 900, 904

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