Full Judgment Text
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PETITIONER:
M/S. JOHN TINSON & CO. PVT. LTD. & ORS. ETC.
Vs.
RESPONDENT:
MRS. SURJEET MALHAN & ANR. ETC.
DATE OF JUDGMENT: 03/02/1997
BENCH:
K. RAMASWAMY, G.T. NANAVATI
ACT:
HEADNOTE:
JUDGMENT:
O R D E R
Leave granted. We have heard learned counsel on both
sides.
These appeals by special leave arise from the judgment
of the Division Bench of the High Court of Himachal Pradesh,
made on November 14, 1996 in RFA Nos.230 and 231 of 1985.
The admitted position is that the respondents, Mrs.
Surjeet Malhan and Mr. B.K. Malhan, wife and husband
respectively, laid two suits for declaration and permanent
and mandatory injunction. The learned single Judge of the
High Court dismissed the suits. But on appeal, the Division
Bench has decreed the suits. Thus, these appeals by special
leave.
The first respondent, Mrs. Surjeet Malhan, held 1500
shares in total -900 in her name and 600 in the name of
other relatives - and 10 preferential shares. The second
respondent, B.K. Malhan, had held 2230 ordinary shares and
64 preferential shares. It would appear that there was an
agreement between B.K. Malhan and Shri R.D. Bhagat, the
appellant for transfer of the shares and completion of the
transaction to put on rails the company which was running in
losses. It would appear that as per the agreement,
subsequent transactions were to be completed and in
furtherance thereof, it appears that the shares, admittedly,
were entrusted to Mr. Bhagat with a blank transfer form.
Thereafter, the disputes arose between them. In consequence,
the suits came to be laid by the respondents against the
appellants.
The principal contention raised by Shri P.N. Lekhi,
learned senior counsel for the appellant, is that Mrs.
Malhan had admitted in her evidence that her husband had
delivered her shares to Bhagat and that she never objected
to the transfer and that, therefore, there was an implied
consent for the transfer of her shares in favour of Bhagat.
Equally, it is contended that when B.K. Malhan had
transferred the shares, though they were not registered with
the previous consent of the Board of Directors and they were
not duly registered in the register maintained by the
Register in that behalf, there was a complete transaction;
the Division Bench, therefore, is not right in reversing the
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judgment of the single Judge. We find no force in the
contentions.
There should be consensus ad idem for a concluded
contract and it is seen that Section 25(1) of the Contract
Act contemplates that when a transfer is without
consideration, it is a void contract. It is an admitted
position that there is no concluded contract between Smt.
Surjeet and Bhagat. The acquiescence did not amount to
consent unless Smt. Surjeet Malhan expressly authorised her
husband to transfer her shares. The transfer as contemplated
in this case is only for a sum of Re.1/-. As a consequence,
in the eye of law, there is no consideration and, therefore,
the transfer agreement is void. The question then is;
whether the wife hand consented to the transfer? It is an
admitted position that she had not given authority by any
letter in writing or otherwise to her husband to transfer
her shares in favour of Mr. Bhagat. Shri Lekhi sought to
rely upon a judgment of this court in Vasudev Ramchandra
Shelat vs. Pranlal Jayanand Thakur & Ors. [(1974) 2 SCC 323]
in which the Privy Council judgment rendered in M.P. Barucha
vs. W. Sarabhai & Co. [53 IA 92] was approved of. He
contended that once the shares with blank transfer forms
were entrusted, the contract is complete and, therefore,
there is a concluded contract between Bhagat and the
respondents. We find no force in the contention. The
transaction was between the broker and the purchaser. After
the broker purchased the shares on behalf of the company
with blank transfer forms, the shares were entrusted. It
was, therefore, concluded that the moment the shares were
entrusted, being movable property, the contract was complete
and, therefore, it was a valid transfer. In this case, there
was no direct transaction between Mrs. Surjeet Malhan and
Mr. Bhagat. It is not even the case of the appellant that
Mr. Malhan had been authorised to entrust those shares and
blank transfer forms to Bhagat. Under these circumstances,
without any specific authority by the owner of the shares,
i.e. Mrs. Surjeet Malhan in favour of third party, including
her husband, he gets no right to transfer her shares; nor
Bhagat gets any right and title in the shares held by Mrs.
Malhan. Even the judgment cited by Shri Lekhi in Balkrishan
Gupta vs. Swadeshi Polytex Ltd. [(1985) 2 SCC 167] does not
help the appellants. In that case, the question was whether
the appellant was a shareholder. This Court relying upon the
concept of "ownership of right" discussed in Dais on
Jurisprudence held that "an owner may be divested of his
claims etc, arising from the right owned to such an extent
that he may be left with no immediate practical benefit. He
remains the owner of nonetheless because his interest will
outlast that of other persons in the thing owned. The owner
possesses that right which ultimately enables him to enjoy
all rights in the thing owned by attracting towards himself
those rights in the thing owned which for the time being
belong to others, by getting rid of the corresponding
burdens." In that case, similar to transfer of shares
without being registered in the company, it was held that he
was holder of the shares. The ration therein also has no
application to the facts in this case. Accordingly, we hold
that the transfer of shares held by Mrs. Malhan in favour of
the appellant is invalid in law.
The next question is: whether the transfer of the
shares held by Mr. B.K. Malhan is valid in law? In that
behalf clause (8) of the Articles of Association is
relevant. It is now well settled legal position that
Articles of Association of a private company is a contract
between the parties. Clause (8) reads that "No transfer of
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any share in the capital of the company shall be made or
registered without the previous sanction of the
Directors..." It is an admitted position that no previous
sanction has been obtained from the Directors for transfer
of the shares held by Mr. Malhan. Shri Lekhi contends that
Mr. Malhan being the only Director, since his father had
already resigned and he had entrusted the shares to the
appellant, Bhagat, there is a transfer in the eye of law. We
are unable to agree with the learned counsel. The concept of
previous sanction of the Directors connotes that there
should be a written resolution accepting the transfer from
Mr. Malhan in favour of Bhagat and such previous sanction
should be preceded by handing over of the shares. In this
case, such an action was not done and, therefore, even the
transfer of the shares held by Mr. Malhan in favour of the
appellant is not valid in law. The division Bench of the
High Court, therefore, was right in granting the decree as
prayed for.
The appeals are accordingly dismissed, but in the
circumstances, without costs