Holding

Section 108 requires substantial compliance with its procedural requirements, and a failure to file within the prescribed period without showing prejudice results in a waiver of objection, so the transfer must be registered and the High Court’s order stands.

Summary

Dove Investments Pvt. Ltd. and others had taken a loan of Rs.4.5 crore from Gujarat Industrial Investment Corporation (GIC) which was secured by 25,92,800 shares pledged by three other companies. GIC lodged the share certificates and transfer forms with Dove for registration, but the application was filed two months after the statutory two‑month deadline prescribed under Section 108 of the Companies Act, 1956. Dove argued that the delay rendered the transfer invalid and that GIC’s right to registration was waived, while GIC contended that the time limit was merely directory. The Supreme Court held that Section 108 requires substantial compliance with its procedural requirements; even if a provision is directory, the applicant must comply unless a valid reason is shown, and Dove’s failure to demonstrate prejudice meant it had waived its objection. Consequently, the Court found no injustice in the High Court’s order and dismissed the appeals under Article 136.

Issues considered

Whether Section 108 of the Companies Act, 1956 imposes a mandatory or directory time limit for filing an application for registration of share transfer.
Whether failure to file within the prescribed period bars the company from registering the transfer of shares.
Whether the appellant (Dove Investments) was prejudiced by the respondent’s delayed filing and thus can claim a waiver of rights.
Whether the Supreme Court should exercise its jurisdiction under Article 136 to interfere with the High Court’s order.

Legislation cited

Companies Act, 1956s. 108, s. 111, s. 434(1)(a), s. 439(1)(b)
Constitution of Indias. 136, s. 142

Subjects

Companies ActSection 108share transferregistration of transferprocedural compliancedirectory vs mandatorywaiverArticle 136Supreme Courtcorporate law

Judgment

M/S DOVE INVESTMENTS PVT. LTD. AND ORS. A
v.
M/S GUJARAT INDUSTRIAL INV. CORPORATION AND ANR.

FEBRUARY 2, 2006

[S.B. SINHA AND P.K. BALASUBRAMANYAN, JJ.] B

Companies Act, 1956:

Section 108(/c)-Transfer of shares-Registration of-Delay in filing
application for-Registration of transfer allowed-High Court affirming the C
order-Held, Section 108 requires the applicant desiring to obtain
registration of transfer of shares in its favour to comply with the provisions
contained therein-Even if a statute is directory in nature, the same should
be substantially complied with-What would satisfy the requirements of
substantial compliance would depend upon facts of each case-On facts, D
. appellants not prejudiced by act of respondent No. I in not filing application
for registration of transfer of shares within prescribed period-With a view
to do complete justice no interference with order of High Court called for-
Constitution of India, Articles 136 and 142.

Appellants took a loan of Rs.4.5 crores from respondent No. I. By way E
of security respondent Nos.2 to 4 pledged 25,92,800 shares in favour of
respondent No.1. On 2.1.2001 respondent No. I lodged the said share
certificates along with share transfer forms with the appellants for
\ transferring the same in its name on the ground that there had been delay in
repayment of the loan. Upon compliance of requisite formalities as envisaged F
by Section 108 of the Companies Act, 1958, respondent No.I was to present
the said shares with the appellants by 8.12.1999. Respondent No.1 raised a
grievance that the appellant, though had registered a transfer of 2,99,800
shares pledged by respondent Nos.2 to 4, they failed to effect registration of

.. transfer in respect of the remaining shares, that the shares were freely
transferable and the conduct of appellant in not effecting the transfer was G
mala fide and without sufficient cause. On an application filed by respondent
No.I, the Company Law Board directed the appellants to register transfer of
the remaining shares in the name of respondent No. I. The appeals filed by
the appellants and respondent Nos.2 to 4 were dismissed by the High Court.

1087 H
1088 SUPREME COURT REPORTS (2006] I S.C .R.

A The judgment of the High Court was challenged in the present appeals.

It was contended for the appellants that since the prnvisions of s.108 of
the Act, in so far as the obligations for registration of the shares, were not
complied with by respondent No.I within the time stipulated, the appellants
had discretion in registering the shares in terms of Section 108; and that
B the Company Law Board and the High Court erred in exercising their
jurisdiction. For respondent No.I it was contended that provisions of Section
108 of the Act were directory and not mandatory.

Dismissing the appeals, the Court

C HELD: 1.1. Section 108 of the Companies Act, 1956 requires the
applicant desiring to obtain the registration of transfer of shares in its favour
to comply with the provisions contained therein. It is, therefore, ordinarily
for the applicant to comply with all formalities. If it does not do so it cannot
make the company bound to effect the transfer, unless sufficient and cogent
D reasons are assigned. The time is specified for filing of such an application
in the prescribed form and upon complying with the requirements prescribed
therein. [ 1093-A, B[

1.2. Whether a statute would be directory or mandatory will depend upon
the scheme thereof. Ordinarily a procedural provision would not be mandatory
E even if the word "shall" is employed therein unless a prejudice is caused.
However, even if a statute is directory in nature the same should be
substantially complied with. What would satisfy the requirements of
substantial compliance, however, would depend upon the facts of each case.
[ 1093-C; 1095-D[

F r
P. Rajan v. TP.M Sahir & Ors., [2003[ 8 SCC 498; Chandrakant Ut1am
Chodankar v. Dayanand Rayu Mandrakar and Ors .. [2005] 2 SCC 188;
Mohan Singh and Ors. v. International Airport Authority of India and Ors.,
(1997[ 9 SCC 132; Kai/ash v. Nankhu and Ors.. (2005[ 4 SCC 480 and Salem
Advocate Bar Association.. TN. v. Union of India, [2005[ 6 SCC 344, relied
G on.
Crawford on Statutory Construction, p. 539, referred to.

1.3. The appellants do not state as to how they would be prejudiced by
the act of respondent No. I in not filing the application for registration of
-
transfer of shares within the prescribed period. In fact, they had no objection
H in registering the shares. The only objection was with regard to the value
DOVE INVESTMENTS PVT. LTD. v. GUJARAT INDUSTRIAL INV. CORPN. [SINHA, l] J089

thereof. It is also not in dispute that they, in fact, registered 2,99,800 pledged A
shares, although they were also presented after a period of two months without
any demur whatsoever. The appellants, therefore, must be held to have waived
their right. 11095-E, F]

1.4. Furthermore, by reason of the impugned judgment no injustice as
such has been done to the appellants and, in that view of the matter, this Court 13
in exercise of its jurisdiction under Article 136 of the Constitution of India
may not interfere with the impugned order, even if it may be lawful to do so.
No case has been made out for exercise of jurisdiction under Article 136 of
the Constitution. With a view to do complete justice to the parties, no
interference with the High Court judgment is called for. C
11095-G, H; 1096-H, GI

Taherakhatoon (D) by LRs v. Salambin Mohammad, 1199912 SCC 635;
Chandra Singh and Ors. v. State of Rajasthan and Anr., 12003] 6 SCC 545;
lnder Parkash Gupta v. State of J & K & Ors., ]2004] 6 SCC 786 and
Transmission Corporation of A.P. Ltd. v. Lanco Kondappali Power (P) Ltd., D
(20061 1 sec 540, relied on.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 942 of2006.

From the Judgment and Order dated 30. 12.2004 of the Madras High
Court in CMA Nos. 3188 and 3223 of2004. E
WITH

C.A. No. 943 of2006.
\
M.N. Krishnamani and Praveen Kumar for the Appellants.
F
Soli J. Sorabjee, K.K. Mani, V.M. Shiva Kumar and Tekraj Vasandi for
the Re.spondents.

The Judgment of the Court was delivered by

S.B. SINHA, J. Leave granted in both the special leave petitions.
G

These appeals arising out of a common judgment and order dated
30.12.2004 passed by the High Court of Madras in C.M.A. Nos. 3 I 88 and 3223
of2004, were taken up for hearing together and are being disposed of by this
common judgment.
H
1090 SUPREME COURT REPORTS [2006] I S.C.R.

A The factual matrix of the matter, however, would be noticed from Civil
Appeal arising out of S.L.P. (Civil) No.5260 of 2005.

The Appellant herein took a loan of a sum of Rs.4.5 crores from
Respondent No. I in the year 1996. By way of security, Respondent Nos. 2
to 4 pledged 25, 92,800 shares in favour of Respondent No. I. Respondent No. I
B on or about 02.01.200 I lodged the said share certificate pledged by Respondent
Nos. 2 to 4 along with the share transfer forms with the Appellant for
transferring the said shares in its name on the ground that there had been
delay in repayment of the said loan. A winding up petition also came to be
filed by Respondent No. I against the Appellant in terms of Section 434( I )(a)
C and 439(l)(b) of the Companies Act, 1956 (for short, 'the Act') in the High
Court of Judicature at Madras. Respondent Nos. 2 to 4 had also filed suits
being O.S. Nos. 3742, 3740 and 3741 of 2003 respectively for permanent
injunction restraining the Respondent No. I and the Appellant from effecting
the transfer of the equity shares in favour of Respondent No. I.

D It is not in dispute that upon compliance of the requisite formalities, as
envisaged under Section I08 of the Act, Respondent No. I was to present the
said shares with the Appellant by 08.12.1999. However, it did so only on
02.01.200 I. Respondent No. I raised a grievance that the Appellant although
had registered a transfer of 2,99,800 shares pledged by Respondent Nos.2 to
4, but failed to effect registration of transfer in respect of the remaining
E 22,93,000 shares. According to Respondent No. I, the said shares are freely
transferable and the conduct of the Appellant in not effecting registration
thereof is mala fide and without sufficient cause. Respondent No. I filed an
application before the Company Law Board. The Company Law Board by a
judgment and order dated 23.08.2004 allowed the said application holding :
F (i) The civil suits filed by the Respondents 2 to 4 in the absence of
any restraint order against the Appellant and Respondent No. I
for not giving effect to the transfer of shares, do not have any
bearing on the prayer made by Respondent No. I herein.
(ii) The other averments raised in the counter statement are neither
G argued nor found to be germane to the issue in question.
(iii) The Appellant is hereby directed to register the transfer of22,93,000
shares in the name of Respondent No. I herein within 30 days of
receipt of this order.

H An appeal thereagainst was preferred by the Appellant herein before
DOVE .INVESTMENTS PVT.LTD. v. GUJARAT INDUSTRIAL INV. CORPN. [SINHA,!] J 09 J

the High Court of Judicature at Madras in terms of Section I OF of the Act. A
An appeal was also preferred by Respondent Nos.2 to 4 herein. By reason
of the impugned judgment, the appeals preferred by the Appellant herein as
also Respondent Nos. 2 to 4 c~.me to be dismissed.

Mr. M.N. Krishnamani, learned Senior Counsel appearing on behalf of
the Appellants, raised a short question in support of the appeals. It was B
submitted that ifthe provisions of Section 108 of the Act are read as a whole,
it would be evident that the time specified therein is mandatory in character.
It was argued that Appellant had discretion in registering the shares in terms
of Section I08 (IC) of the Act, and if the same was not done, inter a/ia, on
the ground that the provisions of the Act had not been complied with insofar C
as the obligations for registration of shares were not complied with within the
time stipulated, the Company Law Board and consequently the High Court
must be held to have committed an error in exercising their jurisdiction. It was
submitted that the High Court also erred in distinguishing the decision of this
C<;mrt in Manna/al Khetan and Ors. v. Kedar Nath Khetan and Ors., [1977]
2 sec 424, inter alia relying on or on the basis of the decision of a learned D
Single Judge of the Kamataka High Court in Mukundlal Manchanda and
Anr. v. Prakash Roadlines ltd and Ors., [1991] 72 CC 575.

It was submitted that the principle of waiver which had been relied upon
by the High Court was not available, inasmuch as if cin an earlier occasion,
the Appellant registered 2,99,800 shares in ignorance of law, it cannot be E
expected to commit the same mistake over again.

Mr. Soli J. Sorabjee, learned Senior Counsel appearing on behalf of the
Respondents, on the other hand, would submit that the decision of this Court
in Manna/al Khetan (supra) is distinguishable inasmuch as the said provisions F
were couched in negative language whereas Sections 108 (IA) and 108 (IC}
are structured differently and have a different scheme besides having not
used such negative language. The provisions of Sections I08 (I A) and I 08
(IC) of the Act, Shri Sorabjee would contend, do not prgvide for any penalty
or consequences in the event of failure to comply therewith and in that view
of the matter, the said provisions must be held to be directory in nature. In G
any event, the fact that ihe Company can move the Central Government for
extension of time itself indicates that the provisions are directory and not
mandatory.

In any event, the learned counsel urged that having regard to the fact
H
1092 SUPREME COURT REPORTS (2006 I I S.C.R.

A that at no point of time, the Appellant had taken objection of non-compliance
of the provisions Section I08 (I CJ of the Act, it cannot now turn round and
contend that the obligation for registration of transfer of shares in the name
of Respondent No. I was beyond the time stipulated under Section I 08 (IC)
of the Act.

B Section I 08 (I) prohibits registration of transfer of shares except on
production of the instrument of transfer and unless the conditions precedent
therefor are complied with. Section 108 (IA) provides that every instrument
of transfer of shares shall be in such form as may be prescribed, and shall,
before it is signed by or on behalf of the transferor, be presented to the
C prescribed authority for the purpose of stamping or otherwise enoorsing
thereon the date on which it is so presented and after it is executed by or
on behalf of the transferor and the transferee and completed in all other
respects be delivered to the company within two months from the date of
such presentation. Section I08 (IC) provides for a nun ubstante clause stating,
inter alia, that any share deposited by any person, inter a/ia, with a financial
D institution by way of security for the repayment of any loan or advance to,
or for the performance of any obligation undertaken by such person, if, inter
alia, the financial institution stamps or otherwise endorses on the form of
transfer of such shares, if it intends to get such share registered in its own
name, the date on which the instrument of transfer relating to such share is
E executed by it and the instrument of transfer of such form duly completed in
all respects is delivered to the company within two months from the date so
stamped or endorsed. Section 108 (ID) again provides for a non obstante
clause whereby the Central Government has been conferred with the power
to extend the period mentioned in those sub-sections by further time as it may
deem fit, if it is of the opinion that it is necessary so to do to avoid hardship
F in any case. Section 111 empowers the Company to refuse registration upon
assigning reasons therefor. Sub-section (3) of Section 111 provides for an
appeal to the Company Law Board against such an order.

A company may refuse to register shares for various reasons. In this
case, however, the shares being freely transferable refusal for transfer can be
G made only on limited grounds. Some such grounds may be that the transfer
is ma/a fide or transferee is not a buna fide investor or transfer is not
permissible in terms of one or the other provisions of the Articles of Association
or the same is otherwise prohibited in law e.g. sub-section (3) of Section 22A
of the Securities Contract (Regulation) Act, 1956. However, before the company
H can be asked to perform its duties in terms of the said provisions, the
DOVE INVESTMENTS PVT. LTD. v. GUJARATINOUSTRIAL INV. CORPN. (SINHA, J.] J093
-- procedural requirements contained in Section I 08 are required to be complied A
with. Section 108 requires the applicant desiring to obtain the registration of
transfer of shares in its favour to comply with the provisions contained
therein. It is, therefore, ordinarily for the applicant to comply with all formalities.
ff it does not do so it cannot make the company bound to effect the transfer,
unless sufficient and cogent reasons are assigned. The time is specified in
the aforementioned provisions for filing of such an application in the prescribed B
form and upon complying with the requirements prescribed therein.

Whether a statute would be directory or mandatory will depend upon
the scheme thereof. Ordinarily a procedural provision would not be mandatory
even if the word "shall" is employed therein unless a prejudice 'is caused. [See C
P. T. Rajan v. T.P.M Sahir and Ors., [2003] 8 SCC 498]

In Chandrakant Uttam Chodankar v. Dayanand Rayu Mandrakar and
Ors., [2005] 2 SCC 188, this Court observed:

"74. In this case it is not necessary for us to go into the question D
as to whether Section 83 is imperative in character or not inasmuch
it. is settled law that even where the expression "shall" is used, the
. same may not be held to be mandatory. Even a mandatory provision
having regard to the text and context of the statute may not call. for
/ strict construction.
E
75. In V.P. SEB v. Shiv Mohan Singh 15 this Court stated the law
in the following terms: (SCC p. 440, paras 96-97)
"96. Ordinarily, although the word 'shall' is considered to be
imperative in nature but it has to be interpreted as directory if the
context or the intention otherwise demands. (See Sainik Motors F
v. State of Rajasthan)
97. It is important to note that in Crawford on Statutory
Construction at p.539, it is stated:

'271. Miscellaneous implied exceptions from the requirements of
mandatory statutes, in general._:_Even where a statute is clearly G
mandatory or prohibitory, yet, in many instances, the courts will
regard certain conduct beyond the prohibition of the statute through
,.
the use of various devices or principles. Most, if not all of these
devices find their jurisdiction in considerations of justice. It is a well-
known fact that often to enforce the law to its letter produces manifest H
1094 SUPREME COURT REPORTS [20061 I S.C.R.

A injustice, for frequently equitable and humane considerations, and
other con'Siderations of a closely related nature, would seem to be of
a sufficient calibre to excuse or justify a technical violation of the
law."

In Mohan Singh and Ors. v. International Airport Authority of India
B and Ors .. (1997] 9 sec 132, this Court observed:

"17. The distinction of mandatory compliance or directory effect
of the ianguage depends upon the language couched in the statute
under consideration and its object, purpose and effect. The distinction
reflected in the use of the word "shall' or 'may' depends on conferment
c of power. In the present context, ·may' does not always mean may.
May is a must for enabling compliance of provision but there are
cases in which, for various reasons, as soon as a person who is within
the statute is entrusted with the power, it becomes duty to exercise.
Where the language of statute creates a duty, the special remedy is
D prescribed for non-performance of the duty. In Craies on Statute Law
(7th Edn.), it is stated that the court will, as a general rule, presume
that the appropriate remedy by common law or mandamus for action
was intended to apply. General rule of law is that where a general
obligation is created by statute and statutory remedy is provided for
violation, statutory remedy is mandatory. The scope and language of
E the statute and consideration of policy at times may, however, create
exception showing that the legislature did not intend a remedy
(generality) to be exclusive. Words are the skin of the language. The
language is the medium of expressing the intention and the object that
particular provision or the Act seeks to achieve. Therefore, it is
necessary to ascertain the intention. The word 'shall' is not always
F
decisive. Regard must be had to the context, subject-matter and object
of the statutory provision in question in determining whether the
• same is mandatory or directory. No universal principle of law could be
laid in that behalf as to whether a particular provision or enactment
shall be considered mandatory or directory. It is the duty of the court
G to try to get at the real intention of the legislature by carefully
analysing the whole scope of the statute or section or a phrase under
consideration ... "

Recently, a 3-Judge Bench in Kai/ash v. Nankhu and Ors., (2005] 4 SCC
480 while interpreting Order 8, Rule I of the Code of Civil Procedure was of
H the opinion :
DOVE INVESTMENTS PVT. LTD. v. GUJARAT INDUSTRIAL INV. CORPN. [SINHA, J.] J095

"33. As stated earlier, Order 8 Rule I is a provision contained in A
CPC and hence belongs to the domain of procedural law. Another
feature noticeable in the language of Order 8 Rule 1 is that although
it appoints a time within which the written statement has to be
presented and also restricts the power of the court by employing
language couched in a negative way that the extension of time
appointed for filing the written statement was not to be later than 90 B
days from the date of service of summons yet it does not in. itself
provide for penal consequences to follow if the time schedule, as laid
down, is not observed. From these two features certain consequences
follow."

[See also Salem Advocate Bar Association, TN. v. Union of India, C
[2005J 6 sec 344].

However, even if a statute is directory in nature the same should be
substantially complied with. What would satisfy the requirements of substantial
compliance, however, would depend upon the fact of each case.
D
The Appellants do not state as to how they would be prejudiced by the
act of Respondent No. I in not filing the application for registration of transfer
of shares within the aforementioned period. The Appellants have, indisputably,
filed suits. In para 10 of the plaint filed by Appellant No.I, in O.S. No.3742
of 2003, it was categorically stated :
E
" .... Even though the plaintiff cannot have an objection on the transfer,
the plaintiff is concerned about the value at which the second
defendant is attempting to transfer the equity shares in its favour"

On their own saying, thus, they were not prejudiced. In fact, they had
no objection in registering the shares. The only objection was with regard to F
the value thereof. It is also not in dispute that they, in fact, registered 2,99,800
pledged shares, although they were also presented after a period of two
months without any demur whatsoever. The Appellants, therefore, must be
held to have waived their right. The pledge of shares is not in dispute.

The fact that the Appellant had taken a loan of Rs.4.5 cores is also not G
in dispute. Furthermore, we are of the opinion that by reason of the impugned
judgment no injustice as such has been done to the Appellants and in that
view of the matter this Court in exercise of its jurisdiction under Article 136
of the Constitution of India may not interfere with the impugned order, even
if it may be lawful to do so.
H
1096 SUPREME COURT REPQRTS [2006] I S.C.R.

A In Taherakhatoon (D) By LRs. v. Salambin Mohammad, [1999) 2 SCC
635, this Court observed

"20. In view of the above decisions, even though.we are now dealing
with the appeal after grant of special leave, we are not bound to go
into merits and even if we do so and declare the law or point out the
B error-still we may not interfere if the justice of the case on facts does
not require interference or if we feel that the relief could be moulded
in a different fashion"
In Chandra Singh and Ors. v. State of Rajasthan & A nr., [2003) 6 SCC
545, it was held :

c " ... Furthermore, this Court exercised its discretionary jurisdiction under
Article 136 of the Constitution of India which need not be exercised
in a case where the impugned judgment is found to be erroneous if
by reason thereof substantial justice is being done. [See S.D.S.
Shipping (P) Ltd. v. Jay Container Services Co. (P) Ltd. 17] Such a
relief can be denied, inter alia, when it would be opposed to public
D policy or in a case where quashing of an illegal order would revive
another illegal one"
The said principle was reiterated in lnder Parkash Gupta v. State of J
& K & Ors., [2004] 6 SCC 786 in the following terms :

"In ordinary course we would have allowed the appeal but we cannot
E lose sight of the fact that the selections had been made in the year
1994. A valuable period of IO years has elapsed. The private
respondents have been working in their posts for the last lO years.
It is trite that with a view to do complete justice between the parties,
this Court in a given case may not exercise its jurisdiction under
F Article 136 of the Constitution of India. {See Chandra Singh v. State
of Rajasthan... "

[See also Transmission Corporation of A.P. Ltd. v. Lanco Kondappali
Power (P) Ltd.. [2006) I SCC 540)

Following the aforementioned decisions, we are of the opinion that with
G a view to do complete justice to the parties, no interference with the High
Court's judgment is called for.
For the foregoing reasons, we are of the opinion that no case has been
l
made out for exercise our jurisdiction under Article 136 of the Constitution
of India. The appeals are dismissed. No costs.
H R.P. Appeals dismissed.