Section 111A of the Companies Act, 1956 - Transfer of shares

The Depositories Act, 1996 brought about comprehensive changes in the matter relating to transfer of securities by introducing amendments to various related statutes like the Companies Act, the Indian Stamp Act, the Income-tax Act, the Securities Contracts (Regulation) Act. Prior to the enactment of the Depositories Act, 1996, two remedies were available to the aggrieved investors as regards the transfer of shares or debentures of a public or a private company to appeal to the Central Government under section 111 or to appeal before the High Court for rectification under section 155. The provision of section 155 relating to the power of the Court to rectify was omitted by the Companies (Amendment) Act, 1998 with effect from 31-5-1991. The same was incorporated in section 111 and the avenue of relief through rectification was directed to the CLB. Sub-section (14) was added to section 111 consequent to the amendment introduced by the Depositories Act, 1996 as per which for the purpose of section 111, a company shall mean a private company including a private company declared as a public company under section 43A. [Para 2] Section 111A was inserted by the Depositories Act, 1996, with effect from 20-9-1995, to exclusively deal with public companies. The Depositories Act, 1996 made substantial amendments, wherein section 111A was inserted to provide for the free transferability of shares and debentures of a public company other than the private company or a deemed public company under section 43A. Thus, all public companies came to be covered under section 111A on and from 20-9-1995. Sub-section (2) provided for free transfer of shares or debentures and any interest in a company. The proviso to sub-section (2) was inserted by the Depositories Related Laws (Amendment) Act, 1997, with effect from 15-1-1997, to provide a remedy of appeal to the aggrieved party to approach the CLB, in cases, where without sufficient cause a company refused to register the shares within two months from the date on which the instrument of the transfer was delivered to the company. The CLB was empowered to direct such company to register the transfer of shares. [Para 3] Sub-section 3 of section 111A was substituted by the Depositories Related Laws (Amendment) Act, 1997, with effect from 15-1-1997. The words ‘or any other law for the time being in force’ were added with effect from 15-1-1997, so as to include contravention of any other Acts also, apart from the SEBI Act, 1992, and the Sick Industrial Companies (Special Provisions) Act, 1985 as subject-matter for preferring a rectification petition. The sub-section provides for appealing to the CLB for rectification within two months from the date of transfer of any shares or debentures held by a depository, etc., or from the date on which the instrument of transfer or the intimation of transmission was delivered to the company, as the case may be. [Para 5] The introduction of provision of rectification, however, does not do away with a civil remedy. [Para 6] The question, in the instant appeal, related to the availability of the jurisdiction under section 111A(3) with reference to the time-limit prescribed therein in respect of transfers, that had taken place prior to the introduction of the provision. An aggrieved party has the right to elect the forum to exercise his common law right to move the civil court to vindicate the grievances or invoke the statutory right to move the CLB for relief. The position after the deletion of section 155, and the insertion of section 111 or 111A is no different from what prevailed earlier. Applying article 137 of the Limitation Act, where there is no time-limit fixed elsewhere, the period of limitation to invoke common law right will be three years. Hence, it is a matter of election for the party aggrieved to invoke the forum and it is the discretion for the CLB to exercise the jurisdiction depending on its view on the complexity of the issue before it. [Para 7] Legislation in modern state is directed with some policy to effectuate some public benefit and to cure or curb a menace. The normal rule of interpretation is that every statute or amendment to the statute is prospective prima facie, unless it is expressly or by necessary implication made to have retrospective operation. Hence, it is not necessary to give retrospectivity to the statute only through express provision. Equally, the rule against retrospective construction is not applicable as a general proposition, merely because a part of the requisites for its action is drawn from facts antecedent in point of time to its passing of the enactment. [Para 16] In all cases, primarily, the language employed is the determinative factor of the legislative intent. It is said that the first and the primary rule of construction is that the intention of the Legislature must be found in the words used by the legislation itself. [Para 17] The issue on the retrospective character of the amendment assumed significance further by reason of the limitation provided for in the amendment. It has been held that law relating to forum and limitation is procedural in nature, yet, the law relating to the rights of action and right of appeal, even though remedial, is substantive in character. [Para 18] In the background of these principles, one has to look at the amendment brought forth to section 111A with effect from 15-1-1997, as to whether the inclusion of any other law for the time being in force with limitation of two months prescribed in section 111A has to be read as a retrospective provision with limitation prescribed therein read down to cover cases of violations or breach under any other law for the time being in force happening prior to the introduction of the amendment falling beyond the period of limitation, but which are otherwise alive within the limitation period for common law remedy. [Para 19] It is an admitted fact that right to file a petition for rectification was a statutory right as well as a common law remedy one available under section 155 originally to come before the High Court or in a given case to move the civil court for that matter. The amendment in 1991 to section 111, however, resulted in the provisions of section 155 taken to section 111. Consequently, with the introduction of section 111, apart from statutory remedy before the High Court, common law remedy is also a remedy available to be pursued as a matter of choice. Thus, section 111, as it stood from 31-5-1991, covered cases of public limited companies as well as private limited companies. The jurisdiction held by the Court under the provisions of section 111 is a summary jurisdiction. Serious disputes as regards questions raised within the peripheral field of rectification necessarily need to be adjudicated only before the civil court in a manner known to law. However, where the Court feels that the question of civil rights or title, denial of transaction or certain basic facts that need enquiry touching on the rights to be a member, are not capable for decision to be considered in a summary manner and, hence, claim does not call for a rectification but demands adjudication on basic facts, the Court can exercise its discretion to direct the party to seek relief before the civil forum. The settled position of law, hence, is that exercise of jurisdiction under section 111 is confined only to those cases where the Court can appropriately decide the question raised therein in exercise of summary jurisdiction. Where the application raises complicated question of law or disputed question of law or title, the Court has to consider the facts and issues raised therein to exercise its discretion to grant the relief or direct the parties to file a suit. As such, the jurisdiction of the civil court is not completely barred. Subsequent to the insertion of section 111A with effect from 20-9-1995 by the Depositories Act, 1996, the private limited companies, deemed public companies under section 43A, came under the exclusive consideration of section 111, as is evident from sub-section (14). This means on and from 20-9-1995, remedies relating to the public companies came to be covered only under section 111A. Sub-section (2) provided that the shares or debentures or any interest therein of a company shall be freely transferable. Sub-section (3) provided for rectification by the Company Law Board on an application made by a depository, company, participant or investor in the case of contravention of any other provisions of the SEBI Act or the Sick Industrial Companies (Special Provisions) Act, 1985. The introduction of proviso with effect from 15-1-1997, by the Depositories Related Laws (Amendment) Act, 1997, cured the lacunae as regards the appeal remedy as well as the scope of the rectification remedy. [Para 20] The Amendment Act substituted with effect from 15-1-1997, the original sub-section (3) by addition of words ‘any other law for the time being in force’ so as to include contravention of the provisions of the Companies Act, the Securities Contracts (Regulation) Act, 1956 and other applicable law enabling the aggrieved party to seek rectification before the Company Law Board. The result of this amendment is that the right to seek the rectification remedy for violation of the provisions of the Companies Act or any other law for the time being in force, hitherto a common law right came to be recognised as a statutory remedy with effect from 15-1-1997. It also shows that till the date of amendment and for the period between 20-1-1995 to 15-1-1997, the only remedy available to an aggrieved person as regards the violations of any other law for the time being in force is a civil remedy alone. Hence, till 15-1-1997, as far as the rectification remedy for violation of the Companies Act or for that matter any other law for the time being in force is concerned, the aggrieved party did have a remedy, the only remedy, viz., under common law governed by general law of limitation. The Amendment Act of 1997 merely gave a statutory recognition of the common law right to approach the CLB even in respect of breach or violation of any other law for the time being in force. [Para 21] In the context of gap existing in the interregnum period since 1995 to 1997, question arose whether the retrospective operation should be given to this provision by reason of substitution brought to the Depositories Related (Amendment) Act, 1997, which was given effect from 15-1-1997. The Supreme Court, in Zile Singh v. State of Haryana [2004] 8 SCC 1, held that every statute is prima facie prospective one, and the presumption against retrospective operation is not applicable to declaratory nature of the Act, regard must be had to the substance rather than to the form. [Para 22] Keeping in mind the said principle of construction, if one looks at section 111A(3) particularly to the amendment by substitution with effect from 15-1-1997, the fact is clear that a statutory remedy of rectification to public limited companies in respect of violations under the laws for the time being in force was introduced with effect from 15-1-1997 only. By such introduction one more ground for rectification before the CLB was added, viz., violation of other laws. It does not do away with the already existing common law right. It must be noted that section 111A was inserted by the Depositories Act, 1996, with effect from 20-9-1995. Under the same Act, section 22A of the Securities Contracts (Regulation) Act was repealed, thus, making free transfer of shares of the public company possible. The jurisdiction for rectification as contemplated under section 111A(3) was restricted to violations of the SEBI Act and the Sick Industrial Companies (Special Provisions) Act, alone. However, considering the fact that violations of other laws also may demand a rectification in a given set of facts, section 111A(3) was amended to widen the scope to invoke rectification provisions, thus, bringing within the fold of section 111A(3) other laws’ violations also, apart from the already enumerated Acts. An addition of a right by a statutory recognition to an already existing right merely enables an aggrieved party a choice of forum, the absence of which, hitherto up to 15-1-1997, could not be said to leave a person remediless. The jurisdiction under section 111A(3) for rectification is available only in cases of contravention as stated in the sub-section. Viewed from this aspect, including other Acts to come with him section 111A(3), a supplementary statutory right introduced under the amendment could at best be viewed as prospective and could not by any stretch be given a retrospective effect. In the light of the law declared by the Apex Court, in Government of India v. Indian Tobacco Association [2005] 7 SCC 396 and having regard to the object and the background as regards the availability of rights to the aggrieved person to invoke the common law remedy, there is no necessity to read retrospectivity to relax the limitation clause in the section. [Para 27] There is yet another aspect to it. Section 111A(3), prior to the Amendment Act, 1997, covered cases of violation falling under the SEBI Act and the Sick Industrial Companies (Special Provisions) Act, 1985, which need to be petitioned within the time-limit of two months from the date of transfer of shares or debentures held by a depository or from the date on which the instrument of transfer or intimation of transfer was delivered to the company. If the limitation prescribed has to be given a liberal view in respect of action falling for consideration under the amended provision covering cases of breach of any other law for the time being in force falling well beyond the two months limitation taken right from the date of introduction of section 111A and even thereafter, anomalous and discordant notes as regards the provision of limitation would result in that while for violation of the SEBI Act and the Sick Industrial Companies (Special Provisions) Act, the time limit would be two months, for other enactments, it would mean a liberal limitation not confining to a prescribed limit—a result totally unintended by the Legislature; an exercise leading to absurdity in interpretation. What is true of the principle of interpretation of statute to be read as a whole and one provision of the Act construed with reference to other provisions of the Act to have a consistent enforcement of the whole statute is equally true of reading, the various clauses or aspects in the provision to avoid any repugnancy or inconsistency. The Court must choose the construction, which will be in accord with other parts of the section and avoid one which leads to absurdity, confusion, conflict and contradiction between the various provisions and parts of the section or which undermines or defeat or destroy the basis of the enactment. Hence, even applying the principle of maintaining harmony among the several parts of the section, one can only say that the statutory remedy under the amended provisions is available only subject to the limitation provided. The limitation, hence, cannot be relaxed on any notion of retrospectivity or a principle of fairness or treating the amendment as declaratory to have an implied retrospectivity. [Para 28] There is nothing in the Companies Act, expressly or by necessary implications barring the jurisdiction of civil court or abridging the common law right of a party. The jurisdiction of the CLB under section 111A(3) recognises a right under the provisions of the Companies Act to seek relief in summary manner for rectification, yet, at the same time, the common law right to file a petition is always available on the date as well as post the date when the amendment was brought forth. [Para 29] The appellants rightly contended that for rectification for violations of any other provisions of the Act till 1997 only a common law remedy was available. There was no statutory right. On and from January, 1997, only a pure and simple civil remedy as against the violation of other enactments has been recognised as a statutory remedy too, apart from the SEBI Act and the Sick Industrial Companies (Special Provisions) Act, 1985. The restriction as regards the exercise of the right is subject to limitation, which was already there as regards the violation of the SEBI Act and the Sick Industrial Companies (Special Provisions) Act. As already considered, there was nothing in the section to show that the amendment has put an end to the common law right to leave the affected party remediless. Consequently, to this extent the reliance placed by the respondents on the case of New India Insurance Co. Ltd. v. Smt. Shanti Misra [1977] 47 Comp. Cas. 453 was not sustainable. The situation which prompted the Apex Court to read retrospectivity as in the reported decision was not same as in the instant case, to read an implied retrospectivity. There is nothing in the objects to suggest that the Legislature intended to rope in violations of other laws irrespective of the time-limit to give a right under section 111A(3) to base the cause of action drawn from past events. The common law right, which was available for the period from 1995 to 1997, remains intact even after the amendment and the aggrieved party can assert that the right of filing a suit before the Court of competent jurisdiction is a right which continues even after the amendment. It must be noted that the amendment does not in any way whittle down or abrogate the common law remedy. Post the amendment, both the common law and statutory remedies are concurrent remedies available leaving open an element of election to the parties concerned. The decision of the Supreme Court in Dhulabhai v. State of M.P. AIR 1969 SC 78, Raja Ram Kumar Bhargava v. Union of India [1988] 171 ITR 254/36 Taxman 368 (SC), is an authority for the proposition that if the pre-existing right in common law is recognised as a statutory right and a statutory remedy provided, there being no express exclusion of the civil court jurisdiction, both the common law remedy as well as statutory remedy remain available hand in hand leaving the choice to the aggrieved party to elect. [Part 37] Retrospectivity is a matter which needs to be considered taking into account the objects, the purpose and the intention of the amendment and prejudice, if any, caused to the subject. The construction put on by the Company Law Board on section 111A overlooked the fact that the present provisions merely provide a forum of choice and that common law remedy continued to exist even after 1997 and with that right still available, the question of relaxation does not arise. [Para 38] The respondents submitted that even before the remedy for going to the new forum was made available, the law of limitation providing for a shorter period could not ring a death knell to an already existing right and, thus, the limitation provided therefor merited liberal construction given the object of the amendment. Supporting the view taken by the CLB, the respondents submitted that the amendment of 1997 could at best be read as clarificatory and, hence, retrospective in character. The apprehension stated supra on the effect of the shorter limitation on the right it was only imaginary. There was no basis for the same. Consequently, for the said reasons, the plea of the respondents could not be accepted. [Para 39] The order of the CLB, consequently, deserved to be reversed. The CLB fell into an error for the reason that the limitation provided completely wipes out the vested rights of the parties, which are alive as on the date of the amendment. The view that the change of forum being procedural, as such, rights of the parties as regards the violations relating to other laws prior to 1997, would be vindicated only before the CLB consequent on the amendment, overlooked the fact that the 1997 amendment does not take away the civil rights under common law. What is true of 1995 position as regards the SEBI Act and the Sick Industrial Companies (Special Provisions) Act is equally true as regards the violations of the provisions available under the 1997 amendment. In the circumstances, the appeals were to be allowed by accepting the contentions on the scope of section 111A(3) under the Amendment Act, 1997. Consequently, the appeal was to be allowed. The order of the CLB was to be reversed. [Para 40]