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(1963) 33 Comp Cas 1142 : 1963 SCC OnLine All 268 : AIR 1965
All 135

In the High Court of Allahabad

(BEFORE BISHAMBAR DAYAL AND D.S. MATHUR, JJ.)

Maheshwari Khetan Sugar Mills and Others …

Appellant;
Versus
Ishwari Khetan Sugar Mills. (and connected cases)
… Respondent.
Special Appeals No. 108, 109, 110 to 111 of 1963
Decided on May 24, 1963
V.P. Misra, for the appellants in S.A. No. 108 of 1963.
R.R. Agarwala, S.N. Agarwala and Ambica Prosad, for the
respondents in S.A. No. 108 of 1963.
The Judgment of the Court was delivered by
D.S. MATHUR J.:— This judgment shall govern Special Appeals Nos.
108 to III of 1963 which arise out of four applications under section
155 of the Companies Act, 1956, for rectification of registers of
members. Special Appeal No. 108 of 1963 is against the order of the
company judge passed in Company Case No. 16 of 1962 initiated on
the application of Munna Lal Khetan against Lakshmi Devi Sugar Mills
(Private) Ltd., Chhitauni, Distt. Deoria, Kedar Nath Khetan and his
adopted son, Gauri Prasad Khetan, and R.N. Chavan, special Mamlatdar
and receiver appointed by the Collector, Bombay, in recovery
proceedings against Kedar Nath Khetan, Mitanand and Mata Din Han
Ram. Special Appeal No. 109 is against the decision in Company Case
No. 17 of 1962, started on the application of Munna Lal Khetan, Matadin
Khetan, Bhagwati Prasad Khetan, sons of Seth Han Ram Khetan, and
Smt. Mahabiri Devi, widow of Seth Han Ram Khetan, against Lakshmi
Devi Sugar Mills (Private) Ltd., Chhitauni, Distt Deoria, Durga Prasad
Khetan, Gauri Prasad Khetan and Sri R.N. Chavan, special Mamlatdar.
Special Appeal No. 110 of 1963 arises out of Company Case No. 18 of
1962, Kamla Prasad Khetan and Jwala Prasad Khetan, sons of Seth
Onkarmal Khetan v. Lakshmi Devi Sugar Mills (Private) Ltd., Kedar Nath
Khetan, Durga Prasad Khetan, Gauri Prasad Khetan, Smt.. Saraswati
Devi and Sri R.N. Chavan. Special Appeal No. III relates to another
sugar factory, Maheshwari Khetan Sugar Mills (Private) Limited,
Ramkola, District Deoria, and arises out of Company Case No. 15 of
1962, started on the application under section 155 of the Companies
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Act of the Ishwari Khetan Sugar Mills (Private) Ltd., Lakshmiganj,

District Deoria, against Maheshwari Khetan Sugar Mills (Private) Ltd.,
Ramkola, District Deoria, Kedar Nath Khetan and nine others belonging
to the three branches of Debi Dutt, common ancestor of the contesting
parties to the four proceedings, and also against Nagarmal Khetan and
the receiver appointed by the Collector of Bombay in the recovery
proceedings against Kedar Nath Mitanand and Han Ram. It may here be
noted that some of the opposite parties are applicants in the other
three proceedings and they are apparently pro forma opposite parties in
whose interest the application has been made.
The company judge passed a common order in the first three cases
relating to Lakshmi Devi Sugar Mills (Private) Ltd. and a separate order
in the case relating to Maheshwari Khetan Sugar Mills (Private) Ltd. The
company Judge allowed all the applications and directed rectification of
the registers of members of the two companies by restoring the names
of the original shareholders as they stood before July 2, 1959. In view
of the fact that some of the original shareholders had died or ceased to
exist, it was left open to the heirs and successors to apply for further
rectification in the ordinary way. The persons aggrieved in the four
cases are Kedar Nath Khetan and his adopted son, Gauri Prasad
Khetan; Durga Prasad Khetan and Guari Prasad Khetan; Kedar Math
Khetan, Durga Prasad Khetan, Guari Prasad Khetan and Smt. Saraswati
Bai Khetan; and Maheshwari Khetan Sugar Mills (Private) Ltd.,
Ramkola, District Deona, Kedar Nath Khetan, Durga Prasad Khetan and
Guari Prasad Khetan, and they have preferred Special Appeals which
are Nos. 108 to III of 1963. As common questions of law and fact arise
in all the four appeals they are being disposed of by one common
judgment.
The parties have filed detailed affidavits giving the past history of
the litigation and the dispute that had occasionally arisen among them.
They have naturally tried to blame the other party for the situation in
which they are now placed. For purposes of the present appeals it is not
necessary to express any opinion on the past conduct of the parties and
we shall, therefore, merely refer to those facts which are pertinent for
the decision of the appeals leaving it open to the parties to agitate
other points in a regular suit. It, however, appears that certain
agreements were entered into by the various branches of the Khetan
family on August 12, 1957, for the exchange of various blocks of shares
so that the branches pulling on well together may manage a sugar
factory and the rival branches may have no interest left therein. The
agreements were not accompanied by formal instruments of transfer of
shares, nor were suitable corrections made forthwith in the registers of
members, as the shares had been attached by the Collector of Bombay
in proceedings for the recovery of income- tax dues from the Khetan
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family. The family owned most of the shares in Ishwari Khetan Sugar
Mills and Maheshwari Khetan Sugar Mills and about ¼th shares in
Lakshmi Devi Sugar Mills. The agreement was that the shares of the
family in Maheshwari Khetan Sugar Mills and Lakshmi Devi Sugar Mills
shall go to the group of Kedar Nath Khetan, while the shares of Ishwan
Khetan Sugar Mills, to the other group The shares of Ishwan Khetan.
Sugar Mills were sold in the recovery proceedings and have been
purchased by the relations of the group of the sons of Seth Onkarmal
Khetan. The case of this group naturally is that the sale of the shares
and the purchase thereof was fair and honest and it was never
represented that the shares belonged exclusively to this group. The
case of the group of Kedar Nath Khetan is that thy other group had
made a representation that by virtue of the agreement the shares of
Ishwari Khetan Sugar Mills exclusively belonged to them and by
underhand methods the group managed to purchase those shares for a
nominal value. This is a material point in controversy among the parties
on which we need not express any opinion. These facts have been
reproduced here simply to indicate the circumstances in which,
according to Kedar Nath Khetan changes in the registers of members of
Meshwari Khetan Sugar Mills and Lakshmi Devi Sugar Mills were made,
the rectification of Which has been sought for m the present
proceedings.
The agreements were entered into on August 12, 1957, and changes
were made in the registers of members in the year 1959. The present
applications for rectification were made in 1962. The company judge
has recorded the finding that the agreements of August 12 1957, were
not instruments of transfer and in view of section 108 of the Companies
Act, 1956, the companies could not make alterations in the registers of
members and the alterations made were consequently unauthorised
and illegal, that the transfer of the bulk of the shares in question was
illegal and void because they were under attachment in pursuance of
certificates issued by the Additional Collector of Bombay; and that the
remaining shares which had not been attached but had been
surrendered to the receiver appointed by the Collector of Bombay along
with blank instruments of transfer could not be registered in the name
of any one other than the receiver himself or a person to whom the
receiver may transfer or may have transferred such shares. The
company judge was thus of opinion that alterations made in 1959 in
the registers of members were contrary to law and were ineffective. He
consequently, directed rectification of the registers of members by
restoring the name of the original holders as they stood before the
alterations were made in 1959.
Section 155 of the Companies Act as amended under the Companies
(Amendment) Act, 1960, runs as below:
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155. (1) 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; or
(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 aggrieved.
In either case, the court in its discretion may make such orders as to
costs as it thinks fit.
(3) On an application under this section the court
(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.”
The present applications for rectification were made in 1962 and
they shall, therefore, be governed by the law as amended in 1960. In
other words, rectification can be ordered if the name of any person is
entered in the register of members or after having been entered in the
register is omitted therefrom, in either case, without sufficient cause.
The existence or non existence of sufficient cause shall naturally
depend upon the satisfaction of the court; hut the burden of proof shall
ordinarily lie upon the applicant himself to show that the name of a
person was entered or was omitted from the register of members
without sufficient cause. Where the company is guilty of fraud or the
company had acted illegally by disregarding the mandatory provisions
of the law, it can be said that the initial burden of proof which lay on
the applicant stands discharged on his establishing the fraud or the
doing of the illegal act and thereafter the burden shifts to the company
to show that the omission of the name and the entry of another name
was with sufficient cause. But where the company is not guilty of fraud
or non compliance of the mandatory provisions of the law a heavy
burden shall lie upon the applicant to establish that the case falls
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within the scope of sub-section (1) of section 155.

Question of burden of proof generally loses importance where both
the parties adduce their evidence. Consequently if the company judge
had recorded the evidence of the parties and adjudicated upon their
title or rights, or if we felt that the present was a fit case in which the
company judge should have decided the question of title on whom did
the burden of proof lie would have been a mere theoretical problem and
the matters in controversy could be adjudicated upon on the basis of
the material brought on record by either of the parties In the instant
case however the company judge did not consider it desirable to enter
into the complicated question of title. He rightly thought that the
adjudication of the rights of the parties be left for decision in a regular
suit already pending or to be instituted hereinafter by either of the
parties.
The scope of section 155 of the Companies Act, 1956, is now beyond
controversy. It is the settled view of most of the High Courts that the
summary remedy provided by section 155 need not be availed of or the
courts may decline to exercise the power under section 155 leaving it
open to the aggrieved party to seek remedy before a regular court,
where there exists a serious dispute relating to the title of a party to
1
the proceeding: see Ramesh Chandra Mitter v. Jogini Motion Chatterji ;
Mahadeo Lal Agarwala v. New Darjeeling Union Tea Co. Ltd.2; Jayshree
3
Shantaram Vankudre v. Rajkamal Kalamandir Private Ltd. ; Mohideen
Pichai Taraganar v. Tinnevelly Mills Co.4; Devakumar Mishra v. Rupak
5 6
Ltd. ; Laxminarayan Bhayya v. Praga Tools Corporation Ltd. ; and In re
Ruby Consolidated Mining Company7.
When the court refuses to enter into complicated question of title in
a proceeding under section 155 of the Companies Act, 1956, the
question of burden of proof becomes of importance considering that if
the burden lay upon the applicant the application under section 155
can be dismissed summarily, of course, leaving it open to him to seek
remedy before a civil court. But if the applicant establishes that the
company bad acted fraudulently or had acted illegally by disregarding
the mandatory provisions of the law, he discharges the burden which
initially lay upon him and thereafter the burden shifts to the company
to show that the alterations were made with sufficient cause, i.e., if the
company had applied under section 155 the court would have ordered
rectification of the register of members in the same manner as the
company had done, though illegally. This is based upon the general rule
that no one can be permitted to derive undue advantage of a fraudulent
or illegal act of his, and parties must be relegated to the position they
occupied before the fraudulent or illegal act was done unless under the
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law the improper act can be condoned. Consequently, even though the
application for rectification is made by one party, the court can passan
order keeping in mind what it would have done had the other party,
namely, the company, not acted illegally but applied for rectification of
the register of members. If the company had not made alterations in
the register of members in the year 1959, and instead applied for
rectification, the court would have, in the circumstances of the case,
refused to exercise jurisdiction under section 155 and the entries would
have continued as in 1959, till such time as the company or
shareholders concerned obtained necessary relief from the civil court.
In other words, rectification of the registers of members of the
companies could be ordered as directed by the company judge, without
his entering into the complicated question of title, if it were found that
the two companies had acted illegally and had intentionally disregarded
the mandatory provisions of the law.
No case law directly applicable to the facts of the instant case has
been brought to our notice, but the procedure adopted m P.V.
1
Damodara Reddi v. Indian National Agencies Ltd. is in consonance with
the law as laid down above. Therein, the directors of the company
cancelled the allotment of shares to the applicants, and, thereafter, the
names of the applicants were removed from the register of members. It
was held that the directors of the company had no power to make
alterations to the register and the remedy of the company was to apply
to the court under section 38 (corresponding to section 155 of the 1936
Act) for the rectification of its register and not to take upon itself to
alter the register. Hon'ble Clark J. then considered if the allotment of
shares to the applicants was valid, and after recording a finding in their
favour directed rectification of the register of members as prayed for by
the applicants. In other words, the application for rectification would
have been dismissed had the allotment of the shares been held to be
invalid i.e., on the application “f the company the names of the
applicants would have been removed from the register of members.
It is true that in the above Madras case all the matters in
controversy had been finally adjudicated upon; but there is no reason
why the same rule be not applied even to those cases where no finding
is being recorded on a complicated question of title in dispute among
the parties to the proceeding.
The company judge has, as already mentioned above, recorded the
finding that both the companies had disregarded the mandatory
provisions of section 108 of the Companies Act, 1956, and their action
in transferring shares in the names of other persons was void under
Order XXI, Rule 46, Civil Procedure Code, and was even otherwise
against the law. The important question for consideration, therefore, is
whether the transfer of the shares in question and the consequent
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alterations in the registers of members of the companies are illegal and

void.
Non-compliance of the provisions of section 108 of the Companies
Act, 1956, can be held to be illegal only if they are mandatory and not
merely directory, and also if section 108 is exhaustive, meant to cover
all cases of alterations in the register of members. For recording a
finding whether the provisions of section 108 are mandatory or
directory we shall have to consider not only the language and scope of
the section but also the policy underlying it: see H.N. Rishbud v. State
of Delhi1. While making this observation their Lordships of the Supreme
Court quoted with approval the following observation of Lord Campbell
2
in Liverpool Borough Bank v. Turner .
“There is no universal rule to aid in determining whether
mandatory enactments shall be considered directory only or
obligatory With an implied nullification for disobedience. It is the
duty of the court to try to get at the real intention of the legislature
by carefully attending to the whole scope of the statute to be
construed.”
To get at the real intention of the legislature it is always necessary to
get an exact conception of the aim, scope and object of the enactment;
3
as put by Lord Coke in Heydon's case , to consider:
“1. What was the law before the Act was passed; 2. What was the
mischief or defect for which the law had not provided; 3. What
remedy Parliament has appointed; and 4. The reason of the remedy.”
This rule has been laid down by another authority as below:
“In order properly to interpret any statute it is as necessary now
as it was when Lord Coke reported Heydon's case3 to consider how
the law stood when the statute to be construed was passed, what
the mischief was for which the old law did not provide, and the
remedy provided by the statute to cure that mischief.” (See Maxwell
on the Interpretation of Statutes, tenth edition, page 19).
Thus to understand the scope of section 108 of the Companies Act,
1956, we must consider not only the provisions of this Act but also the
law in existence prior to the passing of this Act.
Section 108(1) has been worded as a prohibition against the
registration of transfer of a share in the company unless a proper
instrument of transfer duly stamped and executed by or on behalf of
the transferor and by or on behalf of the transferee has been delivered
to the company along with the certificate relating to the share, or if no
such certificate is in existence along with the letter of allotment of the
share. If the sub-section is read in isolation, it can be said that the
provision is mandatory and the company has no power to register
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transfer of a share unless compliance thereof is made. It shall,

however, be found that no penalty has been imposed for non-
compliance of section 108(1). It has not been provided in section 155,
nor in any other section, what the consequences shall be for the
disregard of this provision. It could be provided in section 155 that in
case of non-compliance of section 108 the court shall order rectification
of the register of members unless, for reasons to be recorded,
rectification was not necessary or proper. Similarly, non-compliance of
section 108 could be declared an offence. When the law does not
prescribe the consequences or does not lay down penalty for non-
compliance of section 108, the provision can be considered to be
directory and not mandatory.
It is true that the register of members is a valuable document not
only from the view point of the company and of the shareholders but
also of creditors. An entry in the register determines the right of the
person to participate in the affairs of the company. At the same time he
incurs the liability of a shareholder. Creditors can also act upon an entry
in the register of members by treating that person to be the holder of
that share. Entry in the register of members is thus of great
importance, but no one incurs any penal liability as a consequence of
an incorrect entry being made in the register of members.
In the past company laws in India a were enacted on the lines of in
fact following, the English Companies Act then in force; but when the
Companies Act, 1956, was at the anvil the English Companies Act,
1948, and also the Companies Acts in force in other countries were duly
considered and thereafter our Parliament enacted a law of its own.
When Parliament intentionally departed from the English law and also
the provisions of the earlier Indian Companies Act we shall have to infer
that they had an underlying object for making the change. This object
can be given due weight while determining the scope of section 108 of
the Companies Act, 1956.
The law relating to companies as enacted in England from time to
time did not place any restriction on the registration of transfer of
shares till the enactment of the Companies Act in 1929, restrictions
which were binding on the company notwithstanding anything in the
articles of the company. Section 63 of the English Companies Act,
1929, for the first time provided that:
“Notwithstanding anything in the articles of a company it shall not
be lawful for the company to register a transfer of shares in or
debentures of the company unless a proper instrument of transfer
has been delivered to the company.”
An exception was, however, made in the case of shares “transmitted
by operation of law.” This continued to be the law of England even after
a new Act was passed in 1948. Corresponding provision is contained in
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section 75 of the English Companies Act, 1948.

A provision similar to section 63 of the English Companies Act, 1929,
was made in the Indian Act for the first time when the Indian
Companies Act, 1913, was amended under the Companies
(Amendment) Act, 1936. Sub-section (3) of section 34 of the Indian
Companies Act, 1913, as amended in 1936, was as below:
“It shall not be lawful for the company to register a transfer of
shares in or debenture’; of the company unless the proper
instrument of transfer duly stamped and executed by the transferor
and the transferee has been delivered to the company along with the
scrip.”
The proviso to sub-section (3), however, gave power to the company
to register the transfer if it was satisfied that the instrument of transfer
had been lost. Sub-section (6) of section 34 was another exception to
the provisions contained in sub-section (3). It gave power to the
company to register as shareholder or debentureholder any person to
whom the right to any share in or debentures of the company had been
transmitted by operation of law.
When a new law was passed in 1956 a different provision was made
in section 108 of the Companies Act, 1956. Instead of laying down that
“it shall not be lawful for the company to register” the legislature
provided that “a company shall not register”. When Parliament did not
follow the wording of the English Companies Act, 1948, and departed
from the corresponding provision of the Indian Companies Act, 1913 as
amended under the Companies (Amendment) Act, 1936, they can be
deemed to have had in mind not to declare the non-compliance of
section 108 as unlawful and illegal. Reasons for making the change are
not far to seek. The term transmission by operation of law has not been
defined in any of the laws, neither in the English Companies Acts nor in
the Indian Companies Act; but the old laws give out the meaning of
this term. In Table A of the First Schedule of the English Companies
Act, 1862, and of the Indian Companies Act, 1882, separate sub-heads
were given for transfer of shares” and “transmission of shares”. Persons
receiving shares by operation of law included executors or
administrators of a deceased member, any person becoming entitled to
a share in consequence of the death, bankruptcy or insolvency of any
member or in consequence of the marriage of any female member. A
similar provision existed in Table A of the First Schedule of the English
Companies (Consolidation) Act, 1908, and the Indian Companies Act,
1913, as originally passed, though both kinds of transfers were listed
under a common sub-head, “transfer and transmission of shares”.
“Transmission by operation of law” thus covers those cases where a
person or authority acquired an interest in the property, by operation of
law, without any voluntary act on his part.
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It shall be found that section 108 of the Companies Act, 1956, is not
exhaustive, nor was section 34(3) of the amended Indian Companies
Act, 1913, exhaustive. They cover only two kinds of transfer of shares,
viz., under an instrument of transfer duly stamped and executed by the
transferor and the transferee and transmission by operation of law.
There are other instances of a person acquiring title to the shares of a
company. A joint Hindu family can own shares and at the time of
separation there shall be an actual partition of shares among the
members thereof. Prior to the partition each and every member of the
joint family has an interest in all the shares but after partition they
become sole owners of the shares allotted to them. Partition of property
can be with or without the intervention of the court; and it is not
necessary that formal instruments of transfer of shares be drawn up.
Consequently, if the company cannot give effect to the partition by
making alterations in the register of members, it shall be necessary for
the person to whom a share is allotted to move the court under section
155 of the Companies Act, 1956, for rectification of the register and he
shall be put to unnecessary inconvenience and expenses. Similarly, if
the actual owner of the shares standing in the name of another person
is not out of possession, his obtaining a mere declaratory relief from the
courts of law shall not enable him to have the shares registered in his
name. If we read section 34(3) of the Indian Companies Act, 1913, and
section 108 of the Companies Act, 1956, in the above light, namely,
that neither of the provisions are exhaustive, we can safely assume that
Parliament had an underlying object when the wording of section 34(3)
was not adopted while enacting section 108 of the Companies Act,
1956. When Parliament did not intentionally declare non-compliance of
section 108 to be illegal, section 108 cannot be held to be mandatory.
It is true that there has to be substantial compliance of a provision
which is merely directory, but in cases not strictly covered by the
provision the authority can deviate from that rule and take a decision
which is equitable and fair to both the parties.
The agreements in question were not followed by a formal
instrument of transfer but both the companies could, in good faith, be
of the opinion that by virtue of the agreement the group of Kedar Nath
Khetan became the sole owner of the shares of Lakshmi Devi Sugar
Mills (Private) Ltd. and Maheshwari Khetan Sugar Mills (Private) Ltd.,
originally belonging to the family of Khetan family, and they could
make necessary alterations in the registers of members. No final
Opinion is being expressed on this point. The above observation has
been made merely to lay down that the act of the two companies
cannot be said to be mala fide. When the provisions of section 108 of
the Companies Act, 1956, are not mandatory and both the companies
appear to have acted in good faith their action in making alterations in
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the registers of members cannot be said to be illegal and ab initio void.

The company judge did not give due weight to the provisions of
section 64, Civil Procedure Code, but on the basis of Order XXI, Rule
46, Civil Procedure Code, and Form 18 in Appendix E, declared the
transfer of shares during the period of attachment to be illegal and
void. By virtue of section 121, Civil Procedure Code, the rules in the
First Schedule including Order XXI, Rule 46, Civil Procedure Code, have
the effect as if enacted in the body of the Code. Order XXI, Rule 46,
Civil Procedure Code, thus forms part of the Code and the courts of law
must interpret Order XXI, Rule 46, Civil Procedure Code, along with
section 64, Civil Procedure Code, and if there exists any conflict
between the two provisions an attempt must be made to harmonise the
two. Section 64, Civil Procedure Code provides that:
“Where an attachment has been made, any private transfer or
delivery of the property attached or of any interest therein and any
payment to the judgment debtor of any debt, dividend or other
monies contrary to such attachment, shall be void as against all
claims enforceable under the attachment.”
Order XXI, Rule 46, on the other hand lays down that:
“In the case of-………..(b) a share in the capital of a corporation….
the attachment shall be made by a written order prohibiting,….. the
person in whose name the share may he standing from transferring
the same or receiving any dividend thereon…….” Under sub-rule (2)
of the above rule a copy of such prohibitory order shall be sent to the
proper officer of the corporation apparently for his information.
The forms contained in the appendices do not, however form part of
the Code and as laid down in Order XLVIII, Rule 3, Civil Procedure
Code, such forms with such variation as the circumstances of each case
may require shall be used for the purposes therein mentioned. Courts
of law can modify the forms but must follow the law as contained in the
Code and the Rules framed thereunder. In other words, Form 18 in
Appendix E cannot override the provisions of section 64 and Order XXI,
Rule 46, Civil Procedure Code. It may, however, be mentioned that
under Form 18 contained in Appendix E the secretary of the corporation
is prohibited and restrained from permitting any transfer of share in the
corporation or making payment of dividend thereon. The prohibitory
order contained in Form 18 being inconsistent with the provisions of
section 64 and Order XXI, Rule 46, Civil Procedure Code, can have no
legal effect.
At this place it may also be observed that the corporation and the
secretary thereof are invariably not parties to the proceeding in which
attachment is made and no prohibitory order can, strictly speaking, be
served upon them. They are only parties to the proceeding who can be
restrained from doing an act or who can be ordered to do a particular
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act. A copy of the order can, however, be sent to persons not parties to
the proceeding so that they may know the true state of affairs and the
court's order may not be disregarded by the parties to the proceeding.
In other words, Form 18 in Appendix E cannot be utilised to declare the
alterations made by the two companies in the registers of members to
be illegal.
There does exist a conflict in section 64 and Order XXI, Rule 46, Civil
Procedure Code, but when we try to harmonise the two provisions, it
shall have to be held that a private transfer of shares in a company
after the attachment thereof is not wholly void. It is void as against all
claims enforceable under the attachment and not otherwise. A property
under attachment may not eventually be auctioned or transferred by or
under the directions of the court. After the debt is discharged or the
decretal amount is paid up in full, the attachment can be withdrawn
and the holder of the shares, whether original or transferee, regains all
his rights and can deal with them in any manner he likes. A person can
purchase the shares or properties under attachment with the hope that
if the attachment is eventually withdrawn he would become complete
owner thereof. In other words, therefore, transfer of shares under
attachment is void if it becomes necessary to auction or otherwise
transfer the attached shares for enforcement of the claims; but if the
attachment is eventually withdrawn the transfer though made during
the continuance of the attachment would be perfectly valid conferring a
right on the vendee.
Section 64, Civil Procedure Code, has been incorporated to safeguard
the interest of creditors. It is not meant to deprive the owner of his
interest in the property under attachment. In case the legislature had
the intention to declare the transfer to be completely void, the words
“as against all claims enforceable under the attachment” would not
have been incorporated in the section. Further, the legislature would
have drafted section 64, Civil Procedure Code, on the lines of the
Provincial Insolvency Act, and other enactments by declaring that on
attachment the properties shall vest in the court or the receiver as the
case may be. When the intention of the legislature was not to divest
the owner of all his interests in the property, we can construe Order
XXT, Rule 46, keeping this intention in mind. In other words, a transfer
in disregard of the prohibitory order under Order XXI, Rule 46, is not
illegal, though it is void as against all claims enforceable under the
attachment.
We can consider this matter from another angle also. A joint Hindu
family or a group of persons can possess properties including shares in
companies and in execution of a decree against all of them such
properties can be attached. If it is not open to the above persons to
partition their assets during the continuance of attachment of all or
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some of their properties, they may be put to considerable

inconvenience. Even though they have the right to partition their
property, they shall not be able to do so if the transfer of property
under attachment is completely barred. Litigation may continue for
years together. Law is not meant to cause inconvenience to people and
we can adopt a liberal interpretation if it be said that the law is capable
of two interpretations. On this ground also section 64, Civil Procedure
Code, can be given its ordinary meaning and Order XXI, Rule 46, Civil
Procedure Code, construed liberally to bring it m line with section 64,
Civil Procedure Code.
In the instant case, according to the appellants the two companies
had given effect to the agreement arrived at between the members of
the Khetan family. After the registration of shares in the names of the
appellants, the duplicate shares were placed at the disposal of the
receiver with the result that the authority making the attachment could
recover the dues from these shares also. As the transfer of the shares
and the alterations made in the registers of member's did not adversely
affect the rights of the claimants, the action taken by the two
companies cannot be declared to be ab initio void and illegal.
A receiver is appointed under Order XL, rule I, Civil Procedure Code.
A perusal thereof makes it clear that the property does not vest in the
receiver he is simply conferred with all the powers necessary for the
management thereof. When by the appointment of a receiver a party is
not divested of his rights in the property, he can make a transfer
thereof, though the transferee shall not have the right to manage the
property. In other words a transfer can be made subject to the order by
which the receiver is appointed. The fact that certain shares were
handed over to the receiver with blank instruments of transfer shall not
make any difference. Both the transferor and the transferee are
necessary parties to the transfer and for so long as instruments of
transfer remain blank there is no transferee and in the eye of law, there
has been no transfer. For all practical purposes such shares are at par
with shares under attachment though after the blank instruments of
transfer are filled in, i.e., the shares are transferred in satisfaction of
the claims the earlier transfers made, as in the case of shares under
attachment shall become void.
To sum up, the act of the two companies in giving effect to the
agreement between the members of the Khetan family by making
alterations in the registers of members cannot be held to be illegal or
void and in the circumstances the burden lay upon the person making
the application under section 155 of the Companies Act, 1956, to prove
facts which would justify rectification of the registers of members. The
court can refuse to exercise summary jurisdiction under section 155 in
cases where complicated question of title is involved, leaving it open to
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the applicant to seek his remedy before the civil court. The present was
a fit case in which this court could refuse to exercise such jurisdiction;
and as the burden of proof lay upon the applicants all the applications
deserved dismissal though leaving it open to the applicants to seek
such other remedy as they may be advised.
All the four special appeals are hereby allowed and the orders of the
company judge are set aside. The applications under section 155 of the
Companies Act, 1956, shall stand dismissed Costs throughout on the
parties.
Judgment pronounced under Chapter VII, rule 1(2) of the Rules of
Court 1952.
Special Appeal No. III of 1963.
D.S. MATHUR J.:— For orders, see our order passed today in
connected Special Appeal No. 108 of 1963.
———
1
A.I.R. 1920 Cal. 789.

2
A.I.R. 1952 Cal. 58.

3
(1960) 30 Comp. Cas. 141.

4
A.I.R. 1928 Mad. 571.

5
A.I.R. 1935 Pat. 486.

6
(1953) 23 Comp. Cas. 198.

7
[1874] L.R. 9 Ch. App. 664.

1
(1945) 15 Comp. Cas. 148.

1
(1955) 1 S.C.R. 1150.

2
(1861) 30 L.J. Ch. App. 379.

3
(1584) 3 Co. Rep. 76; 76 E.R. 637.

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