MALIK MUHAMMAD QAYYUM, J.- The petitioner, Nisar Ahmad Chaudhary, has filed this petition under section 152 of the Companies Ordinance, 1984 and seeks rectification of the register of the members of respondent No. 1 (hereinafter referred to as "company").
2. Respondent No. 1 was incorporated as a private limited company under the Companies Ordinance. 1984 with authorized capital of Rs. 6,50,00,000/- divided into 65,00,000 shares of Rs. 10/- each. The paid up capital of the company is stated to be Rs. 2,95,00,000/-. Lt is a common ground between the parties that the petitioner was one of the subscribers to the memorandum and held 2,95,500 shares of the value of Rs. 10/- each. His name was however omitted from the register of the members on 5.1.1993 and in his place the name of respondent No. 2, Ch. Saeed Ahmad was entered who was stated to have purchased the entire share holding of the petitioner in the company.
3. In this petition, the petitioner has categorically denied that he had transferred his shares to respondent No. 2 or any one else or that he had executed any instrument of transfer. On that basis, it has been pleaded that respondent No. 1 company was not empowered to effect any change in the register of members. On the other hand, respondents in their reply have reiterated that the petitioner had transferred the shares held by him by executing instrument of transfer to respondent No. 2 for a valuable consideration which was given due effect to by the company on 5.1.1993.
4. On 4.7.1993, the respondents were directed to produce the instrument of transfer of share which they did on 11.7.1993. On 3.7.1997, an order was passed by this Court, requiring respondents to produce original share scrips which they failed to do. Instead on 21.10.1997 the leamed counsel for respondents submitted a certificate from Habib Bank Ltd. Multan Cantt. Branch, Multan that the shares were lying with the Bank n pledge but the date when the pledge was created was not mentioned in the certificate. The learned counsel for the respondents however stated that the shares were pledged on various dates between 26.11.1987 and 30.3.1989.
5. In the above background the learned counsel for the petitioner has argued that in the absence of original scrips having been produced before the company, it did not have any jurisdiction to give effect to the alleged transfer of shares by substituting the name of respondent No. 2 for that of petitioner in the register of members maintained by it. He has referred to proviso to section 76 (1) of the Companies Ordinance. 1984 and relied upon Central Cotton Mills Ltd v. Naveed Textile Mills Ltd. and others (1993 MLD 42) and Karachi Electric Supply Corporation Ltd. v. Bank of India Ltd. (PLD 1967 Karachi 144) in support of this contention. On merits, it was argued that the petitioner had never transferred his shares to respondent No. 2.
6. In reply, the learned counsel for the respondents maintained that transfer of shares from the name of the petitioner to that of respondent No 2 was made strictly in accordance with law on the receipt of the duly executed instrument of transfer. He explained that as the original share certificates were lying with Habib Bank Limited Multan Cantt. Branch; Multan as pledgee, the production of share scrips along with instrument of transfer was not necessary, lt was further argued that a company can recognize and register transfer without strict compliance of the provisions of section 76 of the Companies Ordinance, 1984, which according to the learned counsel were directory. He submitted that if transfer of shares otherwise stood fully established, it be given effect to. He has referred to two judgments from Indian jurisdiction in support of his arguments viz., Bhulwatka Brothers Ltd. v. Duniachand Rateria (AIR 1952 Calcutta-740) and Life Insurance Corporation of india v. Escorts Ltd. and others (AIR 1986 SC 1370)
7. The crucial question which falls for determination in this case is as to whether in face of non- production of original share scrips the company was entitled to give effect to the transfer of shares and make consequential change in the register of its members.
8. The law on the subject is contained in section 76 of the Companies Ordinance, 1984 which reads as under:- "76. Transfer of shares and debentures: (1) An application for registration of the transfer of shares and debentures in a company may be made either by the transferor or the transferee, and subject to the provisions of this section, the company shall enter in its register of members the name of transferee in the, same manner and subject to the same conditions as if the application was made by the transferee.
Provided that the company shall not register a transfer of shares or debentures unless proper instrument of transfer duly stamped and executed by the transferor and the transferee has been delivered to the company along with scrip.
(2) Where a transfer deed is lost, destroyed or mutilated before its lodgement, the company may on an application made by the transferee and bearing the stamp required by an instrument of transfer, register the transfer of shares or debentures if the transferee proves to the satisfaction of the directors of the company that the transfer deed duly executed has been lost, destroyed or mutilated: Provided that before registering the transfer of shares or debentures the company may demand such indemnity as it may think fit.
(3) All reference to the shares or debentures in this section shall in case of a company not having share capital, be deemed to be reference to interest of the members in the company.
(4) Every company shall maintain at its registered office a register of transfers of shares and debentures made from time to time and such register shall be open to inspection by the members and supply of copy thereof in the manner stated in section 150.
(5) Nothing in sub-section (1) shall prevent a company from registering as share-holder or debenture holder a person to whom the right to any share or debenture of the company has been transmitted by operation of law.
(6) In the case of a public company, a financial institution duly approved by the Authority may be appointed as the transfer agent on behalf of the company.
(7) if a company makes default in complying with any of the provisions of sub-sections (1) to (4), it shall be liable to a fine not exceeding five thousand rupees and every officer of the company who is knowingly or wilfully a party to such default shall be liable to a like penalty".
On proper analysis of this provision, it is to be seen that an application for registration of transfer of shares in the register of members maintained by the company under section 76 (4) of the Companies Ordinance, 1984 can be made either by the transferor or transferee to the company.
According to proviso to sub-section (1) the company cannot register a transfer of shares unless an instrument of transfer duly stamped executed by both transferor and the transferee has been handed over to it along with share scrips. On the plain language of the proviso therefore no transfer can be given effect to, by the company unless instrument of transfer and share scrips have been produced before it. In the event of non-compliance of this provision, the company has no power to register the transfer. The only exception in this behalf is contained in sub-section (2) of section 76, according to which if the transfer deed is lost, destroyed or mutilated, the company may register transfer of shares if the transferee proves to the satisfaction of the company that the transfer deed duly executed has been lost, destroyed or mutilated. Applying these principles to the present case, it becomes quite evident that the respondent company has acted without any authority in giving effect to the alleged transfer of shares by the petitioner in favour of respondent No. 2 in the absence of original scrips having been delivered to it.
9. Realizing the above difficulty, the learned counsel has attempted to argue that the provisions of section 76 particularly proviso which requires that company shall not register transfer of shares unless an instrument of transfer duly stamped is delivered to the company along with the scrips are directory and not mandatory and thus substantial compliance of those provisions would suffice, In this behalf, he has relied upon Bhulwalka Brothers Ltd.'s case, supra, (AIR 1952 Calcutta 740) and Life Insurance Corporation's case, supra, (AIR 1986 SC 1370). The learned counsel for the petitioner has however contended that the proviso to section 76(1) was couched in negative language and was emphatic, lt was also pointed out that non-compliance with section 76 was an offence under the Companies Ordinance, 1984.
10. Lt has time and again been held by the superior Courts of this country and abroad and no universal rule can be laid down for determining the mandatory or directory character of a provision. However, two of the well-accepted principles for determining the nature of the statute are firstly that if the language of the provision is affirmative it is directory but if language used is negative the provision should be presumed to be mandatory in character and secondly if the consequence flowing out of non-compliance have been provided by the statute itself the provision is mandatory in character. Different consequence flow out of non-compliance with directory and mandatory provisions, In case of the latter, non-compliance results in invalidation of the Act while in the case of the former, substantial compliance is enough, In Atta Muhammad Qureshi v The Settlement Commissioner, Lahore & 2 others (PLD 1971 SC 61). The observations appearing in the report at page 70 are instructive and may usefully be reproduced: "lt is not possible to lay down a general rule of universal application in this behalf, but the one which is suggested by reported authorities in this connection is the affirmative or negative character of the language in which the provision is couched. If it is negative, that is to say, if the statute enacts that certain manner and in no other manner, it has' been held that the requirements are absolute and that neglect to attend them will invalidate the whole procedure.' If on the other hand, the language is affirmative, it may be considered as a directory provision".
11. Lt is not necessary to dilate any further on the general principles of interpretation of statute as section 76 of the Companies Ordinance, 1984 and similar provisions in the Companies Act, 1913 and Indian Companies Act. 1956 have been subject-matter of construction before different Courts, some of which may be mentioned advantageously.
12. In Central Cotton Mill's case, supra, (1993 MLD 42), it was held by the Sindhi High Court that section 76 of the Companies Ordinance, 1984 was mandatory' and in the absence of production of instrument of transfer of shares the transfer of shares would prima facie be in violation of section 76 Earlier, this question was considered by the same Court in AkbarAli Sharif and 2 others v. Sayed Jamaluddin and 2 others (1991 MLD 203) in which at page 208 of the report it was observed:- "Section 76 of the Ordinance provides that an application for registration of the transfer of shares and debentures in a company may be made either by the transferor or the transferee and subject to the provisions of this section, the Company shall enter in its register of members the name of the transferee in the same manner and subject to the same conditions as if the application was made by the transferee. Proviso to section 76 (1) provides that the company shall not register a transfer of shares or debentures unless proper instrument of transfer duly stamped and executed by the transferor and the transferee has been delivered to the company along with scrip".
In Karachi Electric Supply Corporation's case, supra (PLD 1967 Karachi 144), the West Pakistan High Court was pleased to examine the proposition in the light of section 34 of the Companies Act, 1913.
Qadeeruddin Ahmad, J. (as he then was) speaking for the Court held that section 34 of other Companies Act, 1913 laid down the requirement for transfer of shares and any transfer effected without complying with the provisions of section would be ultra vires and of no effect.
13. The discussion on the subject would be incomplete without referring to the judgment of Indian Supreme Court in Mannal Khetan. etc. v. Kedar Nath Khetan, etc. (AIR 1977 SC 536) in which taking the same view as above, it was held that section 108 of the Companies Act, 1956 (which corresponds to section 76 of the Companies Ordinance, 1984 and section 34 of the Companies Act, 1913) was mandatory, lt is pertinent to mention that the appeal before the Supreme Court arose out of the judgment of Allahbad High Court in Maheshwari Khetan Sugar Mills (P.) Ltd. etc. v. Ishwari Khetan Sugar Mills etc. (AIR 1965 Allahabad 135) in which it has been held that the provisions of section 108 of the Indian Companies Act, 1956 were directory inasmuch as no consequences for noncompliance with the said provisions have been specified therein. The judgment was over-ruled by the Supreme Court which observed that the language of section 108 was in negative and that any non-compliance with the provision of Companies Act, 1956 was an offence for which penalty was prescribed in section 629-A of the Act. Similar provision exists in our own Companies Ordinance, 1984 in the form of section 498.
14. The two cases relied upon by the learned counsel for the respondents are of no avail to him. In Shulwalka Brothers Ltd.'s case, supra (AIR 1952 Calcutta 740) the dispute was with regard to sale of goods which was governed by the Sales of Goods Act, 1930 and the provisions of Companies Act did not fall for consideration, In Life Insurance Corporation's case supra (AIR 1986 SC 1370) the dispute had arisen out of a civil suit and not proceedings for rectification of register under the Company law. Furthermore, in that case toe, the Supreme Court itself had come to the conclusion that the transfer of shares was truly complete and the transferee becomes a share-holder in the true sense only when the transfer of shares is registered in the company's register.
15. It follows from the above discussion that section 76 of the Companies Ordinance, 1984 is mandatory and emphatic and must be strictly complied with so as to enable the company to effect necessary change in the register of its members. Consequently, neither in the absence of delivery of instrument of transfer duly stamped and signed by transferor and transferee nor non- production of the share scrips the company cannot give effect to the transfer of shares even if it is otherwise proved.
In view of what has been stated above, this application is allowed and respondent No. 1-company is directed to rectify its register by restoring the previous position. The parties shall bear their own costs.