LexMANNALAL KHETAN ETC. ETC. versus KEDAR NATH KHETAN & ORS. ETC.
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190
MANNALAL KHETAN ETC. ETC.
v.
KEDAR NATH KHETAN & ORS. ITTC.
November 25, 197 6
(A. N. RAY, C. J., M. H. BEG AND JASWANT SINGH, JJ.J
Co111pauies .A.ct 1956- S. 108-Scope of-!'S/uill not register
transfer of
-lhares"-lf n1a11datory or directory-Tests for deciding.
lnterpretMti~n~Jfandatory or directory-Tests for determining-1Von-com·
·C
p/{4nce not cleclared an offence-If provision could be called direcrory.
D
-G
Section 108 of the Companies Act, 1956 provides that a company lhall 1101
register transfer of shares 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 \\'ith the share certificate.
The appellaRts ;;i.nd the respandents were members of a fan1ily.
The family
heJd ~ares ia a company, and in addition, the members were doing partnership
business. To reali5e large sums of income tax dues from the firms and indi-
vidual partners, the Income-tax Department issued notices to the company to
pay to that department any amount due to the firm or its partners.
.A. receiver
appoiated by the Collector took ·possession of the appellants' shares along lVith
duly signed blank transfer deeds.
Later_ shares belonging to the family in the
company ·were attached under 0. 21, r. 46, C.P.C.
I.1 the meantime the
appellants in settlement of their accounts \\tith the respondents agreed for trans-
fer of certain shares to the respondents as soon as the transfer became permis-
sible.
At the iHstance of respondents l and 2, however, the company,
by a
resolutio11, transferred the appellants' shares to the respondents. The appeliants
gave notice to the re!!pondents that the shares under attachment of the Income-
tax Department had been sold by the Collector and that the transfers
\\'ere
illegal a-itd void. The re5pondents contended that it \\-'as not a ca'ie of transfer
but oAe of tra11.smi!!5ion.
l• a petition u1J.der s. 155 of the Companies Act the appello1nts contended
{hat the transfer v;·as in contravention of the mandatory provisions of s. 108
and that the
sitares had been attached by the Collector under 0. 21, r. 46
C.P.C.
A si•:le Judge of the .High- Court held the transfer to- be illegal and
'°•id.
On appeal a Division Bench held that the provisions of s. 108
v;ere
directory a111d not mandatory and that the provisions of s. 64, C.P.C. and 0. 21,
r. 46 prevailed over the prohibitory order contained in Form 18 in Appendix
E of Schedule I of the C.P.C., but that the attachment and appointment
of
Receiver. did -?Ot divest a party of his right to his property.
Allo¥.-ia~ the appeal,
HELD: The provisions of s .. 108 of the Companies Act afe manJatory nnd
the Hi:h Court erred in holding that they \Vere directory. [197BJ
(l)(a) The v.:ord5 .. shaII not register" are mandatory in character.· The
mandatory character is strengthened by the negative form of the
failguage
"·hich is used to emphasise the insistence of compliance \\-'ith the provisions of
the Act.
Negative words are clearly prohibitory and are ordinarily used as a
le!;i!ll<1.tive device to make a statutory provision imperative.
(See State of Bi!iar
v. Afalu1rajdhiraia Sir Katneslni-•ar Singh of Darb!ianga &: Ors. [1952] S.C.R.
889 at pp. 988-89; M. Pentiah & ors. v. ~!uddala Veeramallappa & Ors. [19611
2 S.C.R. 295 at p. 308 and Additional District ft.1agistrate, Jaba/91tr_ v. Shivakant
Slwkl• [1976) Supp S.C.R. 172 followed. [l95D-EJ
I
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•
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MANNALAL KHETAN V. KEDAR NATH (Ray, C.J.)
191
(b) The tests for finding out when a provision is ma!1datory or dir~ctory
, are : the purpose for which the provision has been made, its nature, the mten-
tion of the Je.gislature in making the provision, the general inconvenience or
injustice which may result to the person from reading the provision one V'.ay
·or the other. the relation of the particular provision to other provisions dealmg
with the same subject and the language of the proviswn. Prohibition and nega-
tive words can rarely be directory.
Negative, prohibitory and exclusive words
nre indicative of the legislative intent when the statute is mandatory.
[195F-G]
Raja Buland Sugar Co. Ltd. v. Municipal Board, Rampur [1965] 1 S.C.R.
970 and Seth Bik/m1j Jaipuria v. Union of India [1962] 2 S.C.R. 880 at pp. 893-
94, followed.
(2) (a) In holding thats. 108 is directory and not mandatory for the reason
that non-coExcerpt shown. Read the full judgment & AI analysis in Lexace.