Bombay High Court
Stock Holding Corporation Of India Ltd. ... vs Bharat Petroleum Corporation Ltd. on 3 October, 1996
Equivalent citations: [1998]91COMPCAS862(BOM)
JUDGMENT
S.M. Jhunjhunuwala J.
1. Being aggrieved by the judgment and order dated September 23, 1994, passed by the Company Law Board, (see [1995] 82 Comp Cas 539) upholding the refusal of Bharat Petroleum Corporation Ltd., to register the transfer of shares from the first appellant to the second appellant, this appeal has been preferred by the appellants under the provisions of section 10F of the Companies Act, 1956 (for short, "the Act").
2. Stock Holding Corporation of India Ltd. (for short, "SHCOIL") is a company incorporated under the Act and is promoted by several financial institutions, viz., Unit Trust of India, Industrial Development Bank of India, Industrial Credit and Investment Corporation of India, Life Insurance Corporation of India, Industrial Finance Corporation India, Industrial Reconstruction Bank of India and General Insurance Corporation of India Limited and its subsidiaries. Bharat Petroleum Corporation Limited was incorporated on November 3, 1952, under the provisions of the Companies Act, 1913, as "Burmah Shell Refineries Limited" whose name was on July 28, 1977, changed to Bharat Petroleum Corporation Limited. It is a Government company within the meaning of section 617 of the Act.
3. A letter bearing No. SHC/BOM/MSGF/1-0134 dated February 11, 1994, was received by the respondents from the first appellants with a request to effect registration of transfer of equity shares of the respondents from SHCOIL to Stock Holding Corporation of India Limited (account Morgan Stanley Growth Fund) (for short, "SHCOIL A/c. MSGF"). The said letter along with annexures thereto was received by the respondents on February 15, 1994. It was in respect of 400 equity shares of the respondents. On perusal of the said letter and the documents accompanying it, it was noticed by the respondents that 400 equity shares of the respondents which were purchased by the LIC Mutual Fund and standing in the name of SHCOIL being the trustees of LIC Mutual Fund, were intended to be transferred in the name of SHCOIL A/c. MSGF. The standing committee of the board of directors of the respondents after considering the request for registering the transfer of the said 400 equity shares from SHCOIL to SHCOIL A/c. MSGF formed the opinion that the registration of the transfer of the said shares ought to be refused and in the meeting held on March 18, 1994, the resolution reading as under, was passed :
"Resolved that the registration of transfer of 400 equity shares numbering from 4,87,06,401 to 4,87,06,800 as requested by Stock Holding Corporation of India Ltd., through four share transfer forms received on February 15, 1994, and shown in the annexure 'I' as transfer Nos. 1889 to 1892 from Stock Holding Corporation of India Ltd. to Stock Holding Corporation of India Ltd. (A/c. Morgan Stanley Growth Fund) ought in good faith to be and the same be and is hereby, refused by the company for the following reasons :
(a) As per the provisions of the section 153 of the Companies Act, 1956, no notice of trust can be taken by the company and, therefore, the transfer cannot be registered in the name of Stock Holding Corporation of India Ltd. (a/c. Morgan Stanley Growth Fund);
(b) As per the press notes dated June 12/25, 1957, issued by the Government of India, Ministry of Company Law Administration, the shares in the company being the property of the trust can be held in the name of trustees without the addition of the statement that they are trustees;
(c) The Department of Company Affairs, vide its letter No. 10/28/87-CL. V, Vol. IV, dated February 16, 1993, has confirmed the views that the shares in the company being the property of the trust can be held in the name of trustees without the addition of the statement like a/c. LIC Mutual Fund and reiterated that the company cannot take note of trust;
(d) If the proposed transfer is accepted without addition of 'a/c. Morgan Stanley Growth Fund' the transfer would amount from Stock Holding Corporation of India Ltd. to Stock Holding Corporation of India Ltd., i.e., the transferor and the transferee would be the same person;
(e) As per section 187C(3), whenever there is a change in the beneficial owner, a notice is required to be given by such beneficial owner to the company, while the ostensible owner would continue to be the same person.
Resolved further that a reference under section 22A(4)(c) of the Securities Contracts (Regulation) Act, 1956, to the Company Law Board be and is hereby authorised to be made for its direction in the matter under section 22A(6) of the Securities Contracts (Regulation) Act, 1956, and copies thereof be and are hereby authorised to be sent to the transferor and the proposed transferee (indicated in the above referred transfer forms);
Resolved further that the company secretary, the deputy company secretary and the assistant company secretary be and hereby severally authorised to submit the above reference and such additional and/or supplemental applications, submissions, affidavits, modifications to the said reference and to take all other necessary actions as would be required for making reference and for pursuing the same to comply with the above decision including submissions of rejoinders, appeals, etc., and appearance in person or through representative, on behalf of the company."
4. The respondents made an application to the Company Law Board, Western Region Bench, Bombay, under the provisions of section 22A(4)(c) of the Securities Contracts (Regulation) Act, 1956 (for short, "the SCR Act"), seeking a direction on the opinion and decision of the respondents refusing registration of the transfer of the said shares as requested by the first appellants. In Reference Application bearing No. 13/SC/CLB/WR of 1994, the judgment and order impugned and order impugned in this appeal was passed. The Company Law Board after considering the pleadings of the parties and the arguments advanced confirmed the decision taken by the standing committee of the board of directors of the respondents to refuse registration of transfer of the said 400 equity shares.
5. Mr. Dhond, learned counsel appearing for the appellants, has strenuously urged that the mere fact that section 153 of the Act exists on the statute is no bar to the company entering the name of "a/c. MSGF" in the register of members. Learned counsel further submitted that the members of the Company Law Board after holding that the provisions of section 153 have more or less become redundant, erred in confirming the decision taken by the standing committee of the board of directors of the respondents refusing to register the said shares pursuant to the application for transfer made by the first appellants. Learned counsel further submitted that section 187C of the Act had been introduced regardless of the restrictions contained in section 153 and as such the object of introduction of section 187C is to dilute the effect of section 153. In the submission of learned counsel, on the insertion of section 187C, section 153 is impliedly repealed and there is no bar to the respondents taking note of the fact that the said shares are held by the first appellants as trustees of MSGF. Mr. Dhond further submitted that once a note as per section 187C is made in the register of members, the share certificate must faithfully record such note, the idea of the note being to give notice to the world at large about persons holding the said shares. Learned counsel further submitted that by the respondents refusing to register the transfer of the said shares a vested right to get the said shares transferred from trustees of one trust to trustees of another trust is taken away. In the submission of learned counsel, the transferors and the transferees in respect of the said shares are not the same though they may be the same individuals but in different capacities. Mr. Dhond also submitted that sections 153 and 187C of the Act are to be read in harmony to protect the rights of transferees. Lastly it was submitted that the mutual fund belongs to a special category and the SEBI Mutual Fund Regulations prescribe as to how the assets are to be held by a mutual fund and as such, the transfer of the said shares is to be registered in the name of the second appellants as per application made in respect thereof.
6. Mr. Tulzapurkar, learned counsel appearing for the respondents, submitted that while deciding the controversy involved, the court is concerned with the existing position in law. While considering whether a transfer is to be registered or not, the company is not required to note who the beneficial owner is in respect of the shares whose transfer is to be registered. Equally the company is not required to go behind the legal ownership. In the submission of learned counsel, the company is not required to look at any person other than the legal owner of the equity shares. Mr. Tulzapurkar further submitted that section 187C of the Act was introduced to avoid benami holding and at the time when section 187C was introduced, the Legislature did not deliberately repeal section 153 of the Act though section 153 was very much in the mind of the Legislature at the time when section 187C was introduced. In the submission of learned counsel, section 153 has not been repealed either expressly or impliedly by the insertion of section 187C in the Act nor has the effect of section 153 been diluted by the insertion of section 187C of the Act. Mr. Tulzapurkar further submitted that the SEBI (Mutual Funds) Regulations, 1993, and the provisions of the Act operate in separate and independent fields and the SEBI (Mutual Funds) Regulations have no overriding effect qua the provisions contained in the Act. In the submission of learned counsel, firstly, there is no inconsistency between the SEBI (Mutual Funds) Regulations and the provisions contained in the Act and secondly, even if there is any inconsistency, the provisions of the Act prevail. Mr. Tulzapurkar also submitted that as per the provision contained in the Act only a physical and juristic person can be a holder of shares in a company and a trust, in this case MSGF, cannot be the holder of the shares in the company and as such, the name of MSGF cannot be shown in the register of members of the respondents as holder of the said shares. Learned counsel further submitted that in fact the appellants intend to have the said shares registered in the name of MSGF as holder thereof which, in view of the provisions contained in the Act, cannot be done. Mr. Tulzapurkar further submitted that MSGF is like any other trust and no special right or status in its favour has been created under the provisions of the Act.
7. The main question which requires consideration in this appeal is of the effect of insertion of section 187C in the Act on section 153 of the Act. Section 153 makes it obligatory on a company not to take notice of any trust expressed, implied or constructive for being entered on the register of members or of debenture-holders. Section 187C which was inserted by the Companies (Amendment) Act, 1974, with effect from February 1, 1975, makes provision for declaration by persons not holding beneficial interest in any share. There is no dispute that MSGF is not a legal entity to hold equity shares in its own name. It is a trust of which SHCOIL is a trustee. Similarly, there is no dispute that LIC Mutual Fund is not a legal entity so as to hold the equity shares in its name. LIC Mutual Fund is also a trust of which SHCOIL is a trustee. Though the holder of the said shares is indisputably SHCOIL, prior to the sale thereof by LIC Mutual Fund, the beneficial owner was LIC Mutual Fund and on sale, the said MSGF has become the beneficial owner thereof. According to the respondents since the transferor and the transferee in respect of the said shares is none other than SHCOIL, the registration of transfer as sought by the appellants in respect of the said shares cannot be effected since in view of the provisions of section 153 of the Act no notice of a trust can be taken by relying upon the press note dated June 12, 25, 1957, issued by the Government of India, Ministry of Company Law Administration, whereby it has been clarified that shares in a company, being the property of a trust, can be held in the names of its trustees being individuals, corporations, companies or societies registered under the Societies Registration Act, 1860, without the addition of the statement that they are trustees. Reliance has also been placed upon letter bearing No. 10/28/87-CL V, Vol. IV, dated February 16, 1993, addressed by the Department of Company Affairs confirming that the shares in a company being the property of the trust can be held in the name of the trustees without the addition of a statement like "a/c. LIC Mutual Fund" and reiterating that the company cannot take note of trust. In the facts of the case, the standing committee of the board of directors of the respondents recorded that if the proposed transfer of the said shares was to be accepted without the addition of "a/c. MSGF" the transfer would amount to SHCOIL to SHCOIL, that is, the transferor and the transferee would be the same person.
8. It is correct that section 187C of the Act makes it obligatory on the holder of the shares in a company to make a declaration to the company specifying the name and other particulars of the person who holds beneficial interest in such shares. It also makes it obligatory on a person who holds beneficial interest in a share or class of share of a company to make a declaration to the company specifying the nature of his interest, particulars of the person in whose name the shares stand registered in the books of the company and such other particulars as may be prescribed. Section 187C also makes it obligatory on the beneficial owner of shares to make a declaration to the company whenever there is a change in the beneficial interest in such shares. Sub-section (4) of section 187C makes it obligatory on the company to make a note of such declaration in the register of members notwithstanding anything contained in section 153 of the Act. There is no controversy on this aspect of the matter since Mr. Tulzapurkar, learned counsel for the respondents, has fairly conceded that the respondent company is willing to make a note as per the requirement of section 187C in the register of members on the proper declarations being made. However, the question still remains for consideration is whether in the share certificate which the company is to issue, along with the name of SHCOIL, the name of the beneficial owner of the said shares, viz., MSGF is also to be added issuing the share certificate in the name of "SHCOIL a/c. MSGF". The note as contemplated to be made in the register of members in pursuance of section 187C does not infringe or dilute the requirements of section 153. A person in whose name the shares in a company are registered and who is the holder in respect thereof is entitled to exercise all statutory rights including the right to receive notices of annual general meetings, extraordinary general meetings, right to attend such meetings and exercise vote as also right to receive dividends and other benefits. The accounting difficulties, if any, of the appellants since SHCOIL acts as trustee of various mutual funds cannot override the statutory provisions. Moreover, in each share certificate issued by a company, the number of share certificate, the distinctive numbers of the shares as also the folio numbers are given which by themselves are sufficient to identify the shares so as to make it convenient even for the appellants to have the proper accounting of the shares in respect whereof the first appellants act as trustees.
9. Incidentally, it was suggested by learned counsel for the appellants that if the registration of transfer of shares as desired by the appellants is not effected, then it will cause loss of revenue to the Government. I am afraid, while considering the statutory obligations and the requirements, the question pertaining to loss of revenue to the Government cannot be taken into consideration. When there is a bar under section 153, merely by exercising the right in accordance with the provisions of section 153 if incidentally any loss of revenue is caused to the Government, that cannot override the statutory obligations.
10. No doubt, as submitted by learned counsel for the parties the provisions contained in section 153 as also in section 187C are to be construed harmoniously but as the SEBI Mutual Fund Regulations and the provisions contained in the Act operate in different fields, I find no inconsistency in the provisions contained in section 153 and 187C of the Act.
11. In the judgment and order impugned in the appeal, the Company Law Board while considering the applicability of section 153 has held that so far as section 153 is concerned, no notice of any trust is to be entered in the register of members or debenture holders. The Company Law Board has further held that the requirement of section 153 is mandatory and no exception therein has been provided for even in respect of shares held in trust on behalf of mutual funds. The Company Law Board has further held that even in the securities and Exchange Board of India Act, 1992, under which the SEBI has issued guidelines for mutual funds, there is no provision to indicate that the SEBI Act supersedes the provisions of section 153 of the Act. As rightly held by the Company Law Board, section 32 of the SEBI Act expressly provides that provisions of the SEBI Act shall be in addition to and not in derogation of the provisions of any other law for the time being in force. Even section 33 of the SEBI Act which indicates amendments to certain enactments does not indicate any amendment to section 153 of the Act to exempt the securities held in trust for mutual funds. Even the SEBI guidelines on mutual funds, on which reliance has been placed by the appellant, do not provide that the securities held by a trustee on behalf of mutual fund should be registered in the register of members of a company in the manner suggested by the appellants. The custodial agreement on which reliance has been placed by the appellants, is an agreement between the mutual funds and SHCOIL and even though the same might have been approved by SEBI, it does not bind the respondent-company. The respondent-company is bound by the provisions contained in the Act and cannot be permitted to commit a breach thereof or to act in violation thereof. The Company Law Board, in the facts and circumstances of the case, rightly upheld the decision of the standing committee of the board of directors of the respondent to refuse registration of transfer of the said shares. Having held that the standing committee of the board of director of the respondents was justified to refuse registration of transfer of the said shares, the Company Law Board proceeded to make certain observations about the possibility of dilution of the provisions of section 153 by insertion of section 187C in the Act. These observations of the Company Law Board are uncalled for since the Company Law Board has in express terms held that the provisions of section 153 are mandatory and still continue to be on the statute and as such required to be followed.
12. In the result, the appeal being devoid of any merit is dismissed with costs.