Company Law Board
Seshasayee Paper And Boards Ltd. vs Riddhi Chordia And Mool Chand Chordia ... on 24 February, 1995
Equivalent citations: [1998]93COMPCAS606(CLB)
ORDER
1. Seshasayee Paper and Boards Limited (hereinafter referred to as "the applicant"), have filed two references under Section 22A of the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as "the SCR Act, 1956"), seeking confirmation of this Bench, the decision of the board of directors of the applicant company to refuse the registration of transfer of shares, more particularly described below. Since the facts and circumstances of the references are similar in nature, we are disposing of these two references by this common order.
2. In Ref. No. 11/22A/SCRA/SRB/94 (hereinafter referred to as "the first reference") the opposite party holding 20 shares in a single share certificate (No. E 41177) transferred 5 shares each to Raj Kumar Tibrewal ; Damodar Prasad Agarwal and Mool Chand Chordia and keeping 5 shares in their own name. The three share transfer forms executed on July 18, 1993, lodged with the company were returned to the opposite party in the first reference on August 6, 1993, drawing their attention to the provisions of Article 36(aa) of the articles of association of the applicant company which prohibits the board of directors of the applicant company from accepting applications for transfer of less than 25 shares (sic) party of the first reference with a request to register the transfers on the plea that the request is for splitting of the share certificates and transferring the same in blocks of five shares each and that it would not be an appropriate and desirable action on the part of the applicant company to refuse the splitting up and transfer of shares as requested for. The board of the applicant company considered the transfers at its meetings held on September 25, 1993, and noted that the stamps in the transfer forms were not cancelled and that the transfers were against the provisions of Article 36(aa) and also Article 21A. Accordingly, the board resolved to refuse the registration of transfer and has sought the confirmation of this Bench for the same.
3. In respect of Ref. No. 12/22A/SCRA/SRB/94 (hereinafter referred to as "the second reference") one Dilip Kumar Surana holding 5 (five) shares bearing certificate No. E-33499 jointly with Vikash Surana and Nitin Surana made a request to the company to split the said share certificate into three and transfer one share each in the name of Vikash Surana ; Nitin Surana and the remaining three shares in the name of himself, viz., Dilip Kumar Surana. Accordingly, transfer forms were executed and sent to the company along with the share certificate for effecting registration of the transfers. The applicant company returned these documents on August 30, 1993, to the opposite party intimating that the articles of association of the applicant company do not permit sub-division of shares into denominations of less than 25 shares. However, the opposite party relodged the instruments with the company on September 8, 1993, on the ground that the applicant company does not have power to refuse splitting of shares held jointly. The board of the company considered the request at its meeting held on September 26, 1993, and formed an opinion that the request of the opposite party was against the provisions of Article 21A and 36(aa) of the articles of association of the applicant company and also noted that the stamp on the transfer forms in regard to transfer of one share each had not been cancelled.
4. These references were heard on February 24, 1995. No reply has been filed by the opposite parties in both references and none on their behalf was present during the hearing in spite of notices having been sent. Shri S. V. Vijeraghavan, advocate, appearing on behalf of the applicant company submitted that the articles have a binding nature between the company and the shareholders and as such when Article 21A specifically prohibits splitting of shares below the denomination of 25 shares and when Article 36(aa) also provides that transfer of shares of less than 25 shares is not permissible, the board of directors has taken the right decision to refuse the registration of transfer of shares and as such prayed for the confirmation of the Company Law Board.
5. We have considered the pleadings and submissions of learned counsel for the applicant company. As rightly pointed out by learned counsel for the company, Article 21A provides as follows :
"Article 21A.-- Notwithstanding anything contained in Article 21, the board shall not accept applications for sub-division or consolidation of shares into denominations of less than twenty-five shares (25) except when such a sub-division or consolidation is required to be made to comply with a statutory order or an order of a competent court of law on a request from a member to convert his holding of odd lots of shares into transferable/marketable lots, subject, however, to verification by the company."
As far as the first reference is concerned, the transfer of shares will arise only after sub-division of the share certificate. Article 21A clearly provides that the board shall not accept applications for sub-division into denominations of less than twenty-five shares (25) with certain exceptions. The impugned transfer in this case does not fall within the exceptions. The articles of association have a binding nature on the members and the company and the members are bound by the same. Therefore, in this case since the transfer cannot take place before sub-division and since the sub-division of less than 25 shares is prohibited by Article 21A, we are of the view that the board of directors was right in refusing subdivision of shares and the consequent transfer. The same view was taken by us in Kinetic Honda Motor Ltd. v. Pawan Gupta [1995] 18 CLA 66 ; [1996] 86 Comp Cas 596 (CLB). The same view was also expressed by the Gujarat High Court in AM Products Ltd. [1995] 5 SCL 315 ; [1997] 88 Comp Cas 876 (Guj). Besides this, we also note that stamps on transfer forms were not cancelled which is a mandatory requirement under Section 108 of the Act, and accordingly as far as the first reference is concerned, we, confirm the decision of the board of directors in refusing the splitting and consequent registration of transfers.
6. As far as the second reference is concerned, the sub-division and transfer of 5 (five) shares among the joint holders of shares has been sought by the opposite party. Even though none was present on behalf of the opposite party, in the letter to the company seeking sub-division and transfer of shares, the opposite party relied on the judgment of the Calcutta High Court in Hemalata Saha v. Stadmed Pvt Ltd. [1964] 2 Comp LJ 75 (Cal), to state that the company has no powers to refuse splitting of joint holding of shares. A perusal of this judgment shows that it has no application in the present case wherein the articles of the company specifically prohibit sub-division of shares below a denomination of 25 shares. Besides, in two of the three transfer instruments, the stamps had not been cancelled. Therefore, in this case also since the board of directors had refused subdivision and consequent transfer of shares on the strength of the provisions of the articles, we confirm the decision of the board of directors.