Decided on February 24,1995



- (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. 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.
(3.) 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.;

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