Decided on January 20,1995



- (1.) THE Bank of Madura Limited (hereinafter referred to as "the bank") has filed 122 (one hundred twenty-two) applications containing references under Section 22A(4)(c) of the Securities Contracts, (Regulation) Act, 1956 (hereinafter referred to as "the SCR Act"), seeking confirmation of the decisions taken by the board of directors refusing registration of transfer of shares. THE decisions to refuse registration of transfer of shares were taken at various board meetings held on different dates in respect of 71, 239 shares, as per annexure-I. As the facts, circumstances and grounds of refusal in all these cases are similar, we dispose of these references by this single order.
(2.) The submissions made in the applications, in a nutsnell are as follows : The bank is a public limited company incorporated under the Indian Companies Act, 1913. It is a private sector scheduled bank and its shares are listed and quoted on the Madras Stock Exchange. During the year 1993, more particularly between June, 1993, and November, 1993, and also in January and February, 1994, a large number of shares were received for registration of transfers in the, names of certain dealers and parties who had connections with the SPIC and the MAC group either as dealers of fertilizers manufactured by SPIC or otherwise. The company made enquires and found that these transferees had, in one way or the other, connections with the said SPIC/MAC group. The bank also found out that one Mr. Sabapathy who was chairman of the bank and who was removed as such as per the directions of the Reserve Bank of India, had, by linking up with the SPIC/MAC group set up nine candidates for election as directors at the 49th annual general body meeting of the bank and all these persons so nominated were found to have had some; connections with the SPIC/ MAC group. Also severarlitigations were filed by Shri Sabapathy against the bank when none of the directors proposed by Shri Sabapathy was elected in the 49th annual general body meeting. Suits were filed by persons owing allegiance to Shri Sabapathy by which newly elected directors were restrained from functioning as directors and ultimately the Supreme Court had to intervene to uphold the election of directors. A huge amount of money was spent in acquiring these shares which no individual could have mobilised and such large sums were invested only for the purpose of taking over the bank. Nexus between these transferees is obvious from the fact that the consideration amount for all the shares was uniformly at Rs. 142.80 per share. The Reserve Bank of India, vide their circulars, dated January 13, 1970, and May 23, 1991, had advised that banks are required to obtain acknowledgment from the Reserve Bank of India before effecting transfer of shares when transfers make the shareholding of the individual/group equivalent to 1 per cent. and over of the total paid-up capital of the bank. It also stated that the purpose of the instructions in this regard was to put banks on guard against attempts by individuals/ groups to acquire a controlling interest in a bank. These acquisitions of shares by transferees under these references account for more than 3 per cent. of the paid-up capital of the bank and as such the instructions contained in the Reserve Bank of India's circulars are applicable. Taking all these aspects into consideration, the board of directors formed an opinion that the transfers are likely to result in such change in the composition of the board of directors which would be prejudicial to the interest of the bank and also the transfers if registered would violate the administrative directions issued by the Reserve Bank of India. It is, therefore, prayed that the decision of the board of directors to refuse registration be confirmed by the Company Law Board. All the transferees have filed replies which are identical in content. They have denied the allegation that they acquired the shares at the behest of the SPIC/MAC group. This allegation, according to the transferees, is totally incorrect and false; It has also been stated that the shares have been purchased by transferees out of their own funds and not out of the funds provided by the SPIC/MAC group. The allegation that these transferees owe allegiance to SPIC because of the relationship as dealers is incorrect. The purchase of shares by these transferees, it is further stated, is by way of genuine investment and there is no concerted attempt to corner the shares for the purpose of acquiring a controlling interest in the bank. They have also questioned the justification given by the bank to refuse registration, that the registration of the transfers is likely to result in a change in the composition of the board of directors or acquisition by transferees would violate the administrative guidelines of the Reserve Bank of India. It has also been averred in the replies that if the allegation is that the transferees belong to the SPIC/MAC group then, the SPIC/MAC group should have been impleaded as parties. The transferees have finally prayed for directing the bank to register these shares in their names.
(3.) WE heard Shri T.V. Padmanabnan, counsel appearing on behalf of the bank, and Shri Arvind P. Datar, counsel on behalf of the transferees. At the outset it was agreed that instead of taking the case of each and every transferee, a single reference and reply received from a single transferee would be considered in the hearing as the facts and circumstances involved in all these references in respect of all these transfers are common and accordingly it was done so.;

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