Decided on March 28,1995



- (1.) KINETIC Honda Motor Ltd. (hereinafter referred to as "the company") has filed before us ten references under Section 22A of the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as "the SCR Act"), seeking confirmation of this Bench in regard to the decision of the board of directors taken on February 22, 1993, to refuse registration of transfer of five equity shares each in the name of ten transferees as detailed in annexure "A" annexed to this order ; on the ground that such transfer would be in contravention of the listing agreement, administrative instructions issued by the Government of India and articles of association of the company.
(2.) The facts of the case are that one Shri Pawan Gupta a member of the company holding 50 shares in his name by way of a share certificate for 50 shares has sought for splitting up of the same into 10 certificates of 5 each and transfer of the same in favour of ten transferees. The request of Shri Gupta was considered in the meeting of the board of directors held on February 22, 1993, and after taking into consideration the following facts the board formed an opinion to refuse the said transfers : "The board took into account the fact that prior to its amendment in 1992, Section 22A(3)(b) only permitted a company to refuse to register the transfer of its securities on the ground that the transfer was in contravention of any law and after the amendment the scope of this sub-section had been considerably widened. The board also considered the listing agreement dated August 4, 1985, between the company and the Madhya Pradesh Stock Exchange, Indore. In particular the board discussed the import and effect of Clauses 4, 8 and 9 of the listing agreement which pertain to the market units of trading. The letters of the Madhya Pradesh Stock Exchange, Pune Stock Exchange Limited and circular of the Stock Exchange, Bombay, fixing the marketable lot for the equity shares of the applicant of 100 shares and Notice No. 2570 of 1988, dated June 9, 1988, enclosed with the circular dated July 7, 1988, of the Stock Exchange, Bombay, intimating that the trading lot for all shares of the face value of Rs. 10 each would be 100 shares were also noted by the board. Further, the attention of the board was also drawn to the circular dated April 25, 1986, addressed by the Madhya Pradesh Stock Exchange to all managing directors/company secretaries of all listed companies stating that the Stock Exchange Division, Government of India, had given the following instructions: 1. In case odd lot of shares, which aggregate to a marketable lot or more, are tendered for transfer, the companies themselves, should effect consolidation and issue certificates in marketable lot to the extent possible. 2. Wherever feasible, the companies should take the initiative and request the shareholders to tender their odd holdings for encashment. These odd lot holdings should then be consolidated into marketable lots in the name(s) of the assigned nominee(s) appointed for the purpose by the boards of stock exchanges. The sale proceeds thereof should thereafter be distributed to the original odd lot shareholders on pro rata basis. Staff of the share departments of the companies should be made aware of their responsibility to the shareholders and their working should be toned up and made more efficient. The management of companies should take keen interest in such matters. The attention of the board was invited to the provisions of Article 16 of the articles of association of the company which, inter alia, states that the directors shall not approve sub-division of a certificate into two or more certificates unless each certificate after sub-division represents 50 shares or a multiple thereof." 3. Accordingly the board decided to refuse sub-division and subsequent registration of transfer of shares as the same is in contravention of the listing agreement, the articles of association of the company and is also against the policy/administrative instructions of the Government of India to reduce odd lot of shares.
(3.) NONE was present on behalf of the respondent-transferor and transferees. However, Shri Pawan Gupta has filed a written submission stating that in an earlier reference decided by the Company Law Board in the matter of Kinetic Engg. Ltd. v. Sadhana Gadia [1992] 74 Comp Cas 82 and in the case of Dipak Kumar Jayantilal Shah v. Atul Products Ltd. [1992] 9 CLA 200 ; [1995] 82 Comp Cas 603, the Company Law Board has opined that the company cannot refuse transfer of shares in favour of the investors. He has also stated that the request was just not for splitting up of the shares but it was for transfer of shares and splitting up had to precede giving effect to these transfers so factually it is a case of transfer and a company cannot refuse the transfer of shares since as per law the shares are freely transferable. He has also placed reliance on the decision of the Bombay High Court in the matter of A.C. Shah v. Stock Exchange (O.O.C.J. Appeal No. 914 of 1985 in W. P. No. 1723 of 1985) wherein it was held that the resolution passed by the company lays down restrictions on trading units and not on transfer of shares. He has also stated that the petitioner company is a listed company whose shares are freely transferable and there are numerous companies listed on the Bombay Stock Exchange which never refuse on such splitting up and transfer and it is, therefore, not understood why this petitioner-company does not want to help the small investors to get rid of their odd lot holding when other companies are readily doing the same. He further stated that the Government of India through the Securities and Exchange Board of India (SEBI) is trying to become more and more friendly with the small investors and is making rules and regulations based on this line. He further stated that recently even the guidelines issued by the SEBI on capital issues specifies that whenever the share certificates are in odd lots the same should be issued in denominations of 1, 5 and 10 shares only. In view of the above, he has prayed that the decision formed by the petitioner-company to refuse the registration of transfer of shares in favour of the transferees should not be confirmed.;

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