Judgment:
1. The first company petition (C.P. No. 443 of 2006) is filed under Section 111A of the Companies Act, 1956 ("the Act"), seeking directions against M/s Catholic Syrian Bank Limited ("the Bank") to register the transfer in respect of 217 equity shares of the Bank in the name of the petitioner, namely, P.P. Zibi Jose ("Jose").
2. The second company petition (C.P. No. 444 of 2006) is filed under Section 111A of the Companies Act, 1956 ("the Act"), seeking directions against M/s Catholic Syrian Bank Limited ("the Bank") to register the transfer in respect of 350 equity shares of the Bank in the name of the petitioner, namely, Swahel K. George ("George").
3. The third company petition (C.P. No. 476 of 2006) is filed under Section 111A of the Companies Act, 1956 ("the Act"), seeking directions against M/s Catholic Syrian Bank Limited ("the Bank") to register the transfer in respect of 150 equity shares of the Bank in the name of the petitioner, namely, Hydie Helen D'souza ("Helen D'souza").
4. The first respondent is the Bank, second respondent is its Company secretary, third respondent is the Registrar of Companies, Kerala and fourth respondent is the Reserve Bank of India, Thiruvananthapuram. The Bank is common in all the three company petitions. The issues involved are similar and reliefs claimed in these company petitions are one and the same. In view of this, all the three company petitions were heard together and are disposed of by this common order.
5. According to Mr. P.P. Zibi Jose, learned authorised representative, George, Helen D'souza and himself had acquired 350, 150 and 217 equity shares of the Bank respectively and forwarded the share certificates together with transfer deeds for effecting the transfer in their names, but the Bank returned back the share certificates, without registering the transfers on the premise that the transfers being in odd lots could be allowed only if they facilitate consolidation of odd/fractional lots into marketable lots, or the transfers should facilitate reduction in the number of such odd/fractional lots holding in terms of article 29(a) of the articles of association of the Company, as borne out by correspondence exchanged between the petitioners and the Bank, which are produced before this Bench. Mr. Zibi Jose, learned authorised representative challenged the action of the Bank on the following grounds: The Company is a public limited Company, whose shares are freely transferable as reiterated by this Board in P.R. Gokkale v. Tamil Nadu Mercantile Bank Limited (2002) Vol. 110 CC 866. The power to refuse registration of transfer of shares in public companies is limited to the grounds indicated in Section 111 A(3). In Kinetic Engineering Limited v. Sadhana Gadia (1992) vol. 74 CC 82, it has been held that the articles of association of a company could not be treated at par with the provisions of law. Any provision in the articles which puts any restriction on free transferability of shares would amount to a negation of the provisions of law, and, therefore, cannot be binding. The Bank by placing restrictions on the transfer of shares in terms of article 29(a) has violated the provisions of the Act, regarding transferability of the shares.
Article 29(a), being contrary to the requirements of the provisions of the Act is in-operative. The Supreme Court held in Co-operative Central Bank Limited v. Additional Industrial Tribunal (1970) Vol.
40 CC 206 that by-laws of the co-operative society, which are similar to articles of association of the company do not have the force of law. Any violation of law cannot be justified. The provisions of law will override the provisions of the articles of association. Therefore, the Company's claim that the transfers should be only in marketable lots is not legally tenable.
A shareholder of a public company has every right to sell/transfer the shares held in his name and similarly has the right to decide the number of shares to be transferred/sold. The Bank cannot impose any restrictions infringing the rights of any shareholder.
6. Shri R. Venkatavaradan, learned Counsel, opposed the company petitions on the following grounds: Article 29(a) dealing with transferability of marketable and odd lot of shares provides that "Transfer of shares shall be allowed and registered only in marketable lots of 100 shares or in multiples thereof, or in such other lots as may be agreed to with the Stock Exchange, provided that transfer of shares in odd/fractional lots may be allowed for the purpose of facilitating consolidation of such lots into marketable lots, or the transfer in effect reduces the number of such odd/fractional lots holding".
Article 8(1) on issue of share certificates stipulates that "Every person whose name is entered as a member in the Register of members shall be entitled to receive within three months after allotment, and within two months (or such other shorter period as may be required by Stock Exchange) after the application for registration of transfer, (or within such other period as the conditions of issue) shall provide, One certificate for all his shares or at his option one certificate for each market lot of his shares, without payment".
By virtue of articles 29(a) and 8(1), marketable lots of 100 shares or in multiples thereof are freely transferable, but transfer of odd/fractional lot shares is allowed for consolidation of odd lots into marketable lots. These articles have been incorporated with a view to encourage dealing in market lot shares and reduce the odd lot holding of shares in circulation.
Jose had sought to transfer in his name 217 shares of the Bank from the transferor, who was holding 225 shares in the Bank, comprised of two marketable lots of 100 shares each and an odd lot of 25 shares.
This odd lot of 25 shares is further sought to be split up into 17 and 8 shares, and out of which 17 shares are sought to be transferred along with the market lot of 200 shares. George had sought to transfer in his name 350 shares of the Bank from the transferor, who was holding 375 shares in the Bank, comprised in three marketable lots of 100 each and an odd lot of 75 shares. This odd lot of 75 shares is further sought to be split up into 50 shares and 25 shares and out of which 50 shares are sought to be transferred along with market lot of 300 shares. Helen D'souza had sought to transfer in her name 150 shares of the Bank from the transferor, who was holding 200 shares in the Company, comprised in two marketable lots of 100 shares each. Helen D'souza sought one market lot of 100 shares to be split up into 50 shares each, out of which 50 shares are sought to be transferred along with the market lot of 100 shares. Thus, these are cases, which involve splitting of market lots of shares and is not in conformity with article 29(a).
In terms of article 29(a), the marketable lot of the Bank's shares is 100 shares. In view of this, the Bank returned the transfer request to Jose, George and Helen D'souza, advising them to resubmit the same in conformity with the articles. The Bank suggested several options available to them in dealing with the odd lots of shares.
Any splitting of market lot or odd lot of shares would result in creation of further odd lots. This causes undue hardship and inconvenience to the Bank, which is presently having 1.09 crore issued equity shares of Rs. 10/- each, held by about 29000 shareholders, In view of this, the Bank has, in its articles, clauses regulating the transfer of odd lot shares, which is permissible only for consolidation purposes and is in consonance with the letter and spirit of Section 111A of the Act.
The petitioner as well as the transferor being a shareholder of the Bank is bound by the articles of association of the Bank. The relevant articles are meant to regulate the marketability of odd lot shares without infringing upon its transferability, in the interest of the Bank and its shareholders. If the request of the petitioners is allowed, it would open up a 'pandora's box' and the Bank would be flooded with share transfer applications in quite a large numbers for split up transfers. It is not difficult for the petitioners to procure from the original sellers the remaining odd lots, namely, 8 shares in the case of Jose, 25 shares in the case of George and 50 shares in the case of Helen D'souza or to return the odd lots already purchased to the sellers so that the share transfers could be allowed without infringing the provisions of the Bank's articles.Kinetic Engineering Limited v. Sadhana Gadia (supra) relied upon by the petitioner is not valid in view of the subsequent decision of the Gujarat High Court and the Company Law Board. It has been held in Atul Products Limited v. Dipakkumar Jayanthilal Shah (1997) 3 CLJ 241 that refusal to register a transfer below marketable lot leading to splitting up of shares when not permitted by the articles can be refused. This Board in Gujarat Machinery Manufacturers Limited v. Nile Limited (2001) Vol.105 CC 817 held that the provisions of Section 111A would be applicable to listed as well as unlisted public companies. By virtue of Section 36, articles create a contract between the members and the company and the members inter-se and, therefore, any transfer which is violative of the articles would also be in violation of Section 36 of the Act.
This Board in Kinetic Honda Motor Limited v. Pawan Gupta (1995) Vol.3 LJ 130 while confirming the refusal of transfer held that registration of transfers resulting in issue of share certificates below market lots was not in accordance with the provisions of the listing agreement and articles. In the present case, the Bank's shares are yet to be listed, but by virtue of the relevant articles, with the intention to got its shares listed in the near future, they got binding force, as if the shares are listed.
7. I have considered the pleadings and arguments advanced for the parties. The issue that arises for my consideration is whether the Bank be directed to register the impugned transfers in the name of Jose, Goerge and Helen D'souza, in the facts of the present cases. While, according to the petitioner in each of the company petitions, the Company herein is a public limited company, whose shares are freely transferable, it is contended by the Bank that the impugned transfers are violative of the articles of association of the Company, resulting in its refusal to register the transfers in the name of Jose, George and Helen D'souza. In this background, the provisions of Section 111A as well as the relevant articles of association of the Company assume relevance.
Section 111A relates to the transfer of shares or debentures in respect of a public company and provides for free transferability of its shares or debentures, as re-enforced by this Board in P.R. Gokkale v. Tamil Nadu Mercantile Bank (supra). In terms of proviso to Sub-section (2), an aggrieved transferee may seek remedy by filing an appeal before the Company Law Board, if transfer is refused without sufficient cause within two months from the date of lodgment. Sub-section (3) of Section 111A relates to the rectification of register of members or record of depository in case any transfer is made in contravention of the provisions of Securities and Exchange Board of India Act, 1992 or regulations made thereunder or the Sick Industrial Companies (Special Provisions) Act, 1985, or any other law for the time being in force, on an application made by the aggrieved depository, company, participant or investor or SEBI within two months from the date of transfer.
Article 8(1) of the article of association of the Company provides that every member shall be entitled to receive within three months after allotment and within two months after the application for registration of transfer as the case may be, one certificate for all his shares or at his option one certificate for each market lot of his shares, without payment.
Article 29(a) stipulates that transfer of shares shall be allowed and registered only in marketable lots of Rs. 100/- or in multiples thereof, or in such other lots as may be agreed to with the Stock Exchange, provided that transfer of shares in odd/fractional lots may be allowed for the purpose of facilitating consolidation of such lots into marketable lots or the transfer in effect reduces the number of such odd/fractional lots holdings. It has to be further borne in mind that the memorandum and articles of association having been adopted in year 1971, article 29(a) dealing with registration of transfer of shares only in marketable lots of 100 shares or in multiples thereof, came to be incorporated much prior to the introduction of provisions of Section 111A with effect from 20.09.1995. Furthermore, the stand of the Bank that the each of the petitioners must re-lodge the transfer instruments in terms of article 29(a) is not in consonance with the provisions of Section 111A. Any restriction on free transferability of shares, which would amount to a negation of the provisions of law, and, therefore, cannot be binding as held in Kinetic Engineering Limited v.Sadhana Gadia and Ors.
a) Jose forwarded certificate Nos. 79230, 79231 and CSB/931 contain ing 100, 67 and 50 shares of the Bank respectively. The transferor reportedly retained 8 shares in a separate certificate with him without selling to Jose; b) George forwarded certificate Nos. 67442, 67443, CSB/8983 and CSB/270 carrying 100, 100, 100 and 50 shares of the Bank respectively. The transferor reportedly retained 25 shares in a separate certificate without selling to George; and c) Helen D'souza forwarded certificate Nos. 85190 and 85191 carrying 100 and 50 shares of the Bank respectively. The transferor reportedly retained 50 shares in a separate certificate without selling to Helen D'souza.
It is thus seen that Jose, George and Helen D'souza are holding distinct and separate share certificates in respect of 217, 350 and 150 shares acquired from the respective transferors, which have been admittedly lodged with the Bank for registering the transfers in their names. When the Bank did not issue one certificate in favour of each of the transferors in respect of all their shares, from whom Jose, George and Helen D'souza acquired the shares, as envisaged in article 8(1), the defence taken by the Bank that the transfers being in odd lots could be allowed only if they facilitate consolidation of odd/fractional lots into marketable lots and further that by virtue of articles 29(a) and 8(1), marketable lots of 100 shares or in multiples are freely transferable is not justifiable. Every petitioner has lodged the entire share certificates covering the shares purchased by them, comprising of marketable as well as odd lots, but none of the petitioners has sought to split the share certificate which, in my view, does not involve splitting of shares, as claimed by the Bank. A shareholder of a public company has every right to decide the number of shares to be transferred out of his total holding and therefore, no restriction can be imposed on any shareholder in respect of number of shares which could be transferred or sold by such a shareholder. If the practical difficulties put forth by the Bank in registering the impugned transfers are taken cognizance, the same would amount to circumventing the letter and sprit of the provisions of Section 111 A.In Kinetic Honda Motor Limited v. Pawan Gupta and Anr. (supra), when a member of the company therein, holding 50 shares in his name by way of a share certificate for 50 shares sought for splitting of the same into 10 certificates of 5 each and transfer of the same in favour of ten transferees, his request was refused by the board of directors of the company. Thereupon, the company filed before the CLB 10 references under Section 22A of the Securities Contracts (Regulation) Act, 1956, seeking confirmation of the decision of the board of directors to refuse registration of transfer of 5 equity shares each in the name of 10 transferees on the ground that such transfer would be in contravention of, inter-alia, articles of association of the company.
This Board, having regard to the distinction between free transferability and free marketability held that the board of directors of the company rightly declined splitting of shares below 50 shares, which would result in creation of odd lots, which are not freely marketable. Similarly, in Atul Products Limited v. Dipakkumar Jayantilal Shah (supra), the respondent therein, submitted four transfer deeds duly executed and stamped along with one share certificate of five shares for registration of transfer in different names, upon which, the company treated the request for registration of the transfer of shares as request for splitting and dealt with it under its articles of association, providing that the company cannot split share certificate for less than market lot. The CLB, on appeal directed the company to register the transfer in one of the transfer deeds duly supported with share certificate of five shares. On further appeal, it was argued on behalf of the company that, while it could not under its articles allow splitting of shares below marketable lot, the Gujarat High Court held that the refusal is for splitting of shares and not for transferring the same, and as such there is no hindrance for transferability now and consequently directed the respondents to approach the company with a request to the company to get the said lot of five shares transferred to the name or names transferred by him. It is, therefore, beyond doubt that these two decisions are not applicable to the facts of the present cases and therefore, do not go in aid of the Bank.
In view of my foregoing conclusions, the Bank is hereby directed to register the impugned transfers in the name of Jose (217 shares), George (350 shares) and Helen D'souza (150 shares) within 30 (thirty) days on their re-submission of the relevant share certificates and transfer documents to the Bank. With these directions, these company petitions stand disposed of. No order as to cost.