1991 (5) TMI 259 - Board - Companies Law

Summary

Issues Involved:
1. Whether the board of directors of MML formed their opinion in good faith regarding the refusal to register the impugned shares.
2. Whether MML rightfully returned the share certificates to the transferors and retained the instruments of transfer.
3. Whether MML was required to make a reference to the Company Law Board under Section 22A(4)(c) of the Securities Act.
4. Whether the applicants are entitled to any relief.

Detailed Analysis:

Issue No. 1: Good Faith of MML's Board of Directors

The board of directors of MML rejected the transfer of shares on several grounds, including non-compliance with Sections 292 and 372, improper stamping of transfer deeds, missing occupation details of the transferee, and other procedural lapses. JIL accepted the rejection of 2,400 shares due to these reasons. However, for the remaining shares, it was argued that MML had no power to refuse transfer of fully paid-up shares as per its articles of association and the provisions of Section 22A of the Securities Act. The transferee companies had passed necessary board resolutions authorizing the purchase of shares, and even subsequent ratifications were valid. The board concluded that the resolutions passed by the transferee companies were in compliance with Sections 292 and 372, and hence, the rejection of the remaining shares by MML was not according to the provisions of law.

Issue No. 2: Returning Share Certificates to Transferors

MML returned the share certificates to the transferors and retained the instruments of transfer, which was objected to by the transferee-appellants. The board noted that the transferor loses their right in the shares upon executing the transfer in blank. The established practice is to return share certificates to the party who lodged them. The action by MML was against the guidelines issued by the Ministry of Finance and was seen as an attempt to harass the transferee companies. The board found this practice unhealthy and not in line with sound business principles.

Issue No. 3: Reference to Company Law Board under Section 22A(4)(c)

The board examined whether MML should have made a reference to the Company Law Board under Section 22A(4)(c) of the Securities Act. It concluded that the reasons given by MML for rejecting the transfer of shares, such as non-compliance with Sections 292 and 372, fell under Clause (b) of Sub-section (3) of Section 22A, which pertains to contravention of law. Therefore, MML should have made a reference to the Company Law Board before refusing the registration of transfer.

Issue No. 4: Entitlement to Relief

The board found that MML's actions created complications for the transferee companies and were against the public policy of free transferability of shares. The board awarded costs to the appellants and directed MML to register the impugned shares, retrieve the share certificates from the transferors, or issue duplicate certificates.

Conclusion:

Order:
1. MML is directed to register 84,920 shares in favor of JIL, 5,000 shares in favor of GPPL, and 9,500 shares in favor of QRICL within 10 days of the order.
2. MML must retrieve the share certificates from the transferors or issue duplicate certificates.
3. MML shall issue a public notice in two newspapers canceling the wrongly sent share certificates and issuing duplicates.
4. The interim order that any transfer by the transferors shall be void is vacated after the shares are registered.
5. MML shall pay costs of Rs. 10,000, Rs. 500, and Rs. 1,000 to JIL, GPPL, and QRICL respectively within 10 days.