1996 (10) TMI 363 - HC - Companies Law

Transfer of shares Declaration by person not holding beneficial interest in shares Free transferability and registration of transfers of listed securities

Summary

Issues Involved:
1. Refusal to register the transfer of shares.
2. Interpretation and effect of Section 153 of the Companies Act, 1956.
3. Interpretation and effect of Section 187C of the Companies Act, 1956.
4. Applicability of SEBI (Mutual Funds) Regulations, 1993.
5. Legal status of trusts in holding shares.

Detailed Analysis:

Refusal to Register the Transfer of Shares:
The appellants were aggrieved by the refusal of Bharat Petroleum Corporation Ltd. (BPCL) to register the transfer of 400 equity shares from the first appellant to the second appellant. The refusal was upheld by the Company Law Board (CLB), leading to this appeal under Section 10F of the Companies Act, 1956.

Interpretation and Effect of Section 153 of the Companies Act, 1956:
Section 153 mandates that a company cannot take notice of any trust, expressed, implied, or constructive, for the purpose of entering it in the Register of Members. BPCL's Standing Committee refused the registration based on this provision, stating that the shares could not be registered in the name of "Stock Holding Corporation of India Ltd. (A/c Morgan Stanley Growth Fund)" because it would imply taking notice of a trust, which is prohibited by Section 153.

Interpretation and Effect of Section 187C of the Companies Act, 1956:
Section 187C, introduced to avoid benami holdings, requires declarations from persons not holding beneficial interest in any share. The appellants argued that Section 187C dilutes the effect of Section 153, allowing for the registration of shares in the name of trustees with a note of the beneficial owner. However, BPCL contended that Section 153 was not repealed or diluted by Section 187C. The court agreed with BPCL, stating that while Section 187C mandates noting the beneficial owner's details in the Register of Members, it does not override the prohibition in Section 153 against taking notice of trusts for registration purposes.

Applicability of SEBI (Mutual Funds) Regulations, 1993:
The appellants argued that SEBI (Mutual Funds) Regulations prescribe how assets should be held by a mutual fund, implying that the shares should be registered in the name of the second appellant. However, the court noted that SEBI regulations and the Companies Act operate in separate fields. The SEBI Act does not supersede the mandatory provisions of Section 153 of the Companies Act, and there is no inconsistency between the two.

Legal Status of Trusts in Holding Shares:
The court reiterated that a trust, such as Morgan Stanley Growth Fund (MSGF), is not a legal entity capable of holding shares in its own name. Shares must be held in the name of trustees, without adding statements indicating they are trustees. The court upheld BPCL's decision to refuse the registration of shares in the name of "SHCOIL A/c MSGF" because it would imply taking notice of a trust, which is prohibited by Section 153.

Conclusion:
The appeal was dismissed with costs, affirming the decision of the CLB and BPCL's Standing Committee. The court held that Section 153's prohibition on taking notice of trusts for registration purposes remains mandatory and was not diluted by the introduction of Section 187C. The SEBI regulations do not override the provisions of the Companies Act, and trusts cannot hold shares in their own name.