1991 (10) TMI 312 - Board - Companies Law

Summary

Issues Involved:
1. Refusal of registration of transfer of shares.
2. Compliance with Section 22A of the Securities Contracts (Regulation) Act, 1956.
3. Validity of Article 47A of the Articles of Association.
4. Timeliness of the reference filed by the company.
5. Constitutional validity of Section 22A of the SCR Act.
6. Binding nature of Articles of Association.

Detailed Analysis:

1. Refusal of Registration of Transfer of Shares:
The company refused the registration of transfer of shares on the grounds that accepting an application for transfer of less than 50 equity shares was not in the interest of the company. The board concluded that the cost of servicing such shareholders would exceed the dividend payable and create odd lots, which are less marketable. The board also noted that the Government and stock exchanges prescribed a minimum lot of 50 equity shares, and thus, the balance of convenience favored the company.

2. Compliance with Section 22A of the Securities Contracts (Regulation) Act, 1956:
Respondent No. 1 argued that the company filed the reference beyond the prescribed two-month period under Section 22A(4) of the SCR Act, rendering the petition time-barred. The respondent also contended that the transfer of securities was not in contravention of any law and that the company's amended Article 47A was void ab initio as it did not have prior approval from the stock exchange.

3. Validity of Article 47A of the Articles of Association:
The company's Article 47A prohibited the transfer of less than 50 equity shares, except under certain conditions. The respondent argued that the articles of association cannot override the provisions of Section 22A of the SCR Act, which provides for free transferability and registration of listed securities.

4. Timeliness of the Reference Filed by the Company:
The company lodged the securities on February 1, 1989, and returned them on February 24, 1989, citing Article 47A. The securities were re-lodged on March 11, 1989, and the board meeting was held on April 14, 1989. The reference was filed on May 15, 1989. The respondent argued that this was beyond the two-month period prescribed by Section 22A(4) of the SCR Act.

5. Constitutional Validity of Section 22A of the SCR Act:
The company's counsel mentioned that the constitutional validity of Section 22A of the SCR Act was challenged in a separate writ petition. However, the bench decided to proceed with the matter as there was no provision to stay the proceedings pending the outcome of the writ petition.

6. Binding Nature of Articles of Association:
The company argued that the articles of association, being a contract between the company and its members, are binding and have the force of law under Article 13(3)(a) of the Constitution of India. However, the bench held that any provision in the articles that is contrary to statutory provisions is invalid ab initio. The articles of association are essential for internal management but do not have the force of law if they contravene statutory provisions.

Judgment:
The bench concluded that the articles of association cannot override the statutory provisions of Section 22A of the SCR Act, which ensures free transferability and registration of listed securities. The company's refusal to register the transfer of shares based on Article 47A was deemed contrary to the provisions of the SCR Act. Consequently, the bench directed the company to register the transfer of shares within ten days from the receipt of the order.

Order:
The transfer of shares involved in the four references shall be registered by Kinetic Engineering Limited within ten days from the date of receipt of this order. No orders as to costs.