1998 (5) TMI 414 - Board - Companies Law

Summary

Issues Involved:
1. Rectification of the register of members of the respondent-company.
2. Alleged wrongful transfer of shares.
3. Applicability of Section 111A(3) of the Companies Act, 1956.
4. Violation of SEBI guidelines regarding promoters' shares and lock-in period.
5. Validity of the transfer deeds and authority of signatories.

Detailed Analysis:

1. Rectification of the Register of Members:
The petitioners sought rectification of the register of members of the respondent-company, alleging wrongful transfer of their shares. The Company Law Board (CLB) decided to consider the petitions under Section 111A(3) of the Companies Act, 1956, despite a technical error in the filing under Section 111.

2. Alleged Wrongful Transfer of Shares:
The petitioners claimed that their shares, part of the promoters' quota subject to a lock-in period of five years, were wrongfully transferred without their consent and without consideration. They argued that these transfers violated SEBI guidelines.

3. Applicability of Section 111A(3):
The CLB noted that with the enactment of the Depositories Act, 1996, the scope for rectification of the register of members in public companies had become limited. Section 111A(3) allows rectification only if the transfer of shares is in contravention of certain laws, including the SEBI Act and its regulations.

4. Violation of SEBI Guidelines:
The petitioners argued that the transfers violated SEBI guidelines, which mandate that shares in the promoters' quota are to be locked in for five years and cannot be transferred. The CLB examined whether SEBI guidelines constituted "regulations" under the SEBI Act. Despite some ambiguity, the CLB accepted the SEBI guidelines as regulations, referencing a broader interpretation from a Supreme Court decision.

The CLB found that the SEBI guidelines clearly restricted the transfer of promoters' shares during the lock-in period, except for transfers among promoters specifically named in the prospectus. The prospectus of the respondent-company named specific promoters, and the impugned transfers did not involve these named promoters. Therefore, the transfers were in violation of SEBI guidelines.

5. Validity of Transfer Deeds and Authority of Signatories:
The petitioners raised objections regarding the authority of the signatories on the transfer deeds and the absence of an original board resolution authorizing the transfers. However, the CLB deemed these issues irrelevant under Section 111A(3), which focuses solely on violations of specified laws, not procedural or authority-related issues.

Conclusion:
The CLB concluded that the transfers of shares were in clear violation of SEBI guidelines. Consequently, the CLB directed the respondent-company to rectify its register of members by removing the names of the transferees and restoring the names of the petitioners within ten days. The relevant share certificates were also to be delivered to the petitioners. This order was made without prejudice to the rights of the transferees to recover any consideration paid, for which they could pursue appropriate legal proceedings.