1994 (9) TMI 367 - Board - Companies Law

Summary

Issues Involved:
1. Refusal of registration of share transfers by Bharat Petroleum Corporation Ltd. (the company).
2. Applicability of Section 153 of the Companies Act, 1956.
3. Compliance with Securities and Exchange Board of India (SEBI) Regulations.
4. Legal recognition of SHCIL's role as custodian for mutual funds.
5. Practical implications of non-registration of transfers.

Issue-wise Detailed Analysis:

1. Refusal of Registration of Share Transfers by Bharat Petroleum Corporation Ltd.:
The company refused registration of share transfers lodged by Stock Holding Corporation of India Limited (SHCIL) under Section 22A of the Securities Contracts (Regulation) Act, 1956. The refusal was based on five grounds, primarily citing Section 153 of the Companies Act, 1956, which prohibits taking notice of any trust. The company argued that registering shares in the name of SHCIL (Account XXX Mutual Fund) would violate this provision.

2. Applicability of Section 153 of the Companies Act, 1956:
Section 153 states, "No notice of any trust, express, implied or constructive, shall be entered on the register of members or of debenture-holders." The company argued that registering shares in the name of SHCIL (Account XXX Mutual Fund) would mean recognizing a trust, thus violating Section 153. The judgment confirmed that Section 153 is a mandatory and prohibitive clause, and no exceptions have been provided for shares held in trust by companies on behalf of mutual funds.

3. Compliance with Securities and Exchange Board of India (SEBI) Regulations:
SHCIL argued that as a custodian for mutual funds, it must follow SEBI regulations, which require maintaining separate accounts for each mutual fund. SHCIL contended that identifying securities as "Account XXX Mutual Fund" is necessary for compliance. However, the judgment noted that SEBI regulations do not override Section 153 of the Companies Act, 1956, and there is no provision in the SEBI guidelines that mandates such registration in the company's register of members.

4. Legal Recognition of SHCIL's Role as Custodian for Mutual Funds:
SHCIL's role as a custodian involves maintaining separate accounts for mutual funds and ensuring that properties do not get mingled. Despite this, the judgment held that SHCIL's internal management and custodial agreements do not alter the legal position under Section 153, which prohibits the company from recognizing any trust in its register of members.

5. Practical Implications of Non-Registration of Transfers:
The judgment acknowledged the practical difficulties SHCIL would face due to the refusal of registration, such as issues with dividend distribution, rights/bonus issues, and potential revenue loss from stamp duty. However, it emphasized that the company must adhere to the provisions of law, and Section 153 remains mandatory. The judgment suggested that Section 153 has become redundant due to the insertion of Section 187C, which requires declarations of beneficial interest to be noted in the register of members, thereby diluting the spirit of Section 153.

Conclusion:
The judgment confirmed the decision of the company to refuse registration of the impugned share transfers, citing the mandatory nature of Section 153 of the Companies Act, 1956. It recognized the practical issues faced by SHCIL but emphasized compliance with the existing legal provisions. The judgment suggested the removal of Section 153 from the statute book due to its redundancy in light of Section 187C but confirmed the company's refusal in the present case. The references were answered accordingly, with no order as to costs.