Creation of trust for disposal of odd lot shares - Companies Law - Circular: No. 11 of 1993,

Circular: No. 11 of 1993, dated 8-10-1993. Subject:- Creation of trust for disposal of odd lot shares As you are aware the investors of companies often get allotment of shares in lots which are not marketable and they are confronted with the problem of selling these shares at the market rates quoted for shares in marketable lots. With a view to explore ways and means and to minimise the difficulties of investors in this regard, the Department has examined this problem in consultation with the Chambers of Commerce and the Securities Exchange Board of India (SEBI). The Chambers of Commerce and some of the major companies were of the view that the problem could be solved if the companies, as a measure of servicing their investors voluntarily create the position of an independent trustee to receive shares from individual investors for being disposed of on their behalf and after realising the sale proceeds in marketable parcels make over the sales realisation less brokerage and service charges to the investors. You are, therefore, requested to advise your constituents to create such trusts in order to provide the service to the investors in the matter of disposing odd lot shares of the company held by them. 2. The following broad guidelines should be observed by the companies while appointing a trustee: (i) The trustee shall be selected and appointed by the company and such a person should be responsible, trustworthy and unconnected with the day-to-day management of the company. (ii) The trustee shall only sell the shares of the company in odd lots and shall not deal with shares of other companies. (iii) The company may provide certain initial funds to start the operation and ultimately the trustee will reimburse the funds so provided out of the brokerage and service charges realised from the investors, out of surplus so generated in due course. (iv) During the period the trustee holds odd lot shares on behalf of the investors, the company shall send all the rights and bonus shares to him for and on behalf of the original holders. (v) Soon after the shares are consolidated into a marketable lot, the trustee shall contact the recognised prominent brokers dealing in particular shares of the company for disposing of the same. But the trustee shall not engage himself in any manipulation of market rates with regard to the shares of the company. (vi) The books of the trustee shall be maintained from day-to-day on the basis of the transactions entered into by him in respect of odd lot shares and shall be open for scrutiny by the Registrar of Companies. 3. The companies in their own interest will closely monitor and maintain a surveillance on the books of the trustee in regard to the share transactions in odd lot on behalf of the investors. Any complaint against any misconduct by the trustees can be sent by the investors to the Investor Protection Cell in the Department of Company Affairs, Shastri Bhawan, Dr. R.P. Road, New Delhi, or to the nearest office of the Registrar where the registered office of the company is located. 4. The above methodology to deal with the problems of investors on voluntary basis instead of prescribing any specific provision in the Companies Act is indicative of the confidence that the Department reposes in fair dealing by companies towards their investors and it is expected that the future voluntary self-regulation will be modelled on the basis of successes of this exercise. You are requested to give wide publicity to this scheme among your constituents and work closely with them to make the scheme a success.