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TMI Blog1991 (10) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the above group are not holding any shares at present. The board, after having considered the matter in detail, came to the conclusion that acceptance of an application for transfer of less than 50 equity shares of the company, unless it is covered by one of the exceptions mentioned in Article 47A of the articles of association of the company, is not in the interest of the company as the cost of service to such shareholder would far exceed the amount of dividend payable on such shares and such costs are disproportionate to the face value and the present market value of the shares. The board also viewed that such transfers are also not in the interest of the investor as it would create odd lots for which the market quotations are less than the normal quotations and hence such transfers are also not in the bona fide interest of the investors and appears to be with ulterior motive. The board also noted that the Government and stock exchanges have prescribed a minimum lot of 50 equity shares for shares having a face value of ₹ 10 each ; in refusing such transfers, the balance of convenience is in favour of the company. The board also noted that the provisions of Section 36 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty as he wishes. It is further submitted that the costs incurred in servicing the shareholders are insignificant when compared with the total revenue of the company. As to what is in the interest of the investors, the investor himself is the best judge and not the board of directors. 4. Respondent No. 4 in his written submissions has pointed out that a listed company cannot refuse transfer of shares even if it is below the specified limit prescribed under the articles of association in violation of the stock exchange listing requirements, according to the pronouncement of various stock exchanges in similar cases. It is further represented that as per the order passed by the Bombay High Court in A.C. Shah v. Stock Exchange (O. O. C. J. Appeal No. 914 of 1985 in W. P. No. 1723 of 1985), it was held that the resolution passed by the company lays down restrictions on trading units and not on transfer of shares. 5. Mr. A.R. Amin, advocate and partner of Kanga and Co., advocates, solicitors and notary, accompanied by Shri T.N. Subramanian and R. Vaidya, advocates along with Shri R. Loonker, secretary of the company, appeared on behalf of the petitioner-company and brought to the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer of shares below, but for the circumstances indicated in the article itself. He further argued that, under Article 13(3)(a) of the Constitution of India, law includes any Ordinance, Order, bye law, rule, regulation, notification, custom or usage having in the territory of India the force of law. According to Mr. Amin, the articles of association which is an agreement between the company and its members is a contract and is binding on all the parties concerned which relates to regulation of the affairs of the company and, therefore, in terms of the aforesaid Article 13(3)(a) of the Constitution of India, the articles of association would assume the force of law and would be binding on all concerned parties. He further argued that, accordingly, the petitioner company's case is covered under Clause (b) of Sub-section (3) of Section 22A of the SCR Act namely that the transfer of the security is in contravention of any law . He further submitted that the transfer of shares is for mala fide purpose and not for bona fide investment. He further argued that, having considered all the facts and circumstances of the case, the board of directors of the company, in the interest of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot alter or vary that which would be the result of the memorandum standing alone. The memorandum must prevail where its object is clear and the articles should not be so construed as to nullify a provision in the memorandum. Bye-laws of a company are framed in order to carry out the provisions contained in the articles of association themselves. Bye-laws are subordinate to the articles of association and the articles of association are subordinate to the memorandum. Memorandum and articles of association are statutory terms of a contract governing the relationship between the company and the shareholders. Articles of association are not only a contract between the company and its members but they also constitute a contract between the members to regulate their rights inter se. However, this does not mean that either the articles of association or the memorandum have the force of law and will be binding on every member of the society. Articles of association are essential for internal management of the company and the memorandum defines the powers of the company as well as those of the directors. In view of this, it is very clear that if any provision of the articles or the mem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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