9911796707
TMI Blog1991 (8) TMI 340X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the company on the ground that the board had declined to transfer the same shares lodged previously. 2. The brief history of the case is that, in February-March, 1982, the appellants lodged 20,562 equity shares in four lots including 20,484 shares purchased from the Government of Maharashtra and 78 shares from other eight individuals. These shares included the 50 shares, the transfer of which is the subject-matter of this appeal and which were refused to be transferred by the board of directors of the respondent-Sangli Bank in favour of the appellants in its board meeting held on April 13, 1982. On refusal to transfer the shares, the appellants had filed three references, bearing Appeals Nos. 14, 15 and 16 of CLB/WR/1982 before this Bench. Thereafter, at the intervention of the Government of India and the Reserve Bank of India, the Government of Maharashtra repurchased 20,484 equity shares in September, 1983. Subsequently, in view of a compromise arrangement arrived at amongst the parties, the appeals filed were treated as closed having been withdrawn by the appellants. All the transferors including the Government of Maharashtra have repurchased the shares involved in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares from the State of Maharashtra and lodged the same for transfer which works out approximately to 47% of the total share capital. The respondent-Sangli Bank herein rejected the said transfer on several grounds, inter alia, that the said transfer was contrary to the Banking Regulation Act, 1949 (Section 19); acquisition of more than 1% of the share capital of the bank should be with the acknowledgment of the Reserve Bank of India ; as per the articles of association, more than 2.5% holding of the issued share capital will not be allowed to any person other than the State of Maharashtra ; the appellants had bought the shares of the bank at an exorbitant price which smacked of a mala fide intention and not akin to bona fide investment, etc. The said share transfer was thus rejected. Subsequently, the State of Maharashtra repurchased the said shares leading to the withdrawal of the earlier appeals filed by the appellants some time in 1984. The present appeal under Section 111 relates to 50 equity shares which are part and parcel of the said lot of equity shares mentioned above which were refused to be transferred by the respondent-Sangli Bank sometime in 1982. Therefore, the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have also stated that there is nothing in the Banking Regulation Act prohibiting the transfer of shares from one bank to another. The impugned 50 shares constitute only 0.26% of the total share capital and by acquiring the said 50 shares the appellants cannot have a controlling interest. 6. The matter was heard on August 14, 1990, when it was submitted by the respondent-Sangli Bank's advocate that since these shares in question were the subject-matter of appeals before the Company Law Board in 1982 in Appeals Nos. 14, 15 and 16 of 1982 and the said appeals were withdrawn as the matter was treated as closed by the Company Law Board by its order dated November 27, 1984, no fresh appeal can lie and is barred by the principles of res judicata. On behalf of the appellants, it was argued that there is a fresh transfer deed lodged on April 1, 1987, and, therefore, the previous lodgment will not have any adverse effect on the right that arises out of the fresh transfer. The case was called on two occasions but it was adjourned since the parties were examining the possibilities of a settlement by mutual understanding in view of the fact that only 50 shares are involved in the transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of transfer related to 20,562 shares of which the transfer in respect of 20,484 shares already held by the State Government is no longer being pursued, that the present case relates to just 50 shares which is just 0.26%, i.e., almost one-fourth of the one per cent of the issued and subscribed shares ; that it is ridiculous to allege fears of loss of control based on such negligible percentage. According to the appellants, it is obvious that the passing of resolution was just mechanical and it is false on the part of the respondent to allege that the investment made by the appellants is with an interest to corner the voting power and thus control the respondent-Sangli Bank. It was also emphasised that Section 12(2) of the Banking Regulation Act, 1949, provides that no person holding shares in a banking company shall, in respect of shares held by him, exercise voting rights on poll in excess of one per cent of the total voting rights of all the shareholdings of the banking company . Thus, to suggest that the appellants are seeking to assume control which is practically impossible since whatever be the number of shares held by the appellants, the voting rights remain restricted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they are mandatory and binding upon the Bank of Maharashtra. And, therefore, their fresh attempt to get the shares transferred in their name purchased from individuals again is contrary to the said directions and cannot be entertained at all on the ground of propriety and legality also. 14. The articles permitted the directors to decline to register the transfer without stating any reasons. The respondent-Sangli Bank has further submitted that the powers of the board of directors and have been elaborately discussed by the Hon'ble Supreme Court in the case of Bajaj Auto Ltd. v. N.K. Firodia [1973] 41 Comp Cas 1. In this well-known case, the Hon'ble Supreme Court has observed that the directors, under the articles of the company, have uncontrolled and absolute discretion to decline to register the transfer of shares. The discretion does not mean a bare affirmation or negation of a proposal, it implies just and proper consideration of the proposal in the facts and circumstances of the case. In exercise of that discretion, the directors had to act for the paramount interest of the company and for the general interest of the shareholders because the directors were in a fiduci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercise voting rights on poll in excess of 1 per cent of the total voting rights of all the shareholders of the banking company. Thus, irrespective of the total shareholding a person may have in a banking company, his voting rights have been restricted to one per cent of the total voting rights of all the shareholders of the banking company. 17. Thus, according to Sub-section (2) of Section 19 of the Banking Regulation Act, 1949, banking companies can hold shares up to 30 per cent, of the paid up share capital of another banking company or their own share capital and reserves, whichever is less. In the instant case, 50 shares are involved which are reportedly less than even 0.26 per cent, i.e., almost 1/4th of one per cent of the paid up share capital. Thus, there is legally no bar on the appellants' holding the shares. It is contended by the respondent-Sangli Bank that a specific direction was given by the Reserve Bank of India and the Ministry of Finance to the Government of Maharashtra and the Bank of Maharashtra not to acquire the shares of Sangli Bank and that direction still holds good. The respondent-Sangli Bank has not produced or filed anything in support of its c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght have had some relevance as the said lot of 20,562 shares which were subject-matter for consideration in 1982 was a block of about .47 per cent, of the paid-up share capital of the respondent-Sangli Bank. The shares in question in the present appeal are, however, only 50 in number which are less than even one per cent and, therefore, the appellants are neither prohibited under the provisions of the Banking Regulation Act, 1949, nor, by any stretch of imagination, can it be held that the transfer of these shares in the name of the appellant bank would result in their acquiring the majority of the shares or control of the respondent-Sangli Bank. The grounds that they are competitors doing the same business, and that their acquiring the shares would shake the confidence of their customers or the initiative of the employees appear to be extraneous reasons to us. It is common that companies engaged in some business do hold nominal shares in other companies and there is nothing to suggest that their presence as shareholders would shake the confidence of the customers and the initiative of the employees, 21. Thus it is clear that the earlier grounds of 1982, on which the transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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