9911796707
TMI Blog1994 (9) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... ia (Account SBI Mutual Fund, GIC Mutual Fund, LIC Mutual Fund), etc. The standing committee of the board of directors of the petitioner-company which has been authorised by the board of directors as per the powers vested in it by the articles to approve share transfers, considered the impugned transfers in five different meetings and decided to refuse registration of these transfers for the following reasons : (a) As per the provisions of Section 153 of the Companies Act, 1956, no notice of trust can be taken by the company and, therefore, share transfer cannot be registered in the name of the Stock Holding Corporation of India Ltd. (account SBI Mutual Fund) ; (b) As per the Press Note dated June 25, 1956, issued by the Company Law Administration, the shares in the company being the property of the trust can be held in the name of trustees without an addition of the statement that they are the trustees ; (c) The Department of Company Affairs has confirmed the view taken by the petitioner and reiterated that the company cannot take note of the trust ; (d) If the proposed transfer is accepted, without addition of (account SBI Mutual Fund) it would amount to transfer from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner-company is that by entering the name of SHCIL (Account XXX Mutual Fund) it would amount to taking cognizance of a trust and the same is prohibited by Section 153 of the Companies Act. It is further stated in the reply that since SHCIL is the custodian of more than one mutual fund, there are purchases of shares between such mutual funds inter se and if proper identification in the register of members in a company is not provided, then the shares can never be transferred from one mutual fund to another mutual fund as in such cases the transferor and the transferee would be the same person, i.e., the SHCIL. Also, if no instruments of transfer have to be executed as the shares would continue to be held only in the name of SHCIL, there will be loss of revenue to the Government in the form of stamp duty in case transfers between mutual funds inter se managed by the same custodian take place. The reply also highlights certain operational problems like identification of various benefits accruing to the shares belonging to various mutual funds but registered in the name of the SHCIL, difficulties arising in the event of issue of rights and bonus issues. In fine, the SHCIL has prayed, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zarpurkar. It is submitted that identification of securities, internal accounting methods or internal management adopted by the SHCIL as custodian of various funds is a matter to be managed by the SHCIL themselves and is irrelevant to the issues involved and for that reason, the petitioner cannot be a party to registering the shares in contravention of law. He further submitted that the custodian character of the SHCIL does not make any difference to the applicability of the relevant provisions of law. He also submitted that securities can be identified by their distinctive numbers. He then submitted that if compliance with the provisions of Section 187C of the Companies Act is made by the SHCIL and/or by the beneficial owner on whose behalf the SHCIL are holding particular securities and having regard to the provisions of Section 187C(3) of the Companies Act, 1956, there would be no difficulty in identifying the securities. 7. Mr. Dhond, learned counsel appearing for the SHCIL, submitted that the provisions of the Companies Act are of general nature whereas the activities of mutual funds are regulated through the special regulations formulated for this purpose by the Securities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion have they mentioned that the registration of transfers would be in violation of law. 9. As per Section 22A of the Securities Contracts (Regulation) Act, securities of companies which are listed on the stock exchange are freely transferable. However, it is provided in Section 22A(3) of the said Act that a company may refuse registration of transfer under four circumstances as indicated in (a) to (d) therein. If we examine the grounds on which the company has refused registration of transfer in the instant case we find that only the first ground, viz., that as per the provision of Section 153 of the Companies Act, 1956 (hereinafter called the Act ) no notice of trust can be entered on the register by a company, seems to fall within the provisions of Section 22A(3)(c) while the four other grounds mentioned do not fall under any of the provisions of Section 22A(3) of the Securities Contracts (Regulation) Act. The fifth ground mentioning about provisions of Section 187C(3) is only a procedural matter and does not fall within the ambit of Section 22A(3). Therefore, we have to consider only the applicability of Section 153 of the Act and examine whether the standing committee of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Securities and Exchange Board of India Act states The provision of this Act shall be in addition to, and not in derogation of, the provisions of any other law for the time being in force . Even Section 33 of the said Act which indicates amendment to certain enactments does not indicate any amendment to Section 153 of the Act to exempt securities held in trust by the companies for mutual funds. Even the Securities and Exchange Board of India guidelines on mutual funds on which the SHCIL has placed reliance does not provide anywhere that the securities held by a trustee on behalf of a mutual fund should be registered in the register of members of the company in the manner suggested by SHCIL. The custodial agreement is an agreement between the mutual funds and SHCIL and even though the same has been approved by the Securities and Exchange Board of India, it does not bind a third party while the petitioner herein is bound to give effect to provisions of law. Under these circumstances, we find that the decision of the standing committee of the company to refuse registration of transfer of shares covered in these references is justified as the registration being in violation of provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tipulates that the declaration regarding beneficial interest has to be entered on the register of members. Thus, while the basic rule is laid out in Section 153 as regards shares and debentures, the exception is carved out in Section 187C as regards shares. It is also interesting to note that while Section 153B which was inserted in 1963 provides for declaration only when shares are held beyond a particular limit, to the public trustee and he in turn informs the concerned company, Section 187C which was inserted in 1974 stipulates that in every case where the beneficial interest is held by one, other than the registered holder, the same should be recorded in the register of members. Thus, the spirit of provisions of Section 153 has been completely diluted by insertion of Section 187C as regards shares held in trust. 13. No doubt, we have held that the action of the company to refuse registration of transfer in the instant case is correct in view of the provisions of Section 153, we are also equally conscious of the various practical difficulties that SHCIL will have to face on account of this refusal which are likely to have repercussions on the public at large who are the ultim ..... X X X X Extracts X X X X X X X X Extracts X X X X
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