1. There are 26 appeals filed by the petitioners against Tata Iron and Steel Co. Ltd. (hereinafter referred to as "TISCO") under Section 111 of the Companies Act, 1956 (hereinafter referred to as "the Act"). The appellants belong to three groups. Sixteen appeals, i.e., Nos. 2, 3, 6, 11 to 23 of 1989, have been filed by the Shah group involving 40 transfer deeds, three appeals, Nos. 5, 30 and 31 of 1989, have been filed by the Nagda group involving nine transfer deeds and six appeals, Nos. 7 of 1989 and 36 to 40 of 1990 have been filed by the Goradia group involving forty transfer deeds. As most of the relevant facts are common in respect of all appeals and there are common legal issues involved, it was agreed by the appellants and the respondent-company that all the appeals may be heard together and disposed of by a common order.
2. The appellants herein had lodged transfer deeds with the respondent-company during the months of February to April, 1989. The Tata Share Registry Ltd., the registrars of the respondent-company, returned the transfer deeds to the transferees with the remarks "to be lodged after rights issue record date". The transfer deeds were again lodged after the record date and the shares were duly transferred by the company. It is stated by the appellants that returning the transfer deeds to the transferee on the first lodgement with the remarks "to be lodged after the rights issue record date" amounts to refusal of transfer of shares for the purposes of Section 111 of the Act. It is further alleged by the appellants that the refusal to transfer shares was based upon the special resolution passed by the company on February 27, 1989, which, according to them, is ultra vires and illegal and more particularly against the spirit of the provisions of Section 108 and Section 154 of the Act. Further, it is alleged that the said resolution and the action of the respondent-company are tantamount to closure of the books which is not permitted under the provisions of Section 154 of the Act under which the maximum period for closure is 45 days in a year and not more than 30 days at a time.
3. The respondent-company in its reply has submitted that its shares/debentures are listed in several stock exchanges. The company inserted a new Article 25A in its articles of association by passing a special resolution passed at its annual general meeting, held on August 12, 1986. Article 25A reads as under : "Notwithstanding anything contained in Article 25, the board may in its absolute discretion refuse applications for the sub-division or consolidation of share certificates, debenture or bond certificate into denominations of less than the marketable lots except when such sub-division or consolidation is required to be made to comply with the statutory provision or order of a competent court of law." 4. The rights issue was made in 1989, in the ratio of one fully convertible debenture of Rs. 600 for every five equity shares held. One of the terms and conditions of the resolution was that "the shareholders will not be permitted to split their existing holding to less than the marketable lot or to transfer their existing holding in less than the marketable lots during the period from the date of the notice till date of closure of the transfer book/record date to be fixed by the board of directors for the issue". The said terms of issue were approved by the shareholders in the extraordinary general meeting held on February 27, 1989. The company issued these debentures to its members whose names stood in the register of the company on April 19, 1989, called the record date. It was argued on behalf of the company that the special resolution was passed with a view to allow participation of small shareholders whose holding is less than five equity shares in the issue so that they will at least get one convertible debenture instead of their fractional entitlement. For example, any person who holds, say three equity shares would be entitled to only a fraction representing 3/5ths of one convertible debenture and instead of this, under the scheme, such an investor would be entitled to one fully convertible debenture. If such a shareholder was permitted to split or transfer the holding in three separate shares or accounts, with a view to be entitled to three convertible debentures, this would defeat the whole purpose of the scheme and would give to such a shareholder an unfair advantage which he would not otherwise be entitled to. Further, it has been stated that the company had returned the transfer deeds as per special resolution passed on February 27, 1989, and in terms of Article 25A which was approved in the annual general meeting held,on August 12, 1986. The company, in fact, had only postponed the registration of transfer and requested the transferees to relodge the same after the record date. It is further submitted that similar grievances were made by one Shri Arvindkumar Chandulal Shah in Suit No- 2807 of 1989 filed in the city civil court at Bombay. The hon'ble court, by its order dated May 3, 1989, held that the aforesaid restrictions are valid and are not contrary to the provisions of the Securities Contracts (Regulation) Act, 1956. The Bombay High Court, sitting in appeal in the said case, upheld the same.
It is stated that the restrictions on transfer endorsed by the special resolution dated February 27, 1989, are valid in law and are not violative of Section 111 of the Act and Section 22A of the Securities Contracts (Regulation) Act, 1956.
5. In the rejoinders filed by the appellants, it has been stated that the refusal by the company is contrary to Section 22A of the Securities Contracts (Regulation) Act, 1956, and Article 25A is not relevant as the application was not for sub-division of share certificates or consolidation of the same, as alleged by the company. The impugned instruments of transfer were executed before the date of special resolution dated February 27, 1989, and the resolution cannot be given retrospective effect. It is not in the interest of small depositors, if the company insists on transfer comprising less than marketable lot, viz., ten shares of face value of Rs. 100 each. It has been stated that although the company had earlier refused transfer, it had subsequently accepted the transfer.
Whether the return of the transfer deeds with the advice to relodge them after the record date, constitute refusal to the transfer of shares and whether it is in violation of the provisions of Section 22A of the Securities Contracts (Regulation) Act.
Whether the appellants are entitled to any relief including award of costs/damages 7. The matter was heard on different dates and the hearing concluded on April 12, 1991. It has been argued on behalf of the appellants that the company, being a listed one, has to register the transfer within one month of the lodgement of the transfer deeds under Section 19(3)(e) (sic) of the Securities Contracts (Regulation) Act and as per the listing agreement and within two months as per the provisions of Section 111 of the Companies Act. There is no allegation that the transfer deeds were defective and the company should have registered these shares within the time specified as per the provisions of Section 111 of the Act. There is, in fact, no closure of books and register of members and the refusal was not in accordance with the law. It was also stated that Article 25A has no application in these cases as this is not a case of splitting or consolidation of shares and neither does the special resolution passed on February 27, 1989, have any relevance as the same cannot be given retrospective effect as the impugned transfer deeds were executed before that date. Reliance was placed on the case of R. Mathalone v. Bombay Life Assurance Co. Ltd., AIR 1953 SC 385 ; [1954] 24 Comp Cas 1 and the case of Killick Nixon Ltd. v. Dhanraj Mills Pvt. Ltd. [1983] 54 Comp Cas 432 (Bom) as also Luxmi Tea Co. Ltd. v. Pradip Kumar Sarkar [1990] 67 Comp Cas 518 (SC), to state that the company has no inherent power to refuse the transfer of shares and Section 81 limits the powers of the board of directors for issue of capital for the benefit of the company.
8. On behalf of the company, it has been submitted that Article 25A has bestowed absolute power on its board of directors to refuse application for sub-division or consolidation of share certificates into a denomination of less than a marketable lot. The Bombay Stock Exchange has conveyed no objection to the proposed alteration. The restrictions were incorporated in the terms and conditions of issue by passing a special resolution by the company so that the facility may not be misused by splitting or transferring the existing small shareholding in less than the marketable lot with a view to get the unintended benefit of additional entitlement in the rights issue. It was also submitted that the present appeals are of academic interest as the impugned shares have already been transferred and registered in the books of the company. The company has also taken the stand that it had not refused to register the transfer of shares and had only postponed its registration.
9. We have carefully considered the material on record and the oral and written arguments made on behalf of the parties. We have also noted that all the share transfers lodged by the appellants and which are subject-matter of these appeals have been now registered by the company after the record date. These are appeals filed under the unamended Section 111 of the Companies Act as the amended section as per the Companies (Amendment) Act, 1988, has not been brought into force till April 12, 1991. As per the provisions of Sub-section (5) of Section 111 of the Companies Act, the only order that can be passed in respect of these appeals is to direct that the transfer shall be registered by the company or that it need not be registered by it. Since the shares which are the subject-matter of these appeals have already been registered, there is no need to pass any further order in terms of Sub-section (5) of Section 111 of the Act. Therefore, the only question that is to be decided is whether the return of transfer deeds with the advice to relodge them after the record date constituted a refusal to transfer of shares and if so since the shares have been already transferred in the names of the appellants whether the appellants are entitled to any relief in terms of Sub-section (6) of Section 111. Since the TISCO is a listed company, the provisions of Section 22A of the Securities Contracts (Regulation) Act, 1956, are applicable and as per theue provisions, a company may refuse to register the transfer of shares or any of its securities in the names of the transferees on any of the four grounds mentioned in that section. Sub-section (3)(a) of Section 22A of the Securities Contracts (Regulation) Act reads as follows : "that the instrument of transfer is not proper or has not been duly stamped and executed or that the certificate relating to the security has not been delivered to the company or that any other requirement under the law relating to registration of such transfer has not been complied with." 10. As per the provisions of this sub-section, a listed company can refuse the registration of transfer, if the requirement relating to registration of transfer under Section 108 of the Companies Act or rules and regulations made thereunder or registration requirements prescribed under the listing agreement are not complied with, so long as the conditions imposed under the listing agreement are not repugnant to the provisions of any statute. In this connection, we have also noted that the observations made by the city civil court at Bombay in Suit No. 2807 of 1989, dated May 3, 1989 (Arvindkumar Chandulal Shah v.Stock Exchange, Bombay, and TISCO). Referring to the listing agreement, the court observed : "The regulations make it clear that the restrictions on the transfer at the closing of the accounts can be imposed by the company or the directors in certain circumstances and one of such circumstances being closing of the accounts for issue of right shares. In the instant case, the resolution proposed to implement this restriction for the said purpose. The reason why the restriction was necessary had also been explained. The ordinary rule to grant a fractional right share for a fractional shareholding was not being followed in the resolution by defendant No. 2 and instead of that, defendant No. 2 was intending to grant the holders of fractional marketable shares, one whole debenture. This proposal necessitated that the benefit which was intended to be given to the fractional shareholder was not misused and to prevent such misuse, the restriction proposed by the resolution which prohibited transfers of fractional shares for the prescribed period was essential. The resolution consequently was for the benefit of the shareholders and was mainly to ensure that the benefit intended to be granted to the shareholders was not misused. The very fact that in spite of the wording of Section 22A of the Securities Contracts (Regulation) Act, the listing agreement provided for restrictions on the transfers would go to show that the said restrictions fall within Section 22A, Sub-section (3b), where the law could provide restrictions of transfer of securities." 11. The High Court upheld the decision of the lower court in appeal. We have also noted that the share certificates have been returned by the Tata registry to the parties with advice to relodge them after the record date. It is the normal practice in most of the listed companies to scrutinise the documents submitted along with the lodgement of share transfer applications and if any defect or non-compliance with any provision with respect to the requirements of registration of transfer are observed then the documents are returned to the persons lodging the shares so as to enable them to complete these requirements. In this connection, in view of the requirements of special resolution, the Tata registry had returned the shares with the advice to relodge them after the record date.
12. In view of the above, the action of the company to return the share certificates for its relodgement after the record date does not amount to refusal and the company was acting as per the terms and conditions of the rights issue approved in the extraordinary general meeting of the shareholders held on February 27, 1989, in which a special resolution was passed restricting the rights of the shareholders to "split the existing shareholding to less than marketable lot or transfer their existing holding in less than the marketable lot during the period from the date of notice till the record date.
13. In respect of the issue recording "giving incidental and consequential direction" as to the payment of costs or otherwise as per Sub-section (6) of Section 111 of the Companies Act, we feel that such a direction can be issued only if the company has refused registration of shares and this Bench passes orders directing the company to register the transfer. In respect of proceedings under Section 155 of the Companies Act in respect of rectification of register of members, it has been held by the High Courts in a number cases that while passing orders for rectification, the court may also direct the company to pay the damages, if any, sustained by any party aggrieved but such direction cannot be given in case the application is rejected.
Similarly, in this case, if appeals are not being allowed and no direction is being issued to the company that the shares should be registered as the shares have already been registered, we do not think that any direction can be issued regarding payment of costs. The present appeals have been filed by a few shareholders to protect their own interest and with a view to gain personal benefits by splitting the shares. The Board has to take into consideration an overall view of the matter in the general interest of the shareholders of the company and the public interest. The majority of the shareholders have passed the special resolution at the extraordinary general meeting and its legality has also been established in the court case. In view of this, we dismiss the appeals without any orders as to costs.