JUDGMENT
N.J. Pandya, J.
1. This appeal deserves to be allowed for the simple reason that the learned members of the Company Law Board, who dealt with the matter as Appeal No. 42(III)/CLB/WR/90 have, in my opinion, not appreciated the difference between free transferability and refusal to entertain the request for splitting the shares into different names.
2. The appellant before the Board, i.e., the respondent herein, had requested the appellant to entertain the application for transfer of one equity share each as detailed out in para. 6 of the memo of appeal as a lot of 5 shares was purchased from the market and here also there is a history.
3. The shares originally belonged to one Gujarat Aromatics Limited which merged with the present appellant company. It was a case of reverse merger, in the sense that a profit-making company bearing the name of the appellant company had merged with the said Gujarat Aromatics Ltd. and in the process, the merging company became the merged company, i.e., Gujarat Aromatics Limited, and the name continued to be that of the merged company, i.e., Atul Products Limited, by changing the name of the said Gujarat Aromatics Limited as part of the scheme of merger and amalgamation.
4. As the said Gujarat Aromatics Limited was a loss-making company, as a part of the scheme, the equity share capital came to be reduced in the ratio of 10 : 1 and, accordingly, if a shareholder holds 50 shares of that company, that would automatically be reduced to 5 shares of the merged company. This lot of shares of the Gujarat Aromatics Limited which was originally 50 shares of the Gujarat Aromatics Limited came to be dealt with by the respondent in the aforesaid manner with an added request for transferring one share each to 4 different names as set out in capital A, B, C and D of the said para B running pages 6 and 7 of the appeal memo. Once these 4 shares were dealt with in this manner, the remaining share was to be retained with the original owner, i.e., Pushpaben S. Naik.
5. In effect, what was sought was splitting of unit of 5 shares which originally would have been a unit of 50 shares, into 5 share certificates of 1 share in five different names. Had this request been allowed, there would not have been a case in respect of the said shares and there would have been five different share certificates in the name of five different holders each having one share in their name, as set out in para 6. Ordinarily, there may not be any objection and this might happen in the case of all or any of the companies.
6. However, in the instant case, when the request was made, the appellant company by letter dated December 5, 1990, addressed to the respondent had referred to article 24 of the articles of association of the company where it is provided that the company would not split the shares for shares less than a marketable lot, i.e., 50 shares.
7. In view of the aforesaid history, the lot of 50 shares of the merging company will have to be taken as 5 shares of the merged company as per the ratio agreed upon and if the request is for splitting those five shares under one share certificate to five different share certificates of one share each and transfer it to five different individual names, the company can refuse it under article 24 of the articles of association of the company unless the splitting sought is for making a marketable lot. However, so far as transferring the lot of five shares to the name suggested by the respondent is concerned, at the Bar, a statement is made on behalf of the appellant-company by learned advocate, Shri B.R. Shah, that it is left to the choice of the respondent and if such a request is made, the company shall entertain it.
8. So far as the refusal is concerned, it is for splitting the shares and not for transferring them to the names suggested by the respondent.
9. The learned members of the Company Law Board have referred to section 22A of the Securities Contracts (Regulation) Act, 1956. This section is definitely required to be considered for cases like this. However, this section would be attracted provided there was a question of there being any hindrance of free transferability. The refusal is for splitting of the shares and not for transferring the same and, in my opinion, there is no hindrance to free transferability at all. The company was ready to transfer those 5 shares and is still ready to transfer those five shares to a different name as suggested by the respondent as envisaged in respect of a public company under the company law, a compendious term which would include the Securities Contracts (Regulation) Act, 1956, also their requirements are taken care of. Assuming for the sake of argument that the said section 22A is required to be considered, the answer is to be found in clause (b) of sub-section (3) of section 22A, which reads as under :
“(b) that the transfer of the securities is in contravention of any law or rules made thereunder, or any administrative instructions or conditions of listing agreement laid down in pursuance of such laws or rules.”
The respondent arguing the matter as party in person had taken me through section 9 of the Companies Act, section 111 of the Companies Act and also to the said section 22A of the said Regulation Act, as also the standard listing agreement. He has accepted the position as found from the standard listing agreement that there might be a restriction with regard to the marketable unit of shares. This refers to the said concept of marketable lot or minimum number of shares to be dealt with in the market for sale and purchase which is a vital transaction so far as the transferability of lot of shares is concerned.
10. The said clause (b) of section 22A(3) provides for grounds for refusal of transfer and at the same time, prohibits any other ground being raised for refusal to transfer and conditions of the listing agreement being one of them, the company can certainly invoke clause (b) of sub-section (3) of section 22A. Assuming for the sake of argument that at the time of refusal, which was conveyed on December 5, 1992, this amended provision was not there in section 22A of the said Regulation Act, even then, in view of the aforesaid distinction between “not a refusal to transfer” but “refusing only to split the shares”, the section would not be attracted.
11. No doubt, learned advocate, Shri B.R. Shah, has drawn a distinction between the word “law” as used in clause (b) with reference to article 13 of the Constitution of India, but that being a larger question, in my opinion, when it is not required to be gone into, in the light of the aforesaid discussion, I simply refer to it, but do not deal with it.
12. The net result is that the appeal succeeds. The order of the Company Law Board is set aside. However, as stated above, it shall be open to the respondent herein to approach the company within one month from today with a request to the company to get the said lot of 5 shares transferred to the name or names as requested by the respondent. There shall be no order as to costs.