Yes . But provisions in section 188 of the companies Act ,1956 and s 257 of the companies Act shall have to be followed.
When a Member can ask the company to circulate the resolution?
Sec : 188 (i) a)Resolution -6 weeks b)Other matters-14 days
S.188 (I) (a) – moving of resolution at AGM ,6 weeks
S.188(i) (b) – Circulation of any matter -14 days
Members entitled under S.188- 1/20 th of total voting power or 100 members holding shares having a paid up value of Rs 1 lakh.
When a company is not bound:
Time limit
Defamatory or needless publicity abuse
Central government to order not to comply with
Banking Co
S 188 (6) – NO obligation to circulate in some cases-if it would prejudice interest of the company
The right of a member to circulate resolution cannot be curtailed by the AOA
.
S.190 – Special Notice 14 days before the meeting
Cases where special notice is needed- s 224 (5) (a)
Section 284-
On reading section 284 it is found that it requires a special notice and a ordinary resolution to remove a director, but the special notice shall be served by how many shareholders, section 284 is silent on that, infact the word shareholder nowhere appears in section 284, it only says that “Special notice shall be required of any resolution to remove a director under this section”. The relevant part of section 284 is produced hereunder-
Removal of directors under section 284
(1) A company may, by ordinary resolution, remove a director (not being a director appointed by the Central Government in pursuance of section 408) before the expiry of his period of office…..
(2) Special notice shall be required of any resolution to remove a director under this section, or to appoint somebody instead of a director so removed at the meeting at which he is removed.
(3) On receipt of notice of a resolution to remove a director under this section, the company shall forthwith send a copy thereof to the director concerned, and the director (whether or not he is a member of the company) shall be entitled to be heard on the resolution at the meeting.
Notice moved by a single shareholder, not accepted by the company-
In order to prevent the embarrassment caused by the frivolous notices to remove the director, given by a single shareholder, the companies refuse to circulate the notice to other members (as required by section 284) terming the notice as invalid for non compliance of section 188. Section 188 requires a certain number of shareholders to move a shareholders resolution. The relevant part of the provision is produced hereunder-
In Gopal Vyas vs. Sinclair Hotels and Transportations ltd, the court opined that section 257 is a ‘self contained’ provision and do not need section 188 to be adhered with.
In Karnataka bank vs. AB Datar, it was held that a single shareholder can move resolution for removal of a director.
In the case of Prakash Roadlines vs. Vijay Kumar Narang has reiterated its ratio of Karnataka Banks case and held that the right to move a resolution is a inherent right of the shareholder and the right to move a resolution to elect or remove a director is a individual right which is independent of the requirement of Section 188.
Thus , for removal of director under section 257 , a single shareholder can move the resolution as decided in Gopal Vyas , Karnataka Bank and Prakash Roadlines and for any other matter provisions of section 188 has to be followed.
R.V.Seckar
Wednesday, June 30, 2010
Friday, June 18, 2010
It is the Nominee not the Legal Heir is entitled to ownership of share - Mumbai High Court
A nominee has the right to the shares after the original shareholder’s death and not the deceased’s heirs, Bombay High Court has ruled.
Dismissing the application of a widow who sought permission to sell the shares belonging to her late husband , Justice Roshan Dalvi held that she had no right to do so since she was not the nominee. The nominee was her late husband’s nephew.
‘‘ The Companies Act sets out that the nomination has to be made during the lifetime of the holder, according to legal procedures. If that procedure is followed, the nominee would become entitled to all the rights in the shares to the exclusion of all other persons (following the death of the shareholder),’’ said the judge. The court said that Harsha Kokate would have no rights over the shares owned by her deceased husband.
Harsha had married Nitin in December 2004. Their marital life was short-lived as Nitin passed away in 2007. A year later Harsha moved the HC seeking to sell the shares in Nitin’s demat account with Saraswat Cooperative Bank. It was found that a year before his death Nitin had nominated his nephew in respect of the shares. Harsha’s lawyers argued that she was entitled to the shares as she was her late husband’s heir and legal representative .
The lawyers also pointed out to the nomination provisions relating to insurance papers as well as shares of a flat in a cooperative housing society. Under the provisions of the Insurance Act as well as the Maharashtra Cooperative Societies Act, nomination only makes a nominee a trustee for the insurances policy or shares of the flat, argued the lawyer. The nominee holds the policy/shares in trust for the estate of the deceased, but has no right over them.
‘‘ Since Nitin died intestate (without leaving a will), his widow would be entitled to the shares to the exclusion of the nominee,’’ claimed Harsha’s advocate. The HC disagreed. ‘‘ The provisions (relating to insurance and housing societies) are made merely to give a valid discharge to the insurance company or the cooperative society without vesting the ownership rights in the insurance policy or the membership rights in the Society upon such nominee,’’ said the judge, while pointing out that the provisions of the Companies Act and Depositories Act, that govern equity shares are different.
Both these laws say that the shares would be vested with the nominee on the death of the share holder . ‘‘ Upon such nomination, therefore, all the rights incidental to ownership would follow. This would include the right to transfer the shares, pledge the shares or hold the shares,’’ said the judge.
Dismissing the application of a widow who sought permission to sell the shares belonging to her late husband , Justice Roshan Dalvi held that she had no right to do so since she was not the nominee. The nominee was her late husband’s nephew.
‘‘ The Companies Act sets out that the nomination has to be made during the lifetime of the holder, according to legal procedures. If that procedure is followed, the nominee would become entitled to all the rights in the shares to the exclusion of all other persons (following the death of the shareholder),’’ said the judge. The court said that Harsha Kokate would have no rights over the shares owned by her deceased husband.
Harsha had married Nitin in December 2004. Their marital life was short-lived as Nitin passed away in 2007. A year later Harsha moved the HC seeking to sell the shares in Nitin’s demat account with Saraswat Cooperative Bank. It was found that a year before his death Nitin had nominated his nephew in respect of the shares. Harsha’s lawyers argued that she was entitled to the shares as she was her late husband’s heir and legal representative .
The lawyers also pointed out to the nomination provisions relating to insurance papers as well as shares of a flat in a cooperative housing society. Under the provisions of the Insurance Act as well as the Maharashtra Cooperative Societies Act, nomination only makes a nominee a trustee for the insurances policy or shares of the flat, argued the lawyer. The nominee holds the policy/shares in trust for the estate of the deceased, but has no right over them.
‘‘ Since Nitin died intestate (without leaving a will), his widow would be entitled to the shares to the exclusion of the nominee,’’ claimed Harsha’s advocate. The HC disagreed. ‘‘ The provisions (relating to insurance and housing societies) are made merely to give a valid discharge to the insurance company or the cooperative society without vesting the ownership rights in the insurance policy or the membership rights in the Society upon such nominee,’’ said the judge, while pointing out that the provisions of the Companies Act and Depositories Act, that govern equity shares are different.
Both these laws say that the shares would be vested with the nominee on the death of the share holder . ‘‘ Upon such nomination, therefore, all the rights incidental to ownership would follow. This would include the right to transfer the shares, pledge the shares or hold the shares,’’ said the judge.
Wednesday, June 9, 2010
Can Pledged Shares Can by Gifted ?
FACT OF THE CASE
Mr. A who is Director & Promoter of XYX Limited (Listed Company) want to Gift its entire holding to Mr. B who is the M.D. & Promoter of the same Company. Mr. A and Mr. B are real brothers. The Holding of Mr. A is pledged with Bank.
QUERY:-
Whether Gift Deed can be executed before release of Pledge Shares?
When A have pledged the share with Bank , the original share certificates would have been deposited with the Bank. Further , in the case of pledge , voting rights are also vests with the bankers and if they desire , they can exercise the voting rights but they will not meddle in the ordinary course of business.
Pledging of shares means A have no right over the title of those shares until it is revoked. In such a scenario, no gift can be made and if made without the bank's consent , as you said ,it is void ab initio.
In case of pledged shares , the physical shares will be lodged with the Bank . In such a case , A cannot transfer the shares to B even with the consideration as A cannot produce the physical shares to B and to the Company for transfer.
In both the cases , bank's consent is essential and without that , according to me , any gift or transfer will be invalid and not possible.
A gift can be made if there is no encumbrance over it. When share are pledged with the Bank , the ownership of shares lies with the Bank and A is not a real owner in this case and he cannot gift the shares which as he is not presently owning these shares and if he has made any gift of shares to be effective on the future date , for this also he should take consent from the bank as there would be a clause in the loan agreement that sale or gift of shares is prohibited during the tenancy of the loan period. Can you suggest what would happen if the gift of shares are made at a future date and if loan has not been repaid , the bank has the every right to dispose the shares irrespective of gift made already to B.
As per Sec. 123 of Transfer of Property Act, a gift of immovable property, which is not registered, is bad in law and cannot pass any title to the donee. Any oral gift of immovable property cannot be made in view of the provisions of sec. 123. Mere delivery of possession without a written instrument cannot confer any title. This section speaks about immovable property only and as nothing has mentioned about movable property like Shares. Since the share is an intangible movable property , gift of such property is to be in written so as to avoid any future ambiguity.
Section 126 of the Transfer of Property provides for conditions where a gift may be revoked.The following are those conditions-
According to clause (4 of section 126) the condition should not be illegal, or immoral and should not be repugnant to the estate created under the gift. Section 126 is controlled by sec. 10. As such, a clause in the gift deed totally prohibiting alienation is void in view of the provisions contained in sec. 10. A gift, which was not based on fraud, undue influence or misrepresentation nor was an onerous one, cannot be canceled unilaterally. Such a gift deed can be canceled only by resorting to legal remedy in a competent court of law.
In the above scenario , if gift is made by A to B when there is encumbrance or charge in favour of a bank , whether registration is possible as per section 123 of Transfer of Property act without Bank's consent.
Further ,under section 10 , if a gift is a onerous one , it can be canceled by only resorting to legal remedy . Suppose , if loans are not paid , then such onerous gift will have to revoked by an order of court .
Though onerous gift can be made , my question is whether it can be made without bank's consent as mentioned in the question. Whether it can be registered under section 123 without bank's consent?
What I stress again and again , bank's consent is necessary for gifting of shares pledged with them and in the situation , both A and B do not want bank's consent or ( gift to be made without bank's knowledge ) , is it possible and will it be valid one both under section 10 and 123 of the Transfer of Property Act.
Mr. A who is Director & Promoter of XYX Limited (Listed Company) want to Gift its entire holding to Mr. B who is the M.D. & Promoter of the same Company. Mr. A and Mr. B are real brothers. The Holding of Mr. A is pledged with Bank.
QUERY:-
Whether Gift Deed can be executed before release of Pledge Shares?
When A have pledged the share with Bank , the original share certificates would have been deposited with the Bank. Further , in the case of pledge , voting rights are also vests with the bankers and if they desire , they can exercise the voting rights but they will not meddle in the ordinary course of business.
Pledging of shares means A have no right over the title of those shares until it is revoked. In such a scenario, no gift can be made and if made without the bank's consent , as you said ,it is void ab initio.
In case of pledged shares , the physical shares will be lodged with the Bank . In such a case , A cannot transfer the shares to B even with the consideration as A cannot produce the physical shares to B and to the Company for transfer.
In both the cases , bank's consent is essential and without that , according to me , any gift or transfer will be invalid and not possible.
A gift can be made if there is no encumbrance over it. When share are pledged with the Bank , the ownership of shares lies with the Bank and A is not a real owner in this case and he cannot gift the shares which as he is not presently owning these shares and if he has made any gift of shares to be effective on the future date , for this also he should take consent from the bank as there would be a clause in the loan agreement that sale or gift of shares is prohibited during the tenancy of the loan period. Can you suggest what would happen if the gift of shares are made at a future date and if loan has not been repaid , the bank has the every right to dispose the shares irrespective of gift made already to B.
As per Sec. 123 of Transfer of Property Act, a gift of immovable property, which is not registered, is bad in law and cannot pass any title to the donee. Any oral gift of immovable property cannot be made in view of the provisions of sec. 123. Mere delivery of possession without a written instrument cannot confer any title. This section speaks about immovable property only and as nothing has mentioned about movable property like Shares. Since the share is an intangible movable property , gift of such property is to be in written so as to avoid any future ambiguity.
Section 126 of the Transfer of Property provides for conditions where a gift may be revoked.The following are those conditions-
According to clause (4 of section 126) the condition should not be illegal, or immoral and should not be repugnant to the estate created under the gift. Section 126 is controlled by sec. 10. As such, a clause in the gift deed totally prohibiting alienation is void in view of the provisions contained in sec. 10. A gift, which was not based on fraud, undue influence or misrepresentation nor was an onerous one, cannot be canceled unilaterally. Such a gift deed can be canceled only by resorting to legal remedy in a competent court of law.
In the above scenario , if gift is made by A to B when there is encumbrance or charge in favour of a bank , whether registration is possible as per section 123 of Transfer of Property act without Bank's consent.
Further ,under section 10 , if a gift is a onerous one , it can be canceled by only resorting to legal remedy . Suppose , if loans are not paid , then such onerous gift will have to revoked by an order of court .
Though onerous gift can be made , my question is whether it can be made without bank's consent as mentioned in the question. Whether it can be registered under section 123 without bank's consent?
What I stress again and again , bank's consent is necessary for gifting of shares pledged with them and in the situation , both A and B do not want bank's consent or ( gift to be made without bank's knowledge ) , is it possible and will it be valid one both under section 10 and 123 of the Transfer of Property Act.
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