The Hindu Business Line : Transfer of Sivasankaran's shares: TMB told to decide on `group'

THE Madras High Court has directed the board of directors of Tamilnad Mercantile Bank to first form "an opinion as to whether the individuals who have sought transfer of shares, the quantity in respect of each individual being below 5 per cent, at all constitute `a group.'" The court passed this order while considering an appeal by seven members of the Nadar community regarding the transfer to them of the 34 per cent of the shares of TMB, acquired by them from Mr C. Sivasankaran.

"If the board of directors are of the view, on the basis of the information provided and such further information as they may consider it appropriate to call for, that the individuals do not constitute a group, then the question of referring the matter further to the Reserve Bank of India does not arise," a Division Bench, comprising Mr Justice R. Jayasima Babu and Mr Justice M. Karpagavinayagam, held.

In its eight-page order, the bench noted that the Reserve Bank had declined to give acknowledgement for the transfer of shares to the four companies, which were said to be controlled by the person who headed the Sterling Group, as the RBI, inter alia, was not satisfied with regard to the sources of funds of those companies which had a "very small capital base" and the extent of their involvement in other businesses.

The Bench, while directing the board to consider the question of transfer of these shares "immediately," noted that a copy of the agreement entered into with the vendor by one of the transferees, similar agreements having been entered into by other transferees, and information regarding the persons who had purchased the shares, had been handed over to the senior counsel for the bank. Those papers should also be placed before the board when they considered the question of transfer, and the board should, if necessary, and after due consideration, "take a decision in accordance with law with regard to the transfer of shares sought by these seven persons. The transferors and the transferees might also on their own submit such further documents and information as might be relevant."

The Bench said it noted the submission made by the appellant's counsel that one of the clauses in the agreement between the transferor and the transferees, which required to file a declaration under Section 187C of the Companies Act, would be deleted by mutual agreement and necessary deed and information would be produced to the board of directors.

The Bench further held that as the book closure date expired on Friday (March 5, 2004), and as this exercise could not be completed in the course of the day, the book closure date was being extended up to 5 p.m. on March 10 so that in the event of the transfer being approved, the purchasers could come on record as members in respect of those shares and exercise the voting rights in respect of those shares at the general body meeting.

No jurisdiction of subordinate courts outside Tuticorin: The Bench recalled an order passed by a single judge of this court on March 11, 1998, to the effect that any suit against the bank pertaining to the general body meeting or the board of directors' meeting or committee meeting should be instituted only where the registered office of the bank was situated, namely, at Tuticorin. The currency of that order was subsequently extended to remain in force for a period of three years, commencing from July 19, 2002, that is, till July 18, 2005.

Since all the subordinate courts were bound by the order of this court, the board of directors of the banking company should not be bound by the orders of injunction said to have been issued by subordinate courts outside Tuticorin. Those suits should stand transferred to the Sub-Court, Tuticorin. The ex parte orders of injunction said to have been made by those subordinate courts shall be of no effect and shall stand vacated, the Bench held.

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