1. Bharat Petroleum Corporation Ltd. (hereinafter referred to as "the company"), has filed six references under Section 22A of the Securities Contracts (Regulation) Act, 1956, seeking confirmation of the opinion formed by the standing committee of the board of directors of the company in its meetings held on various dates to refuse registration of transfer of shares lodged by the Stock Holding Corporation of India Limited for the reasons stated in the references. Since the facts and circumstances of the case are similar and a common question of law is involved, all the references were heard together and are being disposed of by this common order with the consent of the parties.

2. The facts of the case are that the Stock Holding Corporation of India Limited (hereinafter referred to as the "SHCIL") lodged with the company certain shares seeking to transfer the said shares from its name, i.e., Stock Holding Corporation of India Ltd. to Stock Holding Corporation of India (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 the Stock Holding Corporation of India Limited to the Stock Holding Corporation of India Limited, i.e., the transferor and transferee would be one and the same person ; and

(e) As per Section 187C(3) of the Companies Act whenever there is a change in the beneficial owner, a notice is required to be given by such a beneficial owner to the company, while the ostensible owner would continue to be the same person.

3. In view of the refusal, the matter has been referred to us under Section 22A(4)(c) of the Securities Contracts (Regulation) Act. Copies of these references were served on SHCIL and it has filed its reply.

4. As per the reply, SHCIL is a limited company, promoted by seven financial institutions and it provides post trading and custodial services to its clients which include mutual funds. In the capacity of custodian of mutual funds, SHCIL has to follow the relevant provisions of the Securities and Exchange Board of India (Mutual Fund) Regulations, 1993. Custodial agreements between mutual funds and SHCIL as trustees have been approved by the Securities and Exchange Board of India according to which the custodian should establish and maintain separate accounts in the name of each of its clients and wherever necessary sub-accounts of each scheme of the mutual fund has to be maintained by the custodian. The properties held in the custody of the custodian are required to be kept in such a form that the custodian is able to identify in its own account the property belonging to each client and adequate records identifying securities held by the custodian for the account of its clients. It is also the duty of the custodian to ensure that the properties of the clients do not in any way get mingled up with the property of any other client. Therefore, the words "Account XXX Mutual Fund" are used for identifying securities of different mutual funds. In view of this, it is prayed that whenever SHCIL clients shares are traded on behalf of the mutual funds, its clients, particularly mutual funds shares are held in the name of SHCIL (Account XXX Mutual Fund). Therefore, because of the special functions of the SHCIL relating to mutual funds and in consonance with the provisions of the Securities and Exchange Board of India Regulations the special character and legal status must be recognised. The opinion formed by the committee of directors of the petitioner-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, in view of its special character as custodian and the various roles it has to play in full discharge of its functions to the benefit of its clients, namely, the mutual funds, that the company should be directed to register the shares in the name of the SHCIL (Account XXX Mutual Fund).

5. The petitioners in their rejoinder submitted that the internal management system adopted by the SHCIL as a custodian for various clients is not relevant to the present petition. The complexity of such internal management cannot and does not alter the established legal position that so far as companies are concerned, no notice of trust can be taken by the company as expressly provided under Section 153 of the Companies Act, 1956, and, therefore, as the position at law is today, the respondent is not entitled for transfer of shares since Section 153 of the Companies Act, 1956, prohibits it and also if it is done the transferor and the transferee will be one and the same party. It is further argued that upon execution of the transaction the new beneficiary will be entitled to give notice under Section 187C of the Companies Act, 1956. As regards the loss of revenue, it is the case of the company that it does not make any difference to the existing legal position as regards non-recognition of any trust by a company and hence it cannot be a ground for effecting transfer of shares of the company. As regards the allegations of the respondent that some companies have transferred the shares, it is stated that wrong methods or actions adopted by any company do not justify wrongful acts on the part of others and the petitioner cannot be expected to violate the provisions of law just because some other companies may have done so. In the premises, the petitioner has prayed that the opinion formed by the company be confirmed.

6. Mr. Tulzarpurkar, learned counsel appearing for the petitioner, submitted that the position in law is quite clear that according to Section 153, the companys shares cannot be held in trust and the company cannot take notice of the trust. Wherever shares are held in trust, Section 187C comes into play whereby the beneficial owner as well as the ostensible owner are required to give notice to the company and in turn, the company is required to take note in its record and also file relevant returns with the Registrar of Companies, further submitted Mr. Tulzarpurkar. 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 and Exchange Board of India. He invited our attention to Regulation 3 of the Securities and Exchange Board of India Mutual Fund Regulations whereby every mutual fund is required to be registered with the Securities and Exchange Board of India and as per Regulation 25 of the said Regulations, each mutual fund shall have a custodian who is not in any way associated with the asset-management company, for the sake of keeping the securities or participating in any clearing system on behalf of the clients. He further submitted that the SHCIL acts as an additional/special trustee/custodian for various mutual funds. He further referred to the guidelines for foreign institutional investors issued by the Securities and Exchange Board of India wherein it is stipulated that registered FIIs can appoint an agency approved by the Securities and Exchange Board of India to act as a custodian of securities and for confirmation of transactions in securities, settlement of purchase and sale. He further submitted that as a custodian of a particular mutual fund, the respondent is vested with a special character and legal status which must be taken cognizance of by and under all relevant provisions of law including the Companies Act. He also submitted that since special regulations have been formulated they would override the provisions of the Companies Act so far as they are inconsistent with the regulations formulated by the Securities and Exchange Board of India. He then submitted that the regulations require custodians to maintain separate accounts for securities held for each of the mutual funds and sub-accounts for each scheme of such fund and having regard to the volume of transactions handled by the SHCIL, for the purpose of identification of the securities and proper accounting of dividend, bonus, etc., it is necessary for the SHCIL to get the securities registered in their name "Account XXX Mutual Fund".

8. We have considered the pleadings of the parties and the arguments. Before we proceed with the merits of the case, it is necessary to point out that even though the company has rejected the registration of transfers on five grounds as indicated in the resolutions, there is nothing to indicate therein as to under what provision of Section 22A of the Securities Contracts (Regulation) Act, the board has decided to refuse registration of the transfer. Only in the petition 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") 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 theand examine whether the standing committee of the board of directors was correct in refusing the registration of transfers.

10. Now, Section 153 of thereads ;

" No notice of any trust, express, implied or constructive, shall be entered on the register of members or of debenture-holders."

11. Learned counsel for the company argued that if the transfers are registered in the name of Stock Holding Corporation of India (Account XXX Mutual Fund), it would mean taking note of SHCIL as trustees of "XXX Mutual Fund" and in doing so, the company would be violating the provisions of Section 153. However, learned counsel for SHCIL argued that in view of the Securities and Exchange Board of India guidelines on mutual funds and in view of the custodial agreement, approved by the Securities and Exchange Board of India, SHCIL is bound to record, account and keep all holdings in respect of individual mutual funds separately and for this, recording on the register of members of the company the securities with proper identification as "XXX Mutual Fund" would facilitate complying with the provisions of the Securities and Exchange Board of India Regulations as well as the custodial agreement. We have earlier noted the argument of learned counsel for SHCIL regarding difficulties in respect of receipt of dividends, right/bonus issues offered in respect of the shares held by SHCIL, loss of revenue to the Government by not executing transfer forms, etc. It is the stand of the company that they acted in accordance with the provisions of law, while it is the stand of SHCIL that they have to follow the guidelines of the Securities and Exchange Board of India and also the custodial agreement with the Securities and Exchange Board of India. In so far as Section 153 is concerned, it is clear and transparent that no notice of any trust shall be entered on the register of members or debenture-holders. This is a mandatory and prohibitive clause as it is evident from the negative words used therein. No exceptions have been provided therein in respect of shares held in trust by companies on behalf of mutual funds. Even in the Securities and Exchange Board of India Act, 1992, under which the Securities and Exchange Board of India has issued guidelines for mutual funds, there is no provision to indicate that the later Act supersedes the provisions of Section 153 of the Companies Act, 1956. As a matter of fact Section 32 of the 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 theto 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 provisions of law, falls within Section 22A(3)(c) of the Securities Contracts (Regulation) Act.

12. In this connection, we feel it necessary to make the following observations :

Section 153 corresponds to Section 33 of the Companies Act, 1913, and Section 117 of the English Act, 1948 (presently Section 360 of the English Act, 1985). As per Ramaiyas commentary, the object of this Section is : (a) to relieve the company from any obligation to take notice of equitable interest in its shares, that is to say, to take notice of rights of third parties in respect of the shares registered in the names of any members ; (b) to preclude any person claiming an equitable interest in shares from treating the company as a trustee in respect thereof; in other words, the purpose of the section is that the company will treat as members of the company only those whose names are registered in the register of members and no third party having any beneficial interest in the shares would have any claim against the company in any manner. However, we find that, later on, the spirit of the provisions of this section has been diluted by insertion of Section 153B in the year 1963 and more so by Section 187C inserted by the Companies (Amendment) Act, 1974. Even though the principle underlying Section 153 is that no notice shall be entered on the register of members, according to Section 153B, in certain circumstances, any person holding shares in trust will have to make a declaration to the public trustee and also to the concerned company. It means the company does take notice of trust in these circumstances, but nothing was to be entered on the register of members with regard to the trust. Section 187C, however, provides that if a person whose name is entered on the register of members and does not hold beneficial interest in such shares, he should make a declaration to the company to that effect. In the same way, anyone who holds beneficial interest in shares but in whose name the shares are not registered has to make a declaration to the company. Section 187C(4) further provides that notwithstanding the provisions of Section 153, any declaration made under Section 187C will have to be noted in the register of members. From the above, it is clear that while Section 153 stipulates that no notice of any trust shall be entered on register of members, on the other hand, Section 187C stipulates 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 ultimate beneficiaries of the mutual funds. We find that SHCIL is the custodian of a large number of mutual funds. The shares purchased on behalf of all these mutual funds are held in the name of SHCIL which is recognised by the company as a member in respect of all such shares. In the absence of separate identification in the register of members as sought for by SHCIL, besides practical difficulties, there could be other consequences some of which have been highlighted by SHCIL itself in its reply. For instance, if there is any inter se transfers between mutual funds for which SHCIL is the custodian, such transfers would be effected without going through the provisions of Section 108 of the. If that happens, as rightly pointed out by SHCIL, there would be enormous revenue loss by way of stamp duty as there may not be any instrument of transfer. Likewise, if all the shares are held in the name of SHCIL there is every possibility of the provisions of Clause 40A of the listing agreement being attracted.

14. We are, therefore, of the view that with the insertion of Section 187C in the Companies Act, the provisions of Section 153 of thehave more or less become redundant and, therefore, deserve to be removed from the statute book. As a matter of fact, it has now become inevitable in view of a large number of mutual funds that are coming into operation in the present liberalised set-up and who have to have custodians to act as trustees. We are conscious that in the present ever-growing capital market, there have to be regulatory measures, but it is essential that while regulatory measures are formulated, they are in consonance with the provisions of other related laws.

15. As far as the present case is concerned, as Section 153 is still on the statute book and because of its mandatory nature, we have no option but to confirm the decision taken by the board of directors to refuse registration of the impugned shares and accordingly, we confirm the said act of the company.

16. The references are accordingly answered, and thus stand disposed of. No order as to costs.