Joint holder cannot suo moto ask for splitting of shares

S D Israni

SD Israni, Practising Company Secretary

It is a common practice that investors normally apply for / acquire shares in a company in joint names. Having shares in joint names has several advantages. However, so far as the Companies Act, 1956 (the Act), is concerned, it recognises the first named shareholder for the purpose of sending notices of meetings as well as dividend that may be declared by the company. However, for certain purposes it is necessary for all the shareholders to jointly approach the company eg transfer of shares, etc.

When the holders of certain shares in a company intend to transfer the shares held by them jointly, then all the shareholders have to duly sign the transfer form and hand over the same along with the relevant original share certificates to the buyer.

Similarly, if the holders intend to change the order of names in which the shares are registered ie transposing of names of joint holders or they wish to have the shares split into smaller lots or consolidated into larger lots, it is necessary for all the joint holders to sign the transfer form / request for splitting, as the case may be.

However, problems arise when there are differences amongst the joint shareholders and some of them wish to have the portion of their shares separated from the other joint shareholders. In such a situation, the question that arises is, can a joint shareholder ask the company to split the shares so as to give him the portion of shares claimed to be belonging to him? A somewhat similar question had come up for the consideration of the Company Law Board (CLB) in the case of Dr Rajiv Das v United Press Ltd, and others [2001 44 CLA 268 CLB].

In this case, the petitioner came up with a case that he held a total of 8,143 fully paid-up equity shares of Rs.10 each in the Respondent-company (the company), out of the said holding 3,738 fully paid-up equity shares stood jointly in the name of his mother Shrimati Kanti Devi (2nd respondent) and himself of which the 2nd respondent was the first named shareholder.

Later, differences and disputes had arisen between the 2nd respondent and the petitioner. And the petitioner had reason to believe that the 2nd respondent may take undue advantage of her voting rights. Consequently, the petitioner had applied to the respondent-company to split his joint holdings of 3,738 equity shares, in two equal lots where each shareholder shall be the first named in one lot so that the voting right could be used by both the persons in respect of their respective joint holding.

The company, however, asked the petitioner to lodge share transfer forms and the share certificates for the said shares before the shareholding could be split in two lots. According to the petitioner, the 2nd respondent had kept the certificates in her custody and just to avoid the split in holding, she had refused it under some ploy. On the contrary, several allegations were levelled by the respondents against the petitioner.

It was stated by the company that it had conveyed to the petitioner that as per the mandatory provisions of the Act, transfer deeds executed by both the joint-shareholders duly stamped and completed were required to be submitted for splitting the shares. As the petitioner had failed to comply with the mandatory requirements, therefore, it was submitted that the petitioner was not entitled to the relief sought for in that position.

In the rejoinder, the petitioner denied and disputed the allegations made in the reply filed by the respondents, and reiterated his contentions made in the petition. He further submitted that he had every right to have his name transposed as requested so that he can have the voting rights for his part of the shares. The petitioner contended that the refusal of the company to split the 3738 shares into two lots was illegal as he was entitled to half of the said shares. It was further argued by the petitioner that the request for splitting of the shares in favour of either of the joint holders could be done by any of the holders as both were members of the company.

Moreover, the petitioner also stressed that there was no need for any consent from the other holder nor the original certificates and transfer deeds were required to be submitted. Consequently, in view of the petitioner, the refusal by the company to do so was without sufficient cause. The petitioner claimed support from the decisions of the Chancery Division in the case of Burns v Seimens Bros Dynamo Works Ltd, [1919 1 Ch 225], the decision of the Bombay High Court in the case of Narandas Munmohandas v Indian Manufacturing Co Ltd, [AIR 1953 Bom 443] and the decision of the Punjab High Court in the case of Jarnail Singh Harjit Singh v Bakshi Singh Sham Singh [AIR 1960 Punj 455].

On the other hand, the respondent-company contended that the petitioner’s request for splitting of the joint shares could not have been considered without the share transfer deeds duly executed by both joint holders and duly completed and stamped were lodged with the company together with the relative share certificates as required under the Act. The company placed reliance on the decision of the Calcutta High Court in the case of Hemlata Saha v Stadmed (P) Ltd [1964 68 CWN 1007].

The CLB considered the rival contentions and upheld the stand of the company and held that in its view the stand taken by the respondent-company was neither illegal nor without sufficient cause. Hence, the petition was rejected by the CLB.

Conclusion
Investors should be conscious of the fact that being a joint holder confers very limited rights and they cannot suo moto demand a transfer or splitting of shares. A very important issue that needs to be noted by them is that in case of a joint holding, in any request for transfer of shares, transposing of the names ie changing the order in which the names appear on the share certificates/ members register or seeking splitting of shares, etc, it is necessary that such a request is made in accordance with the requirements of the Companies Act, 1956.