Avail 20% discount on updated CA lectures for Dec 21 .Use Code RESULT20 !! Call : 088803-20003

ICICI

Share on Facebook

Share on Twitter

Share on LinkedIn

Share on Email

Share More


Update:

This article is based on S. 154 of Companies Act, 1956. It is no longer valid since Companies Act, 2013 came into effect. S.91 of Companies Act,2013 along with Rule 10 of Companies (Management and Administration) Rules, 2014 is now applicable.

INTRODUCTION

Section 154 of the Companies Act, 1956 deals with closure of register of members or debenture holders but the section does not elaborate the object and purpose of such closure. Clause 16 of the Equity Listing Agreement deal with closure of transfer Book and fixing of Record Date and the purpose for which such book will be closed. The provisions of section 154 apply to closure of register of members but does not refer to closure of Register of Transfer whereas Clause 16 talks about closer of transfer Book and fixing of Record Date and not about closure of Register of Members. This Article is trying to further elaborate the combination of Section 154 and Clause 15 and 16 of the Listing Agreement.

There is no compulsion on the company to close its Register of Members or any other book for any period. A company is not bound to close its Register of Members for any single day. But if the company whether public or private limited company, intended to close. The provisions of section 154 will have to comply with. The Madras High Court has been of the view that the section is mandatory if the Company choose to close its register of members it would have to comply with the requirement of this section. [Talyar Tea Co. v. Union of India, (1991)71 Com Case 95 (Mad); Gibson v. Barton, (1875)LR 10 QB 329.]

PURPOSE

Section 154 deals with book closures but the section does not elaborate the object and purpose of book closure. Clause 16 of the listing agreement however indicates the purpose of book closure. It is for declaration of dividend, issue of bonus/right shares, etc. The purpose of book closure is to keep a cutoff date, for deciding the members who would be entitled for the benefits of dividend/right and bonus shares and not for determining the voting rights. [Jose Pulikken v Damien Subsidies & Kuries Ltd. (2000) 39 CLA 180 (CLB)].

Purpose under the Companies Act, 1956:

The purposes behind closure of Register of members under section 154 may be declaration of a dividend, issue of bonus shares, issue of right shares, holding of Annual General Meeting, etc. The purposes behind closure of Register of debenture holders may be payment of interest, conversion of debentures into shares, redemption of debentures, etc.

Purpose under Listing Agreement

The Clause 16 of the Listing Agreement deal with closure of register of transfer book and for Record Date are:

- Declaration of dividend.
- The issue of right shares.
- The issue of bonus shares.
- Issue of shares for conversion of debentures or of shares arising out of right attached to debentures.
- At the time of the Annual General Meeting.
- Buy back of share capital.
- For such other purposes as the Stock Exchange may require.

PERIOD OF CLOSURE OF REGISTER OF MEMBERS

Section 154 of the Act provides that the Register of members can be closed for an aggregate period of 45 days in a year but not exceeding 30 days at a time. A company may decide the book closure subject to the compliance with certain requirements under the Act. Whenever there arises a need to close Register of members, a company may after giving not less than seven days previous notice by advertisement in some newspapers circulating in the district in which the registered office of the company is situated, close the Register of members or the Register of debenture holders for any period or periods not exceeding in the aggregate forty-five days in each year, but not exceeding thirty days at any one time. The company will give to  the Stock Exchanges where the shares of the Company listed, notice in advance of at least seven working days, or of as many days as Stock Exchanges may from time to time reasonably prescribe, stating the dates of closure of its transfer books (or, when the Transfer books are not to be closed, the date fixed for taking a record of its shareholders or debenture holders) and specifying the purpose or purposes for which the transfer books are to be closed (or the record is to be taken) and to send copies of such notices to the other recognized stock exchanges in India.

The closure of Register is cloaked with the right to refuse the transfer of shares/debentures. Record date is an alternate for closing the registers. The purpose of closing the register is to get registers update and to fix a cutoff date for the purpose of payment of dividend or issue of right and bonus shares. The purpose can also be achieved by taking a record date for a day.

As per the Listing agreement, the listed companies are required to give advance notice of atleast 21 days before closure of books and in the case of dematerialized securities; the notice period is reduced to 15 days.  

ADVERTISEMENT

Section 154 lays prior condition of an advertisement of such closure in some newspapers circulating in the district in which registered office of the Company is situated. The closing must be advertised in a newspaper. The word “newspaper” should be taken in its popular sense. It would be adequate if an advertisement is issued in one English newspaper circulating in the district in which the registered office of the company is situated by giving not less than seven days advance notice from the commencement of the book closure.

Section 53(3) provides that a document advertised in a newspaper circulating in the neighborhood of the registered office of the company shall be deemed to be duly served on the day on which the advertisement appears, on every member of the company who has no registered address in India and has not supplied to the company any address within India for giving notice to him.

Publication in the daily official list of stock exchange cannot be said to be advertisement in newspaper and is not in conformity with requirements of section 154(1). [Talayar Tea Co. Ltd. v Union of India (1991) 71 Comp Cas 95 (Mad)].

The advertisement published under section 154 contains the following:

(i) Date of closing from…….. 20   to……….20.   (both days inclusive)

(ii) Days, date, time and venue of the General Meeting.

(iii) Purpose of closure.

Department Clarification on Advertisement : It appear that some companies are in the practice of issuing notices in the newspapers regarding closure of “transfer book” apparently pursuant to section 154 of the Companies Act, 1956 without, making any reference in the notice either to the aforesaid section or to the  closure of the register of members or of debenture holders. The notice issued by some companies, on the other hand refer to the closure of ‘transfer book’ besides the register of members and/or debenture-holders. The divergence in the practice followed by companies in this regard is likely to create confusion in the mind of the shareholders. As section 154 specifically refers only to the register of members and debenture holders, it is considered desirable that notice issued by companies pursuant to the section should expressly refer to the closure of said register only. The “Transfer Book” or “Share Transfer Book” of a company, not being statutory documents, any notice of their closure under section 154 is neither necessary, nor would be in order, if the said books are different from Register of Members or Debenture Holders. {Circular No. 8/57/(154)-64-PR, dated 30-3-1965}

PENALITY

If the Register of members or of debenture holders is closed without giving the notice provided in sub-section (1) of section 154, or after giving shorter notice than that so provided, or for a continuous or an aggregate period in excess of the limits specified in that sub-section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five thousand rupees for every day during which the register is so closed.

Some important points to be kept in mind before comply the provisions of closure of books or fixing of record date:

1. Section 154 applies to all companies, public and private.

2. This section extended to the register of both members and debenture holders.

3. When a company is opting to close its register of members, compliance of this section is mandatory. [Talayar Tea Co. Ltd. v Union of India (1991) 71 Comp Cas 95 (Mad)].

4. During the closure of register of members, the company is obliged to make certain entries during the period of closure, such entry relating to registration of probate, notice of change of name and address, letter of administration court order etc. {Killick Nixon Ltd. v. Dhanraj Mill Pvt. Ltd., (1983) 54 Com Case (Bombay)}.

5. No need to give closure of register of transfer book at the time of AGM of the company, unless it is a listed company.

6. Fixing of record date is not required, if the company is not declaring any dividend, issue of bonus/right share or buy back of shares, at the time of AGM or for such other purposes as the Stock Exchange may require.

7. This section not says to give public notice for closing of register of transfer of the company.

8. The register of members will be kept open for inspection during closure period.

9. In Unlisted public company or private company can close their register of transfer book for uncertain period.

10. The purpose of closure of register of members or debenture holders is required to be given in advertisement.

Thanks & Regards
CS Ajay Mishra
Email: ajaygkp@gmail.com

"Loved reading this piece by Ajay Mishra?
Join CAclubindia's network for Daily Articles, News Updates, Forum Threads, Judgments, Courses for CA/CS/CMA, Professional Courses and MUCH MORE!"






Category Corporate Law, Other Articles by - Ajay Mishra 



Comments


update