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Thursday, Mar 18, 2004

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A deviation to `register'

N. R. Moorthy

The Depositories Act is not in sync with the Companies Act in the matter of register of members, says N. R. Moorthy

THE functioning and administration of the Depositories Act, 1966 are not in consonance with the provisions of the Companies Act, 1956, though in effect those two enactments should be complementary to each other. One such serious area of such conflict is discussed here.

Section 150 of the Companies Act mandates that every company shall keep a register of members containing the name, address and occupation of the members, the shares held by each member distinguishing each share by its number (expect where such shares are held with a depository), the date at which each person's name was entered in the register and the date at which any person ceased to be a member.

Section 151 of the Companies Act requires an index of members shall also be maintained where the register is not in such form so as to constitute an index.

In other words, where the register of members is maintained in alphabetical order there is no need for a separate index. Section 152 of the Act deals with the register of debenture holders. And Section 152A stipulates that the register and index of beneficial owners maintained by the depository shall be deemed to be a register and index of members.

It is significant that the statute identifies only a company (and not a depository) for the mandatory purpose of maintenance of register and index of members and the register maintained by the depository under Section 152A merely provides the necessary input.

Section 11 of the Depositories Act mandates that every depository shall maintain a register and index of beneficial owners in the manner provided in Sections 150, 151 and 152 of the Companies Act.

Section 13 of the Depositories Act provides that every depository shall furnish to the issuer company information about the transfer of securities in the name of beneficial owners at such intervals and in such manner as may be specified by the byelaws.

In practice, information provided by the depository to the company is at periodical intervals, either every week or at the time of book closure as intimated by the company in consultation with the stock exchange.

The information provided by the depository does not contain the date on which a person became a beneficial owner and the date on which he transferred his beneficial interest.

The information provided is, therefore, strictly not in conformity with Section 11 of the Depositories Act, as full and complete information is not provided so as to enable an issuer to comply with various requirements under Sections 150 and 151 of the Companies Act.

Laxity of information on a day-to-day basis also hampers compliance with listing agreement conditions and the disclosures to SEBI under the takeover code and insider trading regulations, specifically set out under the respective regulations.

The imbroglio

Under sub-section 2 of Section 163, it is mandatory for a company to throw open for instruction to the members public registers, indexes, and so on.

Under sub-section 3 any member, debenture-holder or other person may make an extract from such register or require a copy of any such index or register or part thereof on payment of prescribed fee. Failure on the part of the company to comply with such valid requisition is visited by a penalty of Rs 500 for the company and every officer of the company for every day during which the default continues.

It is incumbent upon the company to incorporate the information received from the depository in the register of members for the reason that under Section 152 A of the Companies Act such a register maintained by a depository shall be deemed to be a register and index of members.

If a requisition is received from a member for such information to be furnished as at specified date or period, the company will not, as pointed out, be able to respond to such a requisition in the absence of adequate information from the depository.

Moreover, the depository demands additional charges for any additional information over and above the weekly disclosure as contemplated under Section 13 of the Depositories Act. This adds to the cost burden of the company inasmuch as a compensation of Re 1 for every hundred words constitute a miniscule of the actual cost involved. This brings about an anomalous state where it will be difficult for a company to wriggle out.

It is hoped that the DCA, in consultation with SEBI, will sort out this anomaly and clarify the position in the interest of compliance

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