Legal Opinion on keeping on hold the shares submitted for dematerialisation

Mr. Z

Address….

Dear Sir,

RE:     Legal Opinion on keeping on hold the shares submitted for dematerialisation.

We refer to your letter no. …………… dated 22 November 2006 on the above subject.

From your letter it appears that Mr. x, one of the Sponsor Shareholders of Bank 1 and an Ex-Director has sold 31,000 (thirty one thousand) shares without any declaration as per SEC Rules and without offering the shares first to the other Shareholders of Group ‘A’ as per stipulation of the Articles of Association of the Bank vide Clause 41 (Transfer of Sponsor’s shares).

He has also submitted a Jumbo Certificate of 3,06,000 shares for Dematerialisation through CDBL. As per By-Laws of CDBL, it is to be responded by the Bank within 2 (two) working days.

Since. Mr. x sold the said shares in an irregular way, which has been reported to the SEC (i.e. without declaration) and he may do so again, pending SEC’s reaction, the Bank has kept dematerialisation of his shares in abeyance.

In these circumstances you have requested us to give our legal opinion as to whether the aforesaid shares can be held up until the matter is settled.

OUR OPINION:

From your letter it appears that Mr. x has sold 31,000 shares. But it is not mentioned to whom these shares were transferred to. If the shares have been transferred to his father, mother, spouse, brother, sister, son, daughter, grandson or granddaughter then according to Article 41 (2) of the Articles of Association of the Bank then the shares need not be offered to the Sponsor Shareholders of Group ‘A’ in accordance with Article 41 (1).

But if Mr. x has sold the shares to an outsider without any declaration as per SEC Rules and without offering the shares first to the other Shareholders of Group ‘A’, then he has acted erroneously. In our opinion, the Bank has acted properly in reporting the irregular selling of shares to the SEC.

Mr. x has also submitted a Jumbo Certificate of 3,06,000 shares for Dematerialisation through CDBL. As per By-Laws of CDBL, it is to be responded by the Bank within 2 (two) working days. Pending SEC’s reaction, in fear that Mr. Mr. x may sell shares irregularly again, the Bank has kept dematerialisation of Mr. x ’s shares in abeyance. In our opinion, the Bank should inform CDBL as the concerned authority about the matter and seek their necessary permission regarding withholding the shares until the matter is settled.

If you have any further query, please do not hesitate to contact the undersigned.

Thanking you.

Yours faithfully,

………………….

For: “The Lawyers & Jurists”

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