Provision under The Companies Act, 2013
No judgments have been cited here, as it has been even 4 months from now, when the act came into force. This does not means we should forget old Companies Act, 1956 which will be applicable for some time and we have to come back for to it in practice; for forensic or other historic purpose.
Given Under Section 56 of the newly drafted act of 2013, which requires A company to register a transfer of securities or interest of members only when such a proper instrument of transfer; duly stamped, dated and executed by or on behalf of the transferor and transferee and specifying the name, address and occupation has been delivered to the company by either party within a period of sixty days from date of execution, along with the certificate of security or the letter of allotment of securities. Free transferability of share is one essential condition for Company form of business, subject to some restrictions under private companies. New Act, deals with substantially.[24]
Section 56 of the new Act also talks about the consequences, if the instrument of transfer which has to be stamped and signed gets lost or not delivered to the place in that case, the company may register the transfer on an indemnity bond.
On receipt of intimation, a company has power to register transmission of any right to securities by operation of law from any person to whom such right has been transmitted. Where an application is made by transferor alone and relates to partly paid shares, the transfer shall be registered by the company only after giving notice of the application to the transferee, and transferee gives no objection to the transfer within two weeks from the receipt of notice.
The transfer of any security or other interest of a deceased person in a company made by his legal representative shall be valid as if he had been the holder at the time of the execution of the instrument of transfer.
Penal provision (Section 447)
Where any default is made under this section, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees liable under section 447 of the Act.
Punishment for personation of shareholder (Section 57)
If any person deceitfully personates as an owner of any security or interest in a company, or of any share warrant or coupon issued in pursuance of this Act, and thereby obtains or attempts to obtain any such security or interest or any such share warrant or coupon, or receives or attempts to receive any money due to any such owner, he shall be punishable with imprisonment for a term which shall not be less than one year but which may extend to three years and with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
Simply, any person, who deceitfully represent himself as holder of any security or interest in a company shall be punishable with imprisonment and with fine, minimum fine being one lakh rupees.
Restrictions on the transferability of shares in Public and Private Companies
In Messer Holding v. Shyam Madanmohan Ruia[25], The Judge observe that a situation involving a restriction of transferability of shares in a private company has to be contrasted with cases involving public companies where the law provides for free transferability. It is thus held that free transferability of shares is the norm in the case of shares in a public company.
Private limited company occupies a unique position in the scheme of the company law. It enjoys several privileges and exemptions as opposed to a public company. It is immune from a number of restrictions, controls and regulations, which a public company is subjected to. It has the character of ˜close corporation™. The most vital privilege a private company enjoys is lesser governmental control and interference. It is a blend of partnership and a limited liability body corporate. It enjoys the benefits and advantages of both.
Section 3(1)(iii) of the Companies Act, 1956 defines ˜private company™[26], and stipulates four ingredients that constitute a company as a private company. One of the four ingredients of the definition is that a private company, by its articles, restricts the right to transfer its shares. Any restrictions imposed by the articles are binding upon the members of the company by virtue of Section 36[27] of the Act. To what extent and in what form the right to transfer can be restricted has been left to the discretion of these companies, the Act does not provides any direction in this regard. However, conventionally, certain common restrictive provisions are found in the articles of most private companies.
Two chief ones of them are : one, the directors are given absolute and uncontrolled discretion in the matter of approval of transfers for registration, and second, the members are given the right of pre-emption for purchasing the shares offered by any member. There is, however, nothing to limit the restrictions which a company™s articles may place on the right of transfer; but there cannot be complete fetter on the right.
Although private companies are free to impose any restrictions, however in character, on the rights of transfer and prescribe any manner in which the shares can be transferred, yet the mandatory provisions of Section 108 of the Act are as much applicable to the transfers of shares of private companies as they apply to public companies. Furthermore, the articles laying down the manner of transfers are equally binding upon the members and the company as well.
It should be noted that, as held by the Supreme Court V. B. Rangaraj v. V. B. Gopalkrishnan[28], the articles of a private company may contain provisions restricting the right to transfer of shares, but any restriction outside the articles (e.g., a private agreement between the shareholders) is inoperative and unenforceable. The only restriction on the transfer of shares of a company is as laid down in the articles. A restriction which is not specified, is not binding either on the company or on the shareholders. Thus, an agreement restricting the right to transfer, contrary to or inconsistent with the provisions in the articles, is not enforceable.
