Proper instrument of
transfer means an instrument of transfer which complies with all the
formalities required by the Act including stamp duty to be affixed thereon. A
company registering an instrument of transfer which is not duly stamped., it
will be doing an act which Is unlawful. Transmission by operation of law is not
a transfer. Before any transfer of shares by or in favour of non-residents
is considered, it is necessary to 4 see whether it contravenes any provision of
the Foreign Exchange Regulation Act, 1973. A company may be restrained by
injunction from effecting a transfer where the requirements of this section are
not complied with. A transfer effective between transferor and the transferee
is not effective as against the company and any person without notice of the
transfer until the transfer is registered in the company's register. In all
cases only a bona fide holder will
have the right to fill in his name or the name of a person for whom he is
acting under an authority and apply for registration of the transfer. A
transfer when accepted relates back to the date of execution of the instrument.
If an instrument of transfer does not bear the stamp before or at the time of
execution, the Directors are under no obligation to register the transfer.
Without production of the share certificate along with the application for
transfer, the transfer cannot be registered and if registered the registration
will be void. Where the heirs of a deceased joint shareholders had obtained a
succession certificate and the surviving joint shareholder had disclaimed
interest in the shares, the company ought not to refuse registration of the
shares in the name of the heirs of the deceased joint shareholder.
Where articles of
association of a company authorise directors of a company to sign share
transfer from on behalf of a member, the execution of a transfer form by a
director on behalf of a member who has been expelled and therefore refuses to
sign, would be valid. Gowthanzi Solvent
Oils Ltd. v. Mallina Bharthi, (2001) 105 Com Cases 710 (AP). A mere
agreement" to sell shares does not deprive a member from exercising his
rights as a member and the company can take cognigance of the transfer only
when the transfer instrument alongwith share scrips are lodged with the
company. Martin Castelino v. Alpha Oinega
Ship Management (P.) Ltd., (2001) 104 Com Cases 687 (CLB).
This section does not apply
to Government companies with respect to shares held by nominees of Government.
Notification GSR 597(E), dated 16th July, 1985.
Maintaining Share Transfer Register
S. 108-Share transfer
register-Board Resolution
"RESOLVED that a share transfer register of the company be maintained in the city of on and from in which all shares of the company that are listed on Stock Exchange would be directly transferable."
PRACTICE NOTES
1. Listing Requirement.-Clause 14
of the Listing Agreement requires that if the exchange so requires, in view of
the volume of business in the listed security, the company will arrange to
maintain a register of transfer in that particular city wherein the transfers
would be directly recorded.
2. Periodical Updatation.- The Register of Members will be
periodically updated based upon the entries in the share transfer Register.
Share Transfer Committee
RESOLVED that the Share
Transfer Committee of the Board be and is hereby formed with Mr. ABC, Mr. XYZ
and Mr. PQR directors of the company.
RESOLVED FURTHER that the
said Share Transfer Committee be authorised to approve share transfers of
15,000 equity shares of the company and below.
PRACTICE NOTES
1. Authorisation in the articles of association- To delegate powers of the
Board to a committee there should be a specific authority given in the articles
of association of the company.
2. Proceedings at the committee meeting- A committee
should elect anyone of its member as Chairman of its meeting. If no such
Chairman is elected, or if at any meeting the Chairman is not present within
five minutes after the time appointed for holding the meeting the members
present may choose one of their members to be the Chairman of the meeting. A
committee may meet and adjourn as it thinks proper. Questions arising at any
meeting of a committee should be determined by a majority of votes of the
members present and in case of an equality of votes the Chairman will have a
second or casting vote.
3. Certain powers cannot be delegated- Sub-section (1) of
section 292 the power to make calls on shareholders in respect of money unpaid
on their shares and the power to issue debentures cannot be delegated to a
committee of a Board and must be exercised only in Board meeting.
Approval of Transfer of shares
S. 108-Transfer of shares-Board Resolution
"RESOLVED that transfers of equity shares as per the entries in the Share Transfer Book under serial numbers to both inclusive, produced at this meeting, be and are hereby approved."
PRACTICE NOTES
1. Duly stamped instrument of transfer accompanied by
certificate/letter of allotment to be lodged with company.-Pursuant to
the provisions of section 108, a request for registration of transfer of
shares/debentures should be in proper instrument of transfer duly stamped and
executed by or on behalf of the transferor and by or on behalf of the
transferee and accompanied by the share certificate relating to the shares
transfer or the letter of allotment.
2. Duty of Company to scrutinize documents submitted for transfer of
shares.-While accepting the aforesaid documents, the instrument of transfer
should be carefully checked. Every instrument of transfer (prescribed Form
being 7B) should bear the stamp of presentation to the Registrar of Companies
and the transfer of shares in such instrument duly signed by the parties should
be presented (a) in the case of shares dealt in or quoted on a recognised Stock
Exchange at any time before the date of closing of Register of Members or
within twelve months from the date of presentation whichever is later; (b) in
any other case, within two months from the date of such presentation.
Approval of transfer of
shares (Another format)
S. 108-Approval of transfer of shares-Board Resolution
WHEREAS the share transfer Nos and along with the register of share transfers were placed before the Board;
AND WHEREAS the Board
persued the same and formed an opinion that they are in order;
"NOW THEREFORE IT IS RESOLVED that the share
transfers bearing transfer Nos to as appearing in the register of transfers be
and are hereby approved and the register of transfers be initialed by the
Secretary of the Company for the purpose of identification and that the
aforementioned share transfers be authenticated by any of the following persons
as authorised signatories of the company, namely and
PRACTICE NOTES
1. Presentation before the prescribed authority.-Every instrument of transfer
before it is signed by or on behalf of the transferor and before any entry is
made therein should be presented before the prescribed authority within twelve
months before the lodgment or any time before the date on which the register of
members is closed, which ever is later in case of shares dealt in or quoted on
a recognised Stock Exchange. For other companies the time of lodgment of
instrument of transfer should be with 2 months
of presentation to be prescribed authority.
2. Affixation
of adhesive stamps.-Adhesive stamps of paise fifty per
rupee for one hundred worth of shares in value should be affixed on all instrument
of transfers and cancelled on or before signing.
Transfer of shares and issue of new share certificates
S. 108-Transftr of shares
and issue of new share certificates in lieu of old Board Resolution
"RESOLVED that the equity share transfers as per the entries in the Share Transfer Book under serial numbers to both inclusive, as produced at this meeting, be and are hereby approved, and that the corresponding share certificates numbers to representing equity shares, be issued to the respective transferees pursuant to the provisions of article of the Articles of Association of the company and that the old certificates being held by the transferors be cancelled."
PRACTICE NOTES
1. Company issuing fresh certificate in case of transfer should cancel
old certificates.-Some of the companies, especially
those having large shareholders and resorting to computerisation of the system
of share transfers and their recording, prefer the issuance of fresh
certificates rather than recording-the name of the transferor in a cage
provided at the back of the share certificate. In such a case, old certificates
belonging to the transferors should be cancelled and replaced by fresh
certificates.
2. Company to comply with-Rule 4(3) of the Companies (Issue of
Share Certificates) Rules, 1960, where duly executed
Instrument/Certificate/letter of allotment lost.-First proviso
to section 108(l) provides for the cases where the instrument of transfer duly
signed by the transferor and transferee is lost. However, if the share
certificate or allotment letter is also lost, then Rule 4(3) of the Companies
(Issue of Share Certificates) Rules, 1960, must be followed.
3. Restriction on currency of blank transfer.-Sub-section (IA) of section 108 is intended only
to restrict the period of currency for blank transfer of shares and not for
prohibiting it absolute ly . 2
4. "Record date" for transfer of shares.-The term
"record date" should be understood with reference to the intention of
the company fixing such date. If any company fixes a record date and
declares that share transfers received by the company between that date and its
Annual General Meeting will not be taken into account for the purpose of paying
dividend, then "record date" means the date of closing the register
of members and, thus, it should be read along with section 108(IA) .
5. Prescribed authority for endorsing share transfer forms.-The following
officers have been declared as "prescribed authority" for endorsing
share transfer forms under section 108 (IA).
List of prescribed authority
for endorsing share transfer forms under section I 08(l A):1. S.O. No. 2776, dated 19-9-1966
1. All
the Registrars of Companies.
2. The
Company Prosecutor (Grade II),
Office of the Regional
Director, Company Law Board, Mumbai.
3. The
Accounts Officer,
Office of the Regional
Director, Company Law Board, Mumbai.
4. The
Superintendent (Grade II),
Office of the Regional
Director, Company Law Board, Mumbai.
5. The
Senior Technical Assistants,
Office of the Registrar of
Companies, Mumbai.
6. The
Superintendent (Grade I),
Office of the Registrar of
Companies, Mumbai.
7. The
Company Prosecutor (Grade III),
Office of the Registrar of
Companies, Mumbai.
8. The
Junior Technical Assistants,
Office of the Registrar of
Companies, Mumbai.
9. The Senior
Technical Assistants,
Office of the Registrar of
Companies, Ahmedabad.
10. The
Superintendent,
Office of the Registrar of
Companies, Ahmedabad.
11. The
Company Prosecutor (Grade III),
Office of the Registrar of
Companies, Ahmedabad.
12. The
Junior Technical Assistants,
Office of the Registrar of
Companies, Ahmedabad.
2. S.O. No. 3271, dated
27-10-1966
13. The
Superintendent,
Office of the Registrar of
Companies, Bangalore.
14 The Superintendent,
Office of the Registrar of
Companies, Chennai.
3. S.O. No. 3681, dated 3-12-1966
15. The
Senior Technical Assistants,
Office of the Registrar of
Companies, Jaipur.
4. S.O. No. 1060, dated
14-3-1967
16. The
Superintendent,
Office of the Registrar of
Companies, Andhra Pradesh, Hyderabad.
5. S-O. No. 2035,
dated 30-5-1967
17. The
Senior Technical Assistants,
Office of the Registrar of
Companies, Punjab, Haryana, Chandigarh and Jullundur.
6. S.O. No. 3264, dated
5-9-1967
18. The
Superintendent,
Office of the Registrar of
Companies, Madhya Pradesh, Gwalior.
7. S.O. No.
364, dated 8-1-1968
19. The
Official Liquidator,
High Court, Allahabad.
8. S.O. No.
3591, dated 27-9-1971
20. Assistant Commissioner of Income-tax Circle II (1),
Indore.
9. S.O. No. 1960, dated
3-8-1989
21. The Senior Technical Assistants,
Office of the Registrar of
Companies, Kanpur.
10. S.O. No. 725(E), dated 29-9-1992
22. Additional Registrar of Companies, Delhi. Jurisdiction-Delhi
and Haryana.
23. Assistant Registrar of Companies, Delhi. Jurisdiction-Delhi
and Haryana.
24. Junior Technical Assistant, Office of the Registrar of
Companies, Goa. Jurisdiction-Goa.
I. Following is the list of
prescribed authorities, besides the Registrars of Companies, for the purposes
of clause (a) of sub-section (I-A) appointed by Central Government
vide Notification No. SO 279(E), dated 10-4-1992 superseding the
earlier Notification No. 214(E), dated 28-3-1984.
Notification No. SO
279(E), dated 10-4-1992-In
exercise of the powers conferred by sub-rule (1) of Rule 5A of the
Companies (Central Government's) General Rules and Forms, 1956, and in
supersession of the Notification SO No. 214(E), dated 28-3-1984
except as respects things done or omitted to be done before such supersession,
the Central Government hereby appoints the following authorities as prescribed
authorities for the purposes of clause (a) of sub-section (IA) of section
108 of the Companies Act, 1956 (1 of 1956), namely:
1.
Assistant Commissioner of Income Tax, Company Circle-I, (1), Pune
2.
Income Tax Officer, (Technical & P.R.), Nagpur
3.
Income Tax Officer, C.I.B., Lucknow
4.
Income Tax Officer, Circle III, Ward-B, Surat
5.
Income Tax Officer, Company Circle III, Coimbatore
6.
Income Tax Officer, Headquarters, Madural
7.
Income Tax Officer, 'A' Ward, Varanasi
8.
Income Tax Officer, Agra
9.
Income Tax Officer, SIC-I, Jabalpur
10. Income Tax Officer, 'A'
Ward, Dhanbad
11. Income Tax Officer, IIB
Circle, Baroda
12 Income Tax Officer, 'E'
Ward, Bhopal
13. Income Tax Officer, 'A'
Ward, Jamshedpur
14. Income Tax Officer, 'C'
Ward-Ulhashnagar, Thane
15. Income Tax Officer, City
Circle I, Trichinapalli
16, Income Tax Officer,
Distt. 1 (5), Ludhiana
17. Income Tax Officer, 'A'
Ward, Vishakhapatnam
18. Income Tax Officer,
Distt. IV, Amritsar
19. Income Tax Officer, 'A'
Ward, Circle II, Calicut
20. Assistant Commissioner
of Income Tax, Circle- 1, Vijayawada
21. Income Tax Officer,
Circle (1), Meerut
22. Income Tax Officer-IInd,
Hubli (Hubli-Dharwad)
23. Income Tax Officer, 'C'
Ward, Trivandrum
24. Income Tax Officer,
Company Circle I, Salem
25. Income Tax Officer, 'A'
Ward, Sholapur
26. Income Tax Officer, Ist
Assessment, Ranchi
27. Assistant Commissioner
of Income Tax Circle-II(l), Indore
28. Deputy Regional Director
of National Savings Organisation, Mangalore.
II. By Notification No. S.O. 786(E), dated 8-11-1982 [(1983)
53 Com Cases (St) 52] the Central Government has appointed "Consular
Officer in the Indian Missions Embassies abroad" as prescribed authority
for purposes of section 108(1A) clause (a).
III. S.O. 164(E), dated 14-2-1994.-In exercise of the
powers conferred by clause (a) of sub-section (IA) of section 108 of the
Companies Act, 1956 (1 of 1956) read with sub rule (1) of Rule 5A of the
Companies (Central Government's) General Rules and Forms, 1956, the Central
Government hereby appoints the Official Liquidator, High Court, Indore, in the
State of Madhya Pradesh, as prescribed authority for the purposes of clause (a) of the sub-section (I A) of
section 108 of the said Act.
6. Company not to register transfer lodged after prescribed period.-A company
should not register any transfer of shares lodged after the prescribed period
even if the delay is occasioned by postal authorities.
7. Financial Institutions approved by Central Government.-The following financial institutions have been approved by the Central
Government under section 108(IC) (B) (iii).
1. Any banking company (other than a
Scheduled Bank) as defined in section 5(c) of the Banking Regulation Act, 1949
(10 of 1949).
2. Any co-operative bank as defined in section 2(b)(ii)
of the Reserve Bank of India Act, 1934 (2 of 1934).
3. The Industrial Development Bank of
India, set up under the Industrial Development Bank of India Act, 1934.
4. Industrial Finance Corporation, set up under the Industrial
Finance Corporations Act, 1948.
5. All State Financial Corporations, set up under the State
Financial Corporations Act, 1951.
6. The Industrial Credit & Investment Corporation of India
Ltd., Mumbai.
7. Industrial Investment Corporation Ltd., Chennai.
8. International Finance Corporation, Washington (USA).
9. Life Insurance Corporation of India.
10. New India Assurance Co. Ltd, Mumbai.
11. Oriental Fire & General Insurance Co. Ltd., Mumbal.
12. Indian Guarantee & General Insurance Co. Ltd., Mumbai.
13. Herculies Insurance Co. Ltd.
14. Advance Insurance Co. Ltd., Mumbai.
15. Co-operative Assurance Co. Ltd.
16. Great Pyramid Insurance Co. Ltd., Calcutta.
17. Sundaram Finance Ltd., Chennai.
18. National Insurance Co. Ltd., Calcutta.
19. Calcutta Insurance Ltd., Calcutta.
20. British India General Insurance Co. Ltd.
21. Madras Motor and General Insurance Co. Ltd.
22. New Great Insurance Co. of India Ltd.
23. Jupiter "General Insurance Co. Ltd.
24. Hindusthan Ideal Insurance Co. Ltd.
25. Unit Trust of India, established under the Unit Trust of India
Act, 1963.
26. Risk Capital and Technology Finance
Corporation Limited [Registered under the Companies Act, 1956 (1 of 1956)].
27. The Housing Development Finance Corporation.
28. Tourism Finance Corporation of India Limited, (Registered
under the Companies Act, 1956 (1 of 1956)).
29. Small Industries Development Bank of
India (Established under Small Industries Development Bank of India Act, 1989).
8. Power of Central Government to extend time.-The restrictions
of periods mentioned in sub-sections (1-A), (1-B) and (1-C)
can be relaxed by the Central Government on an application made to it in this
behalf by such further time as it may deem fit. The application in Form No. 7C
with effect from 22-4-1988 may be made before or after expiry of
such periods. The powers under this sub-section is to be exercised by the
Central Government when it is of the opinion that it is necessary to extend the
periods mentioned in sub-sections (1-A), (1-B) and (1-C)
to avoid hardships. This power under subsection (1-D) has been delegated
to the Registrars of Companies. Validity of instrument of transfer cannot be
extended under sub-section (1D) once it has been lodged and its
registration has been refused by company. Mathew
Michael v. Teekoy Rubber & Tea Co. Ltd., (1994) 13 CLA 132 (CLB).
9. Application to be supported by reasons.- Application for extension of time
under this section should be supported by specific reasons indicating the
hardships which the applicant is likely to suffer in case of non-registration
of shares or refusal of permission for extension of time.
10. Power delegated to Registrar of Companies.-The powers of the Central Government under this sub-section have
been delegated to the Registrars of Companies. This power can be exercised by
the Registrar of the State in which the registered office of the company is
situated or by the Registrar of the State in which the transferee ordinarily
resides (Notification GSR No. 507(E),
dated 24-6-1985, as amended by GSR
No. 481(E), dated 22-4-1988).
11. Government companies
exempted.-This section does not apply to a Government company in respect of shares
held by nominees of Government. [Notification
GSR 597(E), dated 16-7-1985. See also Notes under S. 620].
12. Listed Companies not
to charge fee for transfer etc.-Listed companies
cannot charge share transfer or share splitting, or share consolidation fees.
13. RBI
approval required for transfer of shares.-Companies in
India which have two registers of members, one in India and the other outside
India, must not transfer shares from one register to another without obtaining
the permission of the Reserve Bank of India it any required under the Foreign
Exchange Management Act, 1999.
14. Transfer by NRL-Restrictions on transfer of securities held
by Non-Resident Indian are applicable only so long as the holder is a non-resident.
If the NRI returns to India with the intention of settling permanently in
India, he can deal with the securities without any restrictions. Similarly,
interest payable on debentures to the holder who has become resident cannot be
repatriated and will have to be paid to the local Rupee Accounts and tax must
be deducted on the basis applicable to residents. RBI has exempted NRI's and
OCB's to transfer securities without its approval subject to certain condition.
15. Procedure.- For seeking of time under
section 108(1A) and (1B) for acceptance of instruments of transfer of shares by
a company, the following procedure is required to be followed:
(a) Application should be made to the
concerned Registrar of Companies, whether before or after the expiry of
prescribed period in Form C.
(b) The following documents should accompany the application:
(i) the instrument of transfer forming the
subject-matter of the application;
(ii) a treasury challan evidencing the
payment of Rs. 50/-if the nominal value of the shares involved does not
exceed Rs. 5,000/-or Rs. 100/-if it so exceeds.
(c) Pay the fee into any of the branches of
the Punjab National Bank through a challan for credit under the head of account,
Major
Head Alphanumeric Code Account code Serial code Source
description category
check
digit
(1) (2) (3) (4) (5)
1475 Other General Eco- 147500105 14750006 113
nomic Service. Re
gulation of Joint
Stock Companies :
1475-00-105 (b)
Filing fee 14750010598 14750033 117
Constitution of Share Transfer Committee of Board
S. 108-Transfer of shares-Constitution of Share Transfer Committee of Board-Board Resolution
"RESOLVED that the
Committee of the Board of Directors of the company to be called "Share
Transfer Committee of the Board" be and is hereby constituted with powers
of the Board to approve transfer of shares of the company on behalf of the
Board. This Committee will have, in particular, the powers:
(a) to approve and register transfer and/or transmission of all
classes of shares;
(b) to sub-divide, consolidate and issue share certificates
on behalf of the company;
(c) to affix or authorise fixation of the
common seal of the company to the share certificates of the company; and
(d) to do all such acts, things or deeds as
may be necessary or incidental to the exercise of the above powers."
OR
“RESOVLED that transfer of
50 equity shares with distinctive Nos. 125 to 129 standing in the name of XYZ
be made in favour of KLM and that necessary endorsement on the share
certificates be made."
OR
"RESOLVED that the
under mentioned transfer of debentures be and is hereby approved and the
register of debenture-holders be initialled by the Chairman of the
meeting.
No. of debentures Transfer No. Value of debenture"
PRACTICE NOTES
1. Instrument of transfer to be duly stamped and executed.-To check
up whether the instrument of transfer is duly stamped and has been executed by
and on behalf of the transferor and the transferee and the name, address and
occupation of the transferee has been given.
2. Transfer form valid not out-dated and stamp thereon cancelled.-Ensure that
the transfer has been executed on a form which is valid and not out-dated
and that the stamp affixed thereon has been cancelled. The validity period of
the transfer form is now twelve months for a listed company.
3. Compliance with terms and conditions of debenture Trust deed.-When debentures
are transferred, the terms and conditions of the debentures trust deed should
be complied with.
4. Transfer form executed by
legal representative valid.-In case
of the death of the shareholder, the transfer form of the deceased member
executed by the legal representative shall be as valid as if he has been a
member at the time of executing the instrument of transfer.
5. Presentation of transfer application.-Application for
transfer of shares can be presented either by the transferor or by the
transferee.
6. Notice to transferee when transfer involved partly paid shares.-If the
application is made by the transferor for the transfer of partly paid-up
shares, give notice of the application to the transferee and if the transferor
makes no objection to the transfer within two weeks, the transfer may be
registered. This notice shall be given through registered post at the address
given in the instrument of transfer.
7. Resolution by investment company authorising person to execute and
sign transfer deeds etc. on its behalf.-In the
case of investment companies, it may be necessary to authorise a person to sign
and execute the share transfer deeds on behalf of the company. For this
purpose, a resolution on the following lines is to be passed by the Board:
Authority to sign share
transfer deeds
S. 108-Authority to sign Share Transfer deeds-Board
Resolution
"RESOLVED that Mr. XYZ
be and is hereby authorised to sign on behalf of the company the share transfer
deeds and such other papers or documents as may be required on behalf of the
company in connection with the transfer of shares of different companies."
OR
"RESOLVED that Mr. XYZ
be and is hereby authorised to sign and execute share transfer deeds for and on
behalf of the-company in respect of shares of different companies held by
the company from time to time."
PRACTICE NOTES
1. General power of the Board.-Power to
invest the funds of the company in the shares of other companies comes under
the general powers of the board and can also be delegated to any of the
directors, managing director or manager or any other principal officer of the
company.
2. Amount of investment.-
Every
resolution authorising to execute share transfer deeds on behalf of the company
should also mention up to which the authorised person has power to acquire
shares of other companies.
Transfer of shares
S. 108/Regns. 19
and 20.-Transfer of shares-Board Resolution
"RESOLVED that transfer
of shares as per particulars mentioned against S. Nos. 36 to 96 in the register
of Transfer of shares placed in the meeting be and is hereby approved."
PRACTICE NOTES
1. Instrument of transfer.-The instrument
of transfer of any shares in the Company is required to be executed by or on
behalf of both transferor and transferee.
2. Transferee to remain holder of share until name of transferee entered
in register.-The transferor shall be deemed
to remain a holder of the share until the name of the transferee is entered in
the register of members in respect thereof.
3. When Board may decline to register transfer.-The Board
may decline to register the transfer of a share not being a fully paid share to
a person of whom they do not approve or any transfer of shares on which the
company has a line.
4. Instrument of transfer to be duly stamped.-It is
an essential condition for registering a transfer of shares or debentures that
a duly stamped instrument satisfying the requirement of sub-section (1)
should be delivered to the company accompanied by the certificate or letter of
allotment relating to the shares or debentures.
5. Rights under unregistered transfer of shares.-Until the registration of the shares in his name the transferee cannot
exercise any rights as shareholder in respect of the shares transferred in his
name, as he does not become the legal holder until registration.
6. Transferor's liability for calls after transfer.-When shares
are transferred, there arises an implied promise by the transferee to indemnify
the transferor against all calls that may be made after the transfer.
7. Effects of transfer.-Once a transfer form has
been executed, the transfer is complete as between the transferor and the
transferee and the transferee acquires the right to have his name entered in
the register of members.
Fee on Registration of Probates, Letters of Administration etc.
S. 108/Regn. 24-Fee on Registration of Probates,
Letters of Administration etc.-Board Resolution
"RESOLVED that no fee
be charged by the company from the members of the company on the registration
of letters of administration, probates, power of attorney and on certificate of
death or marriage or other instrument as per listing requirement of Bombay
Stock Exchange."
PRACTICE NOTES
1. Articles to be checked.- Check up the provisions of
the Articles of Association in this regard.
2. Copies of documents to be retained while returning originals.-Copies of
every document be retained while returning the originals to the party
concerned.
3. Particulars of documents to be registered in Company's register.-Particulars of the documents be registered in company's register maintained
for the purpose.
4. Fee payable on registration of documents.-The company
can charge a fee of Rs. 2/- on the registration of any such documents.
Transmission of shares
S. 108/Regns. 25-28-Transmission
of shares-Board Resolution
"RESOLVED that transmission of equity shares of Rs. 10/- each bearing distinctive numbers from to be and are hereby allowed in favour of Sarvashri and as the legal representatives of the deceased member Shri .................
RESOLVED FURTHER that the
production of succession certificate, probate or will or any other legal
representation in respect thereof be and is hereby dispensed with."
PRACTICE NOTES
1. Legal representative when to be regarded as member.-Legal representative
of a deceased member is not to be regarded as a member unless his name is
entered in the register of members. [Hemendra
Prasad Barooah v. Bahadur Tea Co. P. Ltd., (1991) 70 Com Cases 792 (Gau)].
2. Executor of deceased is his legal representative.-The executor
of a deceased person is his legal representative for all purposes and all the
property of the deceased vests in him as such. Therefore, the right to the
shares and other interests of the deceased member in a company devolves on the
executor of the deceased by operation of law as distinguished from inter vivos transfer. [Hemendra Prasad Barooah v. Bahadur Tea Co.
P. Ltd., (1991) 70 Com Cases 792 (Gau)].
Where the managing director of a company got transferred the shares of a
deceased member in the name of his wife to consolidate his position of majority
control in the company, the company was directed to register the shares so
transferred proportionately in the names of legal heirs of the deceased member.
AJ Coetho v. South India Tea & Coffee
Estates Ltd., (2001) 33 SCL 503 (CLB).
3. Survivor alone recognised
having title to shares.-Where shares
are held jointly and one of such joint shareholders dies, it is survivor alone
who is to be recognised as having title to the said shares. The question of the
legal representative of the shareholder dying becoming entitled to the shares
arises only in the case of a sole shareholder. Hence heirs of a deceased joint
holder cannot be the holders of the said share. [Ram Govind Misra v. Allahabad Theatres Pvt. Ltd., 1986 Tax LR 1681 (All)].
4. Regulation not applicable in case of divided Mitakshara family.-In the
case of the death of a member of an undivided Hindu Mitakshara family, holding
shares in his name, the regulation does not apply. (Mohindeen Pichai v. Tinnevely Mills Co., AIR 1928 Mad 57 1).
5. Lunatic shares not to be transferred without Court order.-The shares
held by a lunatic cannot be transferred without an order of the court. [New York Security Trust Co. v. Keyser,
(1901) 1 Ch. 606].
6. Execution of transfer deed not required.-Execution of
duly stamped instruments required for transfer of shares would not apply to
transmission of shares by operation of law in terms of the second proviso to
sub-section (1) of section 108.
Smt. Kamalabai v. Vithal Prasad Co. (P.) Ltd., (1993) 11 CLA 226 (Kar).
Authorising a Director to execute transfer deed
S. 108-Authorisation to execute transfer deed-Board
Resolution
"RESOLVED that Mr a Director of the company be and is hereby authorised to sign on behalf of the company the share Transfer Form, for transferring . equity shares of Rs each held by the company in M/s. X & Co. Ltd. to and in favour of M/s. Y & Co. Ltd.
RESOLVED FURTHER that Mr is hereby authorised to do all further acts, deeds and things as may be necessary for effecting such transfer."
PRACTICE NOTES
1. Board resolution required where transferor or transferee is a
Company, Where
the transferor or transferee is a company the company whose shares are sought
to be transferred would insist on a resolution to this effect before giving
effect to the transfer.
Transfer of debentures
S. 108-Transfer of debentures-Board Resolution
"RESOLVED that the
transfer from Mr. A.B. to Mr. C.D. of 3000 debentures of Rs. 100/-each
bearing debenture certificate Nos ..... to
……and comprised in transfer deed number be and is hereby approved."
PRACTICE NOTES
1. Transfer deed required for transfer of debentures.-Just as
in the case of shares, a transfer of debentures also cannot be considered
unless a duly stamped transfer deed signed by the transferor and transferee is
deposited with the Company together with the Original Certificates.
2. Transfer on indemnity when original certificate lost.-Where the
original certificate is lost, and the Board is satisfied about the loss, they
are at liberty to effect the transfer on the indemnity of the parties
concerned.
3. Transferee right of appeal
of Company Law Board.-The transferee
has a right to appeal to the Company Law Board under section III in the case of
a wrongful refusal by the Board to effect the transfer.
Creation of equitable
mortgage by deposit of title deeds by extension
S. 108-Creation of equitable
mortgage by deposit of title deeds by extension Board Resolution
WHEREAS the Board informed that the documents of title, evidence, deeds and writings had been deposited …… on in respect of the Company's immovable properties situate in the village of ……Taluk ……District ……in the Registration Sub-District of ……in the State of …… to the extent it is built up and also excess vacant land the holdings of which was exempted under section 20 of the Urban Land (Ceiling and Regulation) Act, 1976 vide order No ……dated ……of the Government of ……together with all building and structures thereon, all plant and machinery attached to the earth or permanently fastened to any thing attached to the earth (hereinafter referred to as "the immovable properties") for securing the due repayment, discharge and redemption by the Company of the various rupee loans availed by the Company together with interest and all other money payable in respect thereof;
AND WHEREAS the Board further informed that the Company has privately placed with …… and ……% Secured Redeemable Non-Convertible Debentures of the aggregate nominal value of Rs (hereinafter referred to as "Debentures") for which ..... is acting as the Trustees;
AND WHEREAS the aforesaid
debentures are to be secured, inter alia,
by a mortgage by deposit of title deeds in respect of the Company's immovable
properties both present and future, and as such, it will be necessary for the
Company to give an oral consent to ....................... acting as agent of ……as Debenture Trustees to
continue to hold and retain the existing title deeds as and by way of mortgage
by deposit of title deeds by way of constructive delivery also as security for
the said additional financial assistance;
AND WHEREAS for the purpose
of creation of mortgage, the Company has obtained various permissions from the
appropriate authorities (hereinafter referred to as "the additional title
deeds") and it will be necessary for the Company to deposit the additional
title deeds with ................acting as agent of ……as Debenture Trustees also as security for the said additional
financial assistance;
"NOW THEREFORE IT IS RESOLVED that the Company do give an oral consent to ........... acting as an agent of ……as Debenture Trustees for the ……% Secured Redeemable Non Convertible Debentures of Rs. 100/-each of the aggregate nominal value of Rs …… (hereinafter referred to as "the Debentures") to continue to hold and retain the existing title deeds as and by way of mortgage by deposit of title deeds by way of constructive delivery in respect of the Company's immovable properties situate at .............. (hereinafter referred to as "the trust deeds") to the extent it is built up and also excess vacant land the holdings of which was exempted under section 20 of the Urban Land (Ceiling and Regulation) Act, 1976, vide Order No and permitted to be mortgaged vide Order No ……dated of the Government of ……together with all buildings and structures thereon and all plant and machinery, attached to the earth or permanently fastened to anything attached to the earth (hereinafter collectively referred to as "the said immovable properties") as security also for the due repayment, discharge and redemption by the Company to ……and ……the holders of the Debentures (hereinafter collectively referred to as "the Lenders"), together with interest, additional interest, liquidated damages, premia on pre payment or on redemption, remuneration payable to Debenture Trustees, costs, charges, expenses and other monies payable under their respective Common Subscription Agreement/Trustee Agreement/Debenture Trust Deed/ Letters of Sanction as amended from time to time.
RESOLVED FURTHER that the
Company do deposit the additional title deeds in respect of the said immovable
properties with acting as agent of the
Lenders as security for the aforesaid additional financial assistance.
RESOLVED FURTHER that the
following Directors, namely, Mr ……Mr
……Mr and Mr ……be and are hereby
authorised severally to give such oral consent as aforesaid and to make the
deposit of additional title deeds as aforesaid on behalf of the Company in
respect of the Company's said immovable properties with ..............acting as
agent of ……as the Debenture Trustees
............
RESOLVED FURTHER that the
following Directors, namely, Mr ……Mr
……Mr ……and Mr ……be and are hereby
authorised severally to give such oral consent as aforesaid and to make the deposit
of additional title deeds as aforesaid on behalf of the Company.
RESOLVED FURTHER that the
following Directors, namely, Mr ……Mr
……Mr ……and Mr …… be and are hereby
authorised severally to state on behalf of the Company to the Lenders that the
existing title deeds so deposited and further deposited from time to time as
aforesaid by way of constructive delivery by the Company and the additional
title deeds are the only documents of title relating to the said immovable
properties and that the Company has a clear and marketable title to all the
aforesaid immovable properties and that the security in favour of the Lenders
shall ensure in respect of all the Company's immovable properties, both present
and future, and also to give a declaration on oath to the satisfaction of the
Lenders.
RESOLVED FURTHER that the
following Directors, namely, Mr ……Mr
……Mr ……and Mr …… be and are hereby
authorised severally to approve and finalise such other deeds and documents as
may be required by the Lenders or any of them in connection with their
respective financial assistance and that the Common Seal of the Company be
affixed thereto in the presence of any two of the aforementioned Directors OR
any one of the afore mentioned Directors and, Mr ……Secretary of the Company who do sign the same in token thereof
and in the event of the affixation of the Common Seal not being required the
same be executed severally by any one of the aforementioned Directors.
RESOLVED FURTHER that the
Company do file the requisite particulars of charge/modification of charge in
connection with the said joint mortgage by deposit of title deeds in favour of
the Lenders with the ROC within the time prescribed by law therefor.
RESOLVED FURTHER that copies
of the foregoing resolution certified to be true copies by the Secretary of the
Company be furnished to the Lenders and they be requested to act thereon."
PRACTICE NOTES
1. Approval of the shareholders.-If the
equitable mortgage by deposit of title deeds amounts to selling leasing or
otherwise disposing of the whole or substantially the whole of the undertaking
of the company then an ordinary resolution should be passed under section 293(l)(a) of the Act.
2. Filing of charge.- The charge on the property
by deposit of title deeds should be filed within thirty days with the Registrar
of Companies in Form Nos. 8 and 13 along with requisite filing fee as
prescribed under Schedule X of the Act.
Lien on Shares
S.
108/Regn. 9-Exercise of lien on shares-Board Resolution
WHEREAS the allotment money on equity shares remained unpaid after the last date fixed for payment thereof-,
AND WHEREAS the Board
considered the exercise of lien on the said shares and thought it fit to allow
such exercise of lien;
"NOW THEREFORE IT IS
RESOLVED that pursuant to article ……of
the Articles of Association of the Company, the right of lien on equity shares held by shareholders as per list tabled before the
Board be exercised by the Company in view of the non-payment of allotment
money of Rs per share payable on or before
RESOLVED FURTHER that until
the amount outstanding on account of allotment money is paid, the dividend
payable on such shares be retained by the Company and applied towards the
amount so out standing and that Mr Secretary
of the Company be and is hereby authorised to give notice of such lien to the
holders of such shares as per list placed before the meeting and secure
possession of the aforesaid share certificate to be retained in the custody of
the Company."
PRACTICE NOTES
1. Provision in the Articles.-The Articles of Association
should provide for exercising lien on every share not being fully paid for all
moneys presently payable on it. If the Articles are silent on this provision
and if the company is a public limited company the provisions given in Table A of
Schedule I should be followed.
2. Lien extends to
dividends.- When a company exercising lien on any share, such lien will also
extend to all dividends payable thereon.
Exercise of Lien by Company
on Shares
S.
108/Regn. 9-Exercise of lien by company on shares-Board Resolution
"RESOLVED that consent of the Board of Directors be and is hereby accorded to the exercise of lien by the company on 500 Equity Shares being distinctive numbers 2001 to 2499 standing in the name of Mr. ABC on which Rs. 5/-per share has been paid-up, for non-payment of the call money.
RESOLVED FURTHER that the
company be and is hereby authorised to retain the dividends payable on these
shares and offset the said amount towards the call money due on the
shares."
PRACTICENOTES
1. Articles must contain power for exercise of lien.-The Articles
of the company must contain a power to this effect. If the Articles are silent
on this provision and if the company is a public limited company the provisions
given in Table A of Schedule I should be followed.
2. No lien can be exercised on fully paid-up shares.-The company
cannot exercise a lien on fully paid-up shares.
3. No lien can be exercised unless power exists in Articles.-Unless the
articles provide for a lien a company has prinza
facie no lien on the shares of members. Canara
Bank Lilnited, Mattancherry v. Tribliuvandas Jatha Bhai, AIR 1957 Trav Co 183.
4. Article may provide for exercise of lien on fully paid-up
shares for money due from shareholders.-A company
may so adopt its articles as to give it a lien on fully paid shares as regards
any monies due to it from the shareholders. Hopkinson
v. Mortimer Harley & Co., (1917) 1 Ch 646.
5. Lien to extend on disputed liabilities.-The lien
may extend to disputed as well as admitted liabilities. Amarnath Goeda v. Karnal Electric Supply Company Ltd., AIR 1952
Punj 411
6. Lien prevails over pledge of which notice not given.-The lien
prevails over a pledge of which notice has not been given to the company. Kanhaiyalal Janwar v. Pandit Shirali &
Co., AIR 1953 Cal 526.
7. Waiver of lien by company.-The company can waive
the lien either expressly or by doing anything which has the effect of waiving
the right. Bank of Africa v. Salisbury
Gold Mining Co., 1892 AC 28 1.
8. Lien not to prevail where company has notice of trust and lien in
its favour.- Where
a company has notice of a trust and a lien in its favour was in respect of a
subsequent transaction, it was held that the lien could not prevail. Wigan Coal & Iron Co., (1916) 2 Ch 293.
9. Power to exercise lien can be provided in articles for money due
from shareholders.-A company may so adopt its
articles as to give it a lien on fully paid shares as regards any monies due to
it from the shareholder. Canara Bank Ltd.
v. Tribhuvandas iatha Bhai, AIR 1957 Trav.
Co. 183.
10. Article can be altered to provide for lien over shares.-Where fully paid shares are under the original articles exempt from lien
the articles may be altered so as to give a I len over them. CfAllen v. Gold Reeffs of West Africa,
(1904) 2 KB 489.
11. Registration of shares operate as waiver of lien.-Where a company registers a transfer of shares over which it has a lien
the registration will operate as a waiver of the lien. Turner Morrison & Co. Ltd v. Hungerford Investment Trust Ltd.,
(1972) 42 Corn Cases 512 (SC).
12. Extension of lien over liabilities.-The lien may extend to
disputed as well as admitted liabilities. (Amaniath
Goeda v. Kantal Electric Supply Company Ltd., AIR 1952 Punj 411).
13. Debt.on which lien exists not affected by bar of limitation.-A
debt in respect of which lien exists is not affected by any bar of
limitation, if, under the articles, the lien can be enforced otherwise than
through the Court. Thus Limitation Act bars only on the remedy by suit in a
Court of law and does not extinguish the debt if it can be realised by
enforcing the lien by exercise of any power of sale or otherwise which may be
contained in the articles. [Unity Co. (P)
Ltd. v. Diamond Sugar Mills, (1970) 2 Comp LJ 64: AIR 1971 Cal 18].
14. Shares pledged to third
party.-Where shares are pledged to a
third party as security for loan and the company has notice of the pledge, the
company loses its lien for all debts owing by that member to the company
subsequent to the knowledge of the company of the transaction. [Union Sugar Mills Co. Ltd. Re, (193 3) 3 Com
Cases 424 (All)].
15. Lien over pledge of
shares.-The
lien prevails over a pledge, of which notice has not been given to the Company.
(Kanhaiyalal Janwar v. Pandit Shirali
& Co., AIR 1953 Cal 526 : (1953) 23 Com Cases 399. Where such notice is given the com-pany's
lien would become postponed. [Bradford
Banking Co. v. Briggs, Son & Co. Ltd., (1886) 12 App Cas 29 (HL)].
Resolution of Board prior to enforcement of lien by sale
S.
108/Regn. 9-Resolution prior to enforcement of lien-Board
Resolution
"RESOLVED that in accordance with article ……of the Articles of Association the Secretary be directed to issue notice to Mr ……a shareholder of the company, calling upon him to pay the company the sum of Rs ……being the arrears of call money on his shares, within two weeks of such notice, and intimating him that in default hereof the Board will be constrained to exercise its power of lien over his shares and enforce the same by selling such shares."
PRACTICE NOTES
1. Companies adopting Table 'A' governed by Regulations.-For companies
adopting Table A, Regulations 9 & 10 govern
the procedure of exercise and enforcement of lien.
2. Notice of Lien-As
per Regulation 10, the company cannot sell share unless a notice is given to
the shareholder giving the shareholder at least 14 days' time to pay his
outstanding failing which the company will enforce its lien by sale of the
shares.
Sale of shares on exercise of lien
S.
108/Regns. 10-12-Sale of shares on exercise of lien-Board
Resolution
"RESOLVED that the
company do exercise its lien on the 700 equity shares of Rs. 10/- each
bearing distinctive numbers 2001 to 2699 on which Rs. 51- has been paid-up
registered in the name of Shri XYA and the company do sell the shares at the
prevailing market rate.
RESOLVED FURTHER that Shri
XZY, the Managing Director of the company be and is hereby authorised to sell
the said 700 equity shares of Rs. 10/- to any person or persons and
execute the transfer deeds in respect of said shares pursuant to article 47 of
the Articles of Association of the company."
PRACTICE NOTES
1. Power to sell shares in exercise of lien to be provided in Articles.-The power
to sell the shares on which the company has a lien must be provided in the
articles.
2. In absence of provision in Article lien cannot be enforced except
through court.-In the absence of a provision
in the articles giving power to the company to enforce a lien by sale, the lien
cannot be enforced except through Court. New
London & Bra--711ian Bank v. Brakle Bank, (1882) 21 Ch D
302.
3. Article providing right of lien not enough to confer right of sale.-An articles
merely giving a right of lien is not enough to confer a right to bring the
property to sale in exercise of such right. AIR 1955 Bom 419.
4. Clause for forfeiture in mortgage invalid.-A lien
cannot be enforced by forfeiture, even if the articles provide that it may be
so enforced. For a lien is in the nature of an equitable mortgage and a clause
for forfeiture in a mortgage is invalid as a clog on the equity redemption. Hopkinson v. Mortinier Harley & Co.,
(1917) 1 Ch 646.
Sale of shares having lien
S. 108/Regn. 10-Sale of shares
having lien-Board Resolution
RESOLVED THAT 5000 equity
shares of Rs. 10/- each of the company bearing distinctive numbers ……to on
which the company had a first and paramount lien be and are hereby sold to any
person as it deems fit.
RESOLVED FURTHER THAT the
Secretary of the company be directed to implement the sale and take necessary
steps in connection therewith and incidental and ancillary thereto.
PRACTICE NOTES
Provision in articles- A company can only sell shares on
which it has first and paramount lien if it has specific provision in its
articles of association. In case the company is a public limited company and
the articles are silent on such provision, the company may follow the provision
of Table A of Schedule I of the Companies Act, 1956.
Utilisation of sale proceeds of shares
S. 108/Regn. 12-Utilisation
of sale proceeds of shares-Board Resolution
RESOLVED THAT the proceeds of the sale of 2000 equity shares of Rs. 10/ each of the company bearing distinctive Nos . ……to …… which were sold to Mr. XYZ who has been registered as the holder of such shares be and are hereby applied in payment of part of the amount in respect of which the lien existed and was presently payable.
RESOLVED FURTHER THAT the
residue of the amount of the sale proceeds after the application, as aforesaid,
be and is hereby paid to the person entitled to the shares at the date of the
sale.
PRACTICE NOTES
1. Forfeiture for non-payment of calls.-Where articles
of association of a company permitted forfeiture only for non-payment of
calls, it was held that a forfeiture of shares for non compliance with
statutory provisions applicable to trusts and too without notice was outside
the permitted range of the power and therefore of no validity. Sulochana Nathany v. Hindustan Malleables
and Forgings Ltd., (2001) 1 Comp LJ 159 (CLB).
2. Strict Compliance.-There has to be
strict compliance with the requirements of the power of forfeiture.
S.108/Regn.
29-Notice of forfeiture for fully paid-up shares-Board
Resolution
WHEREAS out of the total allotment money payable Rs ……the Company has received allotment money Rs ……and allotment money of Rs ……was payable by ……holders on ……equity shares;
AND WHEREAS the Company had
already sent three reminders to the defaulters of allotment money and the Board
considered the issue of final notice, failing which the shares would be liable
to forfeiture; AND WHEREAS the forfeiture notice was placed before the Board;
"NOW THEREFORE IT IS
RESOLVED that the notice of forfeiture, as per draft placed before the Board
and initialed by the Chairman for the purpose of identification, indicating the
company's intention to forfeit the shares on which allotment money was still
unpaid be given to those members who had failed to pay the allotment money on
or be fore ……together with interest at
the rate of ……% per annum from the date
following the last date fixed for payment of allotment money to the date of
payment and stating that in the event of non-payment thereof on or before
the said date, the shares will be liable to be forfeited by the Company."
PRACTICE NOTES
1. Forfeiture for non-payment of calls.-Where articles of association
of a company permitted forfeiture only for non-payment of calls, it was
held that a forfeiture of shares for non compliance with statutory provisions
applicable to trusts and too without notice was outside the permitted range of
the power and therefore of no validity. Sulochana
Nathany v. Hindustan Malleables and Forgings Ltd., (2001) 1 Comp LJ 159
(CLB).
2. Strict Compliance.-There has to be
strict compliance with the requirements of the power of forfeiture.
Notice of forfeiture for partly paid-up shares
S.
108/Regn. 29-Notice of forfeiture for partly paid-up. shares-Board
Resolution
"WHEREAS the final call of Rs. 5/-on 30,00,000 equity shares was made pursuant to a resolution of the Board of Directors dated the ……2002 ……upon the holders of aforesaid partly paid-up equity shares in two installments of (i) Rs. 2.50 per share payable on or before the ……2002 ……and (ii) Rs. 2.50 per share payable on or before the 2002 ; AND WHEREAS the first notice of forfeiture was served to all the defaulting shareholders calling upon them to pay the arrears of calls including interest on the outstanding amount within ……2002
AND WHEREAS the
shareholders, as per the list hereby tabled (showing the details of names of
holders, numbers of shareholdings, distinctive number of shares, amount of
calls in arrear, amount of interest), have not so far paid the amount as shown
against each in the list, within the time stipulated by the Board of Directors;
AND WHEREAS the Board of
Directors are willing further to extend the last date of payment of the calls
in arrears as a good gesture and to afford last opportunity to the said
shareholders;
NOW THEREFOR IT IS RESOLVED
that the Secretary of the company, be and is hereby authorised to issue notice
to the defaulters as per the list tabled pursuant to article of the Articles of Association of the
company asking them to remit the arrear amounts as per the list added with
further interest at the rate of twelve per cent per annum from ……2002 ……to the date of payment thereof definitely
on or before ……2002, and also to inform
them by the said notice that this extension of time for the payment of calls in
arrears is the last opportunity afforded to such shareholders and that non
payment of the calls by aforesaid date will render the shares held by them
liable to forfeiture by the company without any further notice in this
regard."
PRACTICE NOTES
1. Strict compliance with provisions relating to forfeiture necessary.-Forfeiture must
be made strictly in accordance with the provisions contained in the articles of
the company, and the Board of Directors, in trying to enforce forfeiture must
strictly follow the procedure prescribed therein. The Board must show that it
has in all possible ways given ample opportunity to the defaulting shareholders
to pay the arrears of calls on the shares held by them (Public Passenger Service Ltd. v. M.A. Khander, (1962) 2 MLJ 113 : AIR 1962 Mad 276). Not only such strict compliance is mandatory but the
forfeiture must not only be legal and proper but must also be bonafide. Exercise of power to forfeit
shares is limited only in respect of failure of a shareholder to pay call money
within prescribed period of time and on no other ground. Sint. Sulochana Nathany v. Hindustan Malleably and Forgings Ltd.,
(2001) 1 Comp LJ 159 (CLB). Where
partly paid shares, having been forfeited, were reissued without any
stipulation that the new allottee was under a liability to pay the outstanding
calls, it was held that forfeiture of such shares for non-payment of
calls was not in compliance with the requirement of a valid forfeiture. Satish Chandra Sainalka v. Tinplate Dealers
Assn. (P.) Ltd., (2001) 3 Comp LJ 284 (CLB).
2. To show bona fide on part of Directors defaulting
shareholders be given another opportunity.-Regulation 29, Table A provides for only
one notice. Yet, it is advisable to show bona
fide on the part of the directors, to give another opportunity to the defaulting
shareholders before their shares are forfeited.
Forfeiture of shares for non-payment
of call
S. 108/Regn. 31-Forfeiture of shares for non-payment
of call-Board Resolution
"RESOLVED that whereas the shareholders as per the list tabled have failed to pay either or both the instalments of the final call of Rs. 5 and Rs. 2.50 respectively on the equity shares of the company and whereas it was found that such defaulting shareholders were allowed extensions of time for payment of the installment of the call twice, once up to ……2002 ……and finally up to ……2002 ……and as the amount as shown against each as per the list tabled remained unpaid after the expiry of such final date ……equity shares, as per the list, be and are hereby forfeited, pursuant to the provisions of article ............... of the Article of Association of the company."
PRACTICE NOTES
1. Forfeited shares in strict sense not property of company.-The forfeited
shares are not sensu strictu the
property of the company and neither they form part of the assets of the
company. The only right on these shares to be exercised by the company is to
dispose of the shares and use the proceeds for discharging the liability for
which the forfeiture was effected.
2. Necessary entries be made in accounts and register of members.-Necessary entries
with regard to forfeiture must be made in the accounts as also in the register
of members and other registers.
3. Declaration of forfeiture.-A declaration
in writing made by a Director or Manager or Secretary of the company must be
kept ready stating that the shares are duly forfeited and it should be seen
that such a declaration is duly verified. This declaration is evidence against
all persons claiming title to the share or shares.
Forfeiture of shares for non-payment
of allotment money
S. 108/Regn.- 31-Forfeiture of shares for non-payment
of allotment money Board Resolution
WHEREAS the Company had
requested the defaulters of allotment money to pay the same together with
interest at the rate of ……% per annum from
the date following the last date fixed for payment of allotment money to the
date of payment and had issued two reminder notices in respect thereof
extending the date of payment up to
……and …… respectively;
AND WHEREAS the Board had
issued a final notice of forfeiture to the defaulters of allotment money in
pursuance of the resolution of the Board dated requesting
them to pay the amount due on or before
……failing which the shares held by them would be liable to forfeiture;
AND WHEREAS after the issue
of the reminder notice and the expiry of the last date fixed for payment of
allotment money, an amount of Rs ……was
still owing from ……holders;
AND WHEREAS the list of
defaulters of allotment money after the issue of the forfeiture notice was
placed before the Board.
"NOW THEREFORE IT IS
RESOLVED that the shareholders as per list placed before the Board who have
failed to pay the allotment money on .............. equity shares of the
company after issue of two reminder notices granting extension of time up to and
……and …… finally up to in terms of
the notice of forfeiture issued by the Board
……equity shares held by
……holders, as per list placed before the Board be and are hereby
forfeited pursuant to the provisions of the articles of association of the
company."
PRACTICE NOTES
1. Failure to pay calls.-Shares are forfeited by a company only on non-payment
of any call or installment of a call on the day appointed for payment. Before
forfeiting the share a notice of not less than fourteen days will be given by
the Board of Directors to make the payment and the said notice should also
mention that for non-payment of the money on the shares, such shares will
be forfeited.
2. Provision in the Articles.-There should be
provision in the Articles of Association of the company as to the manner in
which the forfeiture of shares should be carried out.
Notice of Forfeiture of
shares
S.
108/Regn. 29-Notice of Forfeiture of shares-Board Resolution
"RESOLVED that the
secretary of the company be and is hereby directed to send notice to the under
noted shareholders in accordance with Article of
the Articles of Association of the company requiring them to pay the call due
on their shares with interest and stating therein that unless such call and
interest are paid on or before the day of the
shares shall be forfeited without further notice.
Name of the registered No.
of Distinctive Amount
Shareholder shares No. from. payable
to
.........
PRACTICE NOTES
1. Notice of forfeiture.-The company
is required to give the shareholders an opportunity for payment of the call
money, interest and expenses. The notice must disclose sufficient information
with particulars of the amount due.
2. Proper notice condition precedent.-A proper
notice is condition precedent to the forfeiture and even the slightest defect
in the notice will invalidate the forfeiture.
3. Accidental non-receipt
of notice.-The accidental non-receipt
of notice of forfeiture by the defaulter is not a ground for relief against
forfeiture regularly effected.
Notice for payment by defaulting shareholders prior to forfeiture
S. 108/Regn. 29-Notice for payment by defaulting
shareholders-Board Resolution
"RESOLVED that the
Secretary of the Company be and is hereby authorised to issue notice to all
shareholders who have defaulted in the payment of the Call (or installment of
the Call) due on requiring them to pay
the amount unpaid together with the interest due thereon at the registered
office of the company on or before the
……day ……of 2002 ……and informing that in the event
of non-payment of the entire amount due on or before the date aforesaid,
the shares will be liable to be forfeited."
PRACTICE NOTES
1. Time of giving notice.- Notice should be given to
the defaulting shareholders prior to forfeiture under Regulation 29 of Table A.
2. Contents of the notice.- The notice should specify a
further date within which the payment is to be made.
3. Interest on call.-Interest due on the calls unpaid can also be
recovered if such interest was charged in the original resolution making the
call.
4. Time of payment.- The date fixed for payment
of the amount due must be not less than 14 days from the date of service of the
notice on the shareholder. Therefore the Board resolution could fix the date of
payment of the dues about 30 days from the date of the Board resolution to
provide for postal and administrative delays.
Forfeiture of shares
S.
108/Regn. 31- Forfeiture of shares-Board Resolution
"RESOLVED that pursuant to article 57 of the Articles of Association of the company and other applicable provisions, if any, of the Companies Act, 1956, the shares as per particulars mentioned hereunder be and are hereby forfeited:
Name of the Regis- Distinctive
No. No. of shares
tered shareholder From
to ..
PRACTICE NOTES
1. Follow procedure given in Articles.-Ensure to
follow the procedure given in the Articles of Association of the company.
2. Notice of forfeiture.- Notice should be given to the members whose shares
stand forfeited.
3. Right of forfeiture.-The right of forfeiture belongs to the company.
There is no provision in the Act enabling the High Court to entertain
application relating to forfeiture of shares. Tej Prakash Dangi v. Coromandal Pharmaceuticals Ltd., (2002) 108
Com Cases 516.
4. Proper notice a condition precedent.-A proper
notice is a condition precedent to the forfeiture and even the slightest defect
in the notice will invalidate the forfeiture. Public Passenger Services Ltd. v. M.A. Khadar, (1965) Comp LJ 1 :
(1966) 36 Comp Cases 1 (SC).
5. Accidental non-receipt of notice no ground for relief.-The accidental
nonreceipt of notice of forfeiture by the defaulter is not a ground for relief
against forfeiture regularly effected. Sparks
v. Liverpool Water Works Co., (1807) 13
Ves. 428.
6. Power to forfeit shares for enforcing lien in respect of debts
invalid.-There may be forfeiture of shares
in case of failure to pay calls due on the shares. The exercise of the powers
to forfeit them for enforcing a lien in respect of debts, not being call
amounts due from shareholder, is invalid. Hopbinson
v. morititner Harley & Co., (1917) 1 Ch 646.
7. Power to be exercised bona fide in interest of Company.-
The power of forfeiture must
be exercised bona fide in the
interest of the company. Billerby v.
Rowland & Co., (1902) 2 Ch 14.
8. Articles must contain power of forfeiture.- Shares may be forfeited if
the company's Articles specifically contain a power in that behalf on such
grounds as may be provided therein. The shares of a group of shareholders
cannot be forfeited because of alleged losses incurred by the group. Dilbhajan Singh v. New Samundri Transport
Co. P. Ltd., (1985) 58 Comp Cases 247.
9. Power of forfeiture to be exercised strictly in accordance with
rules and regulations.-The power
of forfeiture must be exercised strictly having regard to the rules and
regulations. Travancore Electro Chemical
Industries Ltd. v. Alagappa Textiles Cochin Ltd., 1972 Tax LR 2192 (Ker-DB).
10. Illegal forfeiture not to be validated by acquiescence.-An
illegal forfeiture cannot be validated by lapse of time or acquiescence. Premila Devi v. Peoples Bank, AIR 1938
PC 284.
11. Company has no power of forfeiture once shares are registered.-Where shares are once registered in the name of a person the company has
no power to forfeit the shares on the ground of failure of consideration. Its
remedy is only to obtain appropriate relief by suit. Kotah Transport Ltd. v. State of Rajasthan, (1967) 37 Comp Cases
288.
The notice must disclose
sufficient information with particulars of the amount due. A proper notice is
condition precedent to the forfeiture and even the slightest defect in the
notice will invalidate the forfeiture.
If the requirements of notice are not complied with,
any shares in respect of which the notice has been given may at any time
thereafter, before the payment required by the notice has been made, be
forfeited by a resolution of the Board to that effect.
Forfeiture of shares for non-payment of share allotment money
(Another format)
S. 108/Regn. 31-Forfeiture of shares for non-payment
of share allotment Board Resolution
"RESOLVED that in accordance with article ……of the Articles of Association Equity Shares of Rs. 10 each, bearing distinctive Nos ……to allotted to Mr ……and on which Rs. 5/- each has been paid up by way of share application money be and is hereby forfeited on account of the failure of the said Mr ........... to pay share allotment money within the specified time.
"RESOLVED FURTHER that the Secretary of the company be directed to issue notice to Mr ……of the forfeiture."
PRACTICE NOTES
1. Provision in the Articles.-In order
to exercise the power of forfeiture of shares there must be a provision in the
Articles of Association of the company.
2. Forfeiture when exercised.-Forfeiture is
done only when a member fails to pay any call or installment of a call, on the
day appointed for payment thereof, the Board of Directors of the company has
given at any time thereafter a notice for payment of the call money.
Resolution of Board forfeiting shares for debts due from a Shareholder
S.
108/Regn. 31-Forfeiture of share for debts due-Board Resolution
WHERE AS it was reported to the Board that a sum of
Rs ……was due and owing to the company
by Mr a shareholder of the
company, holding ……equity shares in the
company towards call money on the said shares;
AND WHEREAS it was further
pointed out that the said shareholder had defaulted in making the said payment
in spite of a notice having been addressed to him in this regard by the
company, indicating the company's intention to forfeit his shares in the event
of non-payment;
AND WHEREAS the Board
considered the matter and after discussion passed the following resolutions
unanimously.
"NOW THEREFORE IT WAS
RESOLVED that in accordance with article of
the Articles of Association Equity Shares of Rs ……each, bearing distinctive Nos
……to ……and standing in the name of Mr
……be and are hereby forfeited for non-payment of the dues of the
company.
"RESOLVED FURTHER that in accordance with
article of the Articles of
Association, the Secretary of the company be directed to notify Mr ……of the forfeiture of his shares."
PRACTICE NOTES
1. Articles must permit for forfeiture of Shares.-This power
can be exercised only if the Articles permit the company to forfeit shares for
non-payment of the company's dues.
2. Power to be exercised bona fide for benefit of Company.-
This power if permitted by the Articles will have to be exercised strictly and
cautiously and bona fide for the
benefit of the company.
3. Stock Exchanges do not
permit a listed Company to have such power.-Stock Exchanges
are, however, unwilling to permit a listed company to have such a power.
Sale of forfeited shares
S.
108/Regns. 32-33- Sale of forfeited shares-Board Resolution
"RESOLVED that 5000
Equity Shares of Rs. 10/-each forfeited by the company as per particulars
mentioned below be and are hereby sold by the company and Shri ABC, Managing
Director of the company be authorised to sell the said shares to any person or
persons at the prevailing market price, to execute deeds of transfer and to
issue new share certificates in respect thereof by affixing the common seal of
the company thereon.
No. of Registered No. of
Shares Distinctive No.
Holders
PRACTICE NOTES
1. On forfeiture member ceases to be member but liable for future
calls.-A member whose shares have
been forfeited by the company ceases to be a member of the company though he is
liable to pay future calls on the shares.
2. Surplus amount to be shown as capital reserve.-After adjustment
of the amount due on the shares, the surplus amount, if any, be shown as
capital reserve.
3. Forfeited shares to be
reissued for lesser amount.-A forfeited share may be reissued in consideration of
a lesser sum than the sum credited as paid on them. Morrison v. Trustees, Executors and Securities Insurance Corporation,
1898 WN 154.
4. Forfeited shares cannot be reallotted as fully paid up at a
discount.-The power to dispose of shares forfeited for non-payment of share
money does not enable the Directors to re-allot the forfeited shares as
fully paid-up shares at a discount. Such reallotment will contravene
section 79 and will therefore be
void. Biochemical & Synthetic
Products v. Registrar of Companies, (1962) 32 Com Cases 654 : AIR 1962 Andh Pra 459,
5. Board can
cancel forfeiture.-Forfeiture of shares can be cancelled by the Board at
any time before sale.
# 274. Board's power to dispose of forfeited shares
The Board may sell or otherwise dispose of forfeited
shares on such terms and in such manner as it thinks fit.
# 275. Excess money realised on sale of forfeited shares not to be
paid to formal owner
When forfeited shares are
sold, the excess of the proceed of sale is not payable to the former owner if
the articles provide otherwise. (Calcutta
Stock Exchange Association Ltd., AIR 1957 Cal 438).
Resolution re-issuing forfeited shares
S.
108/Regn. 32-Re-issue of forfeited shares-Board Resolution
The Board of Directors
considered the question of re-issue of shares forfeited earlier vide resolution dated ……After due consideration, the Board passed
the following resolutions unanimously:
"RESOLVED that
……Equity shares bearing distinctive numbers ……to ……be re-issued at par to M/s
"RESOLVED FURTHER that
the Secretary of the company be and is hereby authorised to obtain the
necessary permission from the Stock Exchange for the re-issue."
PRACTICE NOTES
1. Terms and Conditions of re-issue.-Before going
for re-issue of the forfeited shares the Board of Directors must
determine the terms and conditions of such re-issue.
2. Liability to pay to the company.-Although a person whose
shares are forfeited for non-payment of calls ceases to be a member of
the company but he remains liable to pay to the company all moneys which at the
date of the forfeiture were presently payable by him to the company in respect
of the shares.
Recission of forfeiture
S.
108/Regn. 32-Recission of forfeiture-Board Resolution
"RESOLVED that the under noted shareholders having paid all the money due from them in respect of the calls on the shares noted against each which were forfeited by a resolution passed on the ……day of the ……said forfeiture be and is hereby rescinded subject to the consent being given by the said shareholders on or before the day of :
Name of the registered No.
of Distinctive No.
shareholder shares
from to
"RESOLVED FURTHER that the Secretary of the company be and is hereby directed to send notice to the said shareholders of the passing of the resolution."
PRACTICE NOTES
1.
Cancellation of forfeiture.-The Board
may, at any time before sale or disposal of the forfeited shares, cancel the
forfeiture on such terms as it thinks fit.
2. Liability
to pay.-Even after forfeiture of shares, the person whose shares have been
forfeited, will be liable to pay to the company all moneys, which at the date
of forfeiture, were presently payable by him to company in respect of the
shares, although he ceases to be a member in respect of the forfeited shares.
Declaration Regarding Forfeiture of Shares
S. 108/Regn. 34-Declaration
Regarding Forfeiture of Shares-Board Resolution
"RESOLVED that, Shri
XYZ, the Secretary of the company be and is hereby empowered to make a
declaration in respect of the forfeiture of equity shares as per particulars
mentioned hereunder pursuant to article 57 of the Articles of Association of
the company and to issue notice of forfeiture to the registered shareholders of
the shares forfeited.
Name of the Registered No.
of shares Distinctive No.
shareholder forfeited From to
PRACTICE NOTES
1. Board may cancel forfeiture before sale.-The forfeiture
of shares can be cancelled by the Board at any time before sale.
2. Amount due on forfeited shares be recovered within three years.-The amount
due on forfeited shares must be recovered by the company within three years as
such recovery after this period will be barred by limitation.
3. Procedure as laid down in Articles must be followed.-Ensure to
follow the procedure prescribed by the articles of the company.
4. Declaration conclusive evidence of forfeiture.-The declaration
when made is conclusive evidence of forfeiture.
5. Proper notice condition
precedent.-A proper notice is a condition precedent to the forfeiture.
6. Person whose shares forfeited liable as past member within a year
before commencement of winding up.-A person
whose shares have been forfeited within a year before the commencement of the
winding up of the company, is liable as a past member under section 426 of the Act. Cryeke's case, (1869) 5 Ch App 63.
7. Liability to pay after forfeiture a new liability.-The liability
after forfeiture is a new liability arising from the forfeiture and can be
enforced within three years from the date of the forfeiture. Manektal v. Suryapar Mills Co. Ltd., ILR
52 Bom 477.
Disposal of forfeited shares
S.
108/Regn. 32-Disposal of forfeited shares-Board Resolution
"RESOLVED that ……equity shares of Rs. 10 each, now forfeited and bearing consecutive numbers ……to be sold to Mr ……who has applied for the shares upon payment of full face value of such shares, which payment has already been tendered along with the application and be accordingly transferred to Mr .................. and a fresh share certificate for equity shares credited with Rs.10/-paid-up per share be issued to Mr. BKM."
PRACTICE NOTES
1. Forfeiture of shares for non-payment of calls.-Where shares
are forfeited for nonpayment of calls and the same shares are resold, the
purchaser is liable to pay full consideration at which the shares were
originally issued. The company cannot sell the forfeited shares to make up only
for the unpaid liability. Where, however, any amounts are recovered from the
previous holders of shares in respect of the calls, the purchaser will be
entitled to the benefit of any amounts so recovered. Similarly, any payment by
the purchaser will reduce the liability of the previous holder.
2. Forfeiture not a fresh allotment.-Forfeiture is not
really a fresh allotment, but it is a transfer or re-allotment of shares
from a defaulting shareholder to another person who becomes, as transferee, a
new shareholder and member of the company.
Cancellation of forfeiture
S.
108/Regn. 32-Cancellation of forfeiture-Board Resolution
"RESOLVED that the forfeiture of ……equity shares of Rs. 10 each, bearing consecutive numbers to made by Board Resolution passed at the meeting held on the ……19 …… be and is hereby cancelled and the shares allotted to Mr ……on receipt of the full call money with interest on the amount due, by acceding to his request to annual the said forfeiture.
RESOLVED FURTHER that the name of the said shareholder, Mr ……be restored in the register of members, as holder of the aforesaid shares and that he be informed accordingly."
PRACTICE NOTES
1. Board may rescind forfeiture by canceling resolution forfeiting shares.-Forfeiture of shares, before sale or
disposal, may be rescinded by the Board of Directors by canceling the previous
Board Resolution forfeiting the shares.
2. Duly verified declaration in writing, forfeiting shares-a
conclusive evidence. A duly verified declaration in writing that the
declaration is a Director, the Manager or the Secretary of the company, and
that a share in the company has been duly forfeited on a date stated in the
declaration, shall be conclusive evidence of the facts therein stated as
against all persons claiming to be entitled to the share.
3. Sale of forfeited shares and consideration thereof.-The company
may receive the consideration, if any, given for the share on any sale or
disposal thereof and may execute a transfer of the share in favour of the
person to whom the share is sold or disposed of.
4. Transferee of forfeited shares-a registered holder of shares.-The transferee
shall thereupon be registered as the holder of the share.
5. Title of transferee of forfeited shares not affected.-The transferee
shall not be bound to see to the application of the purchase money, if any, nor
shall his title to the shares be affected by any irregularity or invalidity in
the proceedings in reference to the forfeiture, sale or disposal of the share.
Notice of forfeiture' for
fully paid up shares
S. 108/Regn. 29-Notice of forfeiture for fully paid up shares-Board
Resolution
"RESOLVED that pursuant to article of the Articles of Association of the company, formal notice indicating company's intention to forfeit the shares on which calls have not been paid to be given to the' defaulting members as per the list tabled calling upon such members to pay all the arrear calls on or before the ……19 ……together with interest at the rate of twelve per cent per annum from the date the calls become payable and up to the date of actual payment and stating that in the event of non-payment thereof at or before the said date, shares will be liable to forfeiture."
PRACTICE NOTES
1. Power of forfeiture to be exercised cautiously.-The power
to forfeit shares must be exercised by the Directors of the company cautiously
and faultlessly and only if the articles empower them so to do. The object of
notice is to give shareholders adequate opportunity for payment of the call
moneys in arrears. The notice must disclose sufficient information in regard to
amount of calls payable, interest and expenses thereon.
2. Notice of forfeiture to specify date and time of payment.-The notice
must specify a day not earlier than the expiry of certain number of days from
the date of service of the notice, on or before 2 which the payment must be
made and that if it is not so paid, his shares will be forfeited .
3. No
provisions in Act for regulating forfeiture.-There is
no provision in the Act regulating forfeiture, but provisions of Articles of
Association of a company regulate forfeiture.
Appointment of a committee for transfer and transmission of shares
"RESOLVED that a
Committee consisting of Shri RPS" Secretary of the company and Shri SKM,
Financial Controller of the company be and is hereby constituted for transfer
and transmission of shares with powers to approve the same and also to issue
new share certificates wherever they consider necessary and proper."
PRACTICE NOTES
1. Power for constitution of committee must exist in Articles.-Power to
constitute a committee must be given in the Articles of Association of the
company.
2. When power delegated to Committee directors lose that power.-The Directors
lose the power when they delegate the power to a committee. Ruth v. Clarks, (1891) 63 LT 348.
3. One Director may constitute
Committee.-A committee may consist of one Director only. Fire Proof Doors, (1916) 2 Ch 142.
4. Powers cannot be delegated to Committee when no authority exists in
Articles.-Without an authority given by the
articles the Board of Directors of a company cannot delegate any of its powers
to a committee. Howard's Case, I Ch
App 561.
5. Certain powers to be exercised at Board Meeting only.-There are
certain powers which can be exercised only at the Board Meeting (S. 292).
Committee of Board for transfer and transmission of shares
"RESOLVED that Shri
SKM, Managing Director and any one of the Directors on the Board for the time
being and available on the date and place where meeting of the Committee is
held, be and is hereby approved as the Committee of the Board for the purpose
of approving transfer and transmission of shares as also issue of duplicate
share certificates in lieu of those
which are reported to be lost or destroyed.
RESOLVED FURTHER that the
aforesaid Committee be and is hereby authorised to issue share certificates in
lieu of letter(s) of allotment
reported to be lost/misplaced/not received by the shareholders after getting
such indemnity and other evidence and payment of out of pocket expenses
incurred or to be incurred by the Company in investigating the evidence as the
Company may deem it proper and necessary.
PRACTICE NOTES
1. Board may delegate its power to a Committee.-The Board
may delegate any of its powers to a committee consisting of such member or
members of its body as it thinks fit.
2. Committee to exercise its powers subject to regulations imposed on it
by Board.-The Committee so formed, shall in the
exercise of the powers so delegated conform to any regulations that may be
imposed on it by the Board.
Restriction on Acquisition of Certain Shares
RESOLVED that subject to the previous approval of the Central Government the Board of Directors of the company be authorised to acquire or agree to acquire in its own name ……equity shares of Rs ……each of ABC Co. Ltd. a public company at a price of Rs ……per share at a the total nominal value of which will exceed 25% of the paid-up share capital of the company.
RESOLVED FURTHER that the
Secretary be authorised to make the application to the Central Government for
obtaining the approval and to do everything that is necessary in connection
therewith.
PRACTICE NOTES
1. Application to the Central Government.-The application
to the Central Government should be made in Form No. 7D in triplicate. The
application should be accompanied by a treasury challan or demand draft
evidencing payment of fee of Rs. 500/-. One certified true copy of the
audited balance-sheet and profit and loss account of the company whose
shares are proposed to be acquired for each of the last 3 years immediately
preceding the year in which the shares are proposed to be acquired should be
enclosed to the application. One certified true copy of audited balance-sheet
and profit and loss account of the applicant company for each of the 3 years
immediately preceding the year in which the shares are proposed to be acquired.
Acquisition of shares under section 108A without prior permission of the
Central Government was in violation of the section and therefore refusal by the
company to accept the transfer of shares was held to be justified. Gujarat Machinery Manufacturers Ltd. v. Nile
Ltd., (2001) 105 Com Cases 817 (CLB).
2. Time within which refusal to be communicated.-The application
made to the Central Government for according its approval should be presumed to
have been granted unless within a period of 60 days from the date of receipt of
such application, the Central Government Communicates to the person by whom the
application was made that the approval prayed for cannot be granted. If the
application is incomplete in any respect, the deficiency will be pointed out to
the applicant and the period of 60 days mentioned in section 108E of the
Companies Act, 1956 will be counted
from the date from which such deficiency is set right.
3. Penalty for default.-Any person
who acquires any share in contravention of the provisions of section 108A will
be punishable with imprisonment for a term of 3 years or with fine of up to Rs.
50,000/- or with both.
Transfer of ten per cent Equity Share Capital of a dominant undertaking"
S. 108B-Purchase of ten percent equity share capital of a
dominant undertaking
RESOLVED that the company having agreed to purchase the share holdings of (seller) in owning a dominant undertaking at a price of Rs ……per share and necessary intimation thereof having been given by the seller to the Central Government for the transfer of those shares to the company the Board of directors hereby accord its approval to the purchase of the said shares at a price of Rs ……per share in pursuance of powers vested in the Board by virtue section 372A of the Companies Act, 1956.
RESOLVED FURTHER that Shri ……Managing Director -of the Company be and is hereby
authorised to take further action as may be necessary to give effect to the
resolution.
PRACTICE NOTES
1. Intimation to Central Government of any proposal to transfer shares.-Section 108B
of the Act provides that every body corporate or bodies corporate under the
same management holding 10% or more, of the subscribed equity share capital of
any company shall intimate to the Central Government of any proposal for
transfer of such shares.
2. Transfer of preference shares not covered by the section.-Transfer of
preference shares does not come within the purview of this section.
3. Section 108-B
applicable in case transferor is dominant undertaking.-Section 108B
of the Act applies in case the transferor is (or would be as a result of such
transfer) a dominant undertaking, as defined in section 2(d) of the MRTP Act,
1969.
4.
Inter se transfer of shares under the same
management covered by section. Inter se transfer of shares between
bodies corporate under the same management is also covered by this section, if
the holding of the transferor body (bodies) corporate is 10% or more of the
subscribed equity share capital of the transferee company.
5. Time-limit for sanction by the Government.-In
case no direction is received by the applicant body corporate within 60
days of the date of receipt of its intimation by the Government, it would be
free to transfer the shares as proposed.
6. Government's power to
refuse transfer of shares.- The Government's power to refuse is circumscribed
by two factors, viz., (i) that the proposal may cause a change in the
composition of the Board of Directors of the company concerned and (ii) that
such change would be prejudicial to the interest of the company or to the
public interest. Any other consideration would not be a valid basis for
rejection of the intimation given under this section.
7. Penalty for default.- Contravention of this
section is punishable under sub-sections (2) and (4) of section 108-I.
Every body corporate which makes the transfer without giving any intimation
will be punishable with fine of up to Rs. 50,000/-, and for contravention
made by a company, every officer of the company who is in default will be
punishable with imprisonment of 3 years or with fine of up to Rs. 50,000/-
or with both. The offences are compoundable under section 621A, except those
covered by section 108-I(4)(a).
Proposal to sell shares held by a company in a foreign company owning a
dominant undertaking to an Indian Company
"RESOLVED that pursuant to provisions of section 108C and subject to the previous approval of the Central Government and subject to other sanctions and permissions if any required the Board of Directors hereby accord its approval to transferor ……Equity Shares of each in a foreign company being a dominant undertaking to ……at a price of Rs ……per share (a fair price as determined by the valuer nominated by the company and the transferee company).
RESOLVED FURTHER that Shri ……Managing Director of the company be and is hereby authorised to
make the application to the Central Government and to sell the same on expiry
of sixty days from the date of
pplication where no approval is received."
PRACTICE NOTES
1. Transfer of shares of
foreign company held by body corporate prohibited when aggregate holding is 10% or more.-Under section 108C of the
Act transfer of any share of any foreign company held by a body corporate or
bodies corporate under the same management, when the aggregate holding is 10%
or more, of the nominal value Of the equity share capital has been prohibited,
except with the previous approval of the Central Government.
2. Central Government approval required when transferor owner of dominant
undertaking.-Approval of the Central Government is required
when the transferor is (or would be) the owner of a dominant undertaking.
3. Central Government can refuse its approval when proposed transfer
prejudicial to public interest.-The Central Government
can refuse its approval, only on the ground that the proposed transfer would be
prejudicial to public interest. Any other consideration cannot form valid basis
for rejection of the proposal by the Government.
4. Time-limit for decision by Government.-By virtue
of the provisions of section 108E the proposal for transfer of shares under
this section is required to be disposed of, by the Government within 60 days of
the date of receipt of the proposal. If it is not so done, the approval of the
Government is to be presumed.
5. Penalty for default.-Section 1081(3)
provides for penalty for contravention of section 108C, which is fine of up to
Rs. 50,000/- for every body corporate and imprisonment for a term of 3
years or fine of up to Rs. 50,000/-
or both for every officer of the company who is in default. The offence is
compoundable under section 621A by the Company Law Board.
Transfer of shares by legal Representative
S. 109-Transfer of shares by legal Representative-Board
Resolution
"RESOLVED that the transfer of ……equity shares of Rs. 10 each bearing distinctive numbers from ……to be and is hereby transferred to Mr. NXP from Mr. DTY who is the legal representative of the deceased member Shri ……as per the documents produced before this meeting, in terms of article ……of the Articles of Association of the company."
1. Transfer deed not required for transmission of shares.-No instruments
of transfer is necessary in the case of transmission. Reliance should be placed
on the provisions in the articles of the company and the succession
certificate, probate or letter of administration etc. obtained from the Court
by the successor, legal representative(s) or the executor of a will.
2. Application for transmission of shares to accompany succession
certificate/probate[Letter of Administration.-It is
necessary to make an application to the company stating that the shares or
debentures should be transmitted in favour of the claimants giving sufficient
proof of the latter's title by furnishing a succession certificate or, if the
value of the property of the deceased estate is Rs. 2 lakhs or less, a
certificate from the Administrator General of the State in which the registered
office of the company is situated along with the share or debenture
certificates and the transmission fee, if any, prescribed by the company.
3. On insolvency of shareholder Receiver may apply for transfer of
shares.-In case of insolvency of a
shareholder, the receiver appointed by the court will apply for mutation personalis designatio.
4. Provision administered by SEBI.-Section 55A inserted by the
Companies (Second Amendment) Act, 1999 has made provisions contained in section
109 in case of a listed public companies and of public companies which purport
to be listed to be administered by SEBI.
5. Power of Board to order or refuse transmission.-The Board,
after considering the application for transmission, will either order for or
refuse the transmission in exercise of powers given to them by the Articles of
Association.
6. Notification of refusal to
applicant within two months from date of application.-In case
of refusal, the company has to notify the applicant accordingly within two
months from the date of application (Section 111).
7. On refusal to transmit
shares appeal can be preferred to Company Law Board.-If the
Directors wrongly refuse transmission, an appeal should be preferred with the
Central Government. This right of appeal is available in respect of shares of
both of public company or private company.
8. Transfer by Legal Representative.-In the case of transfer of
shares by a legal representative, without the formalities of mutation by
transmission being complied with, the following procedure may be followed:
(a) The legal representative or
representatives of a deceased member may transfer the shares standing in the
name of the deceased member as if he is or they are the member or members
(Section 109).
(b) A share transfer deed (Form No. 713) may
be executed in the name of the legal representative as the transferor.
(c) The same procedure as in the case of a transfer may be
followed.
Transmission of shares by natural guardian
S. 109-Transmission of shares by natural guardian-Board
Resolution
"RESOLVED that the transmission of equity shares of Rs. 10/- each bearing
distinctive numbers from to be registered in the name of NXP.
RESOLVED that Mr. NXP, having attained majority and having produced documents to that effect ……equity shares of Rs. 10/- each be registered in the name of NXP and the name of Mr. DTY, natural guardian of Mr. NXP be deleted from the company's records."
PRACTICE NOTES
1. Title to deceased shares.-On the death of a member the
survivor or survivors where the member was a joint holder and his legal
representatives where he was a sole holder shall be the only persons recognised
by the company as having any title to his interest in the shares.
2. Transmission by operation of law.-Section 108(l) second
proviso states that a company has power to register as a shareholder any person
to whom the right to any shares in the company has been transmitted by
operation of law.
The Companies (Amendment)
Act, 1999, with effect from 31st October, 1998 has inserted two new
sections 109A and 109B relating to nomination of shares and debentures and
transmission of shares and debentures automatically to the nominee appointed in
the prescribed manner. While section 109A provides for the manner of nomination
to be made, section 109B provides for transmission of shares or debentures of
the deceased shareholder or debenture holder to the nominated person on the
death of such shareholder or debenture holder. Section 109B also provides for
the action of the nominee on the death of the share-holder or the
debenture holder. The nominee can either elect to register himself as the
holder of the shares or debentures of the deceased or elect to transfer such
shares or debentures to others which the deceased shareholder or debenture
holder could have made. The facility of nomination is intended to make the
company law in tune with the present day economic policies of liberalization
and deregulation.
Nomination of shares and debentures
S. 109A-Nomination of shares and debentures-Board
Resolution
WHEREAS the Companies
(Amendment) Act, 1999 has inserted a new section 109A with effect from 31st
October, 1998 allowing every shareholder and debenture holder of the company to
nominate in the prescribed manner a person to whom his shares in or debentures
of the company shall vest in the event of his death;
AND WHEREAS where the shares
or debentures of a company are held by more than one person jointly then the
joint holders may together nominate in the prescribed manner a person to whom
all the rights in the shares or debentures of the company shall vest in the
event of death of all the joint holders.
NOW, THEREFORE, IT IS
RESOLVED that all the application forms of shares and debentures of the company
be and are hereby modified to have respective columns provided therein for
nomination of persons in the prescribed manner by each and every shareholder
and debenture-holder.
RESOLVED FURTHER that the Secretary
be authorised to take every action to implement the aforesaid decision of the
Board and to do everything that may be necessary in connection therewith or
ancillary or incidental thereto.
PRACTICE NOTES
1. Right of the nominee- Sub- section (3) of
section 109A of the Act provides that notwithstanding anything contained in any
other law for the time being in force or in any disposition, whether
testamentary or otherwise, in respect of such shares in, or debentures of, the
company, where a nomination made in the prescribed manner purports to confer on
any person the right to vest the shares in or debentures of the company, the
nominee shall, on the death of the shareholder or holder of debentures of the
company or, as the case may be, on the death of the joint holders become
entitled to all the rights in the shares or debentures of the company or, as
the case may be, all the joint holders, in relation to such shares in, or
debentures of the company to the exclusion of all other persons, unless the nomination
is varied or cancelled in the prescribed manner. The said nomination should be
made in Form No. 2B prescribed through Rule 4CCC
and 5D of the Companies (Central Government's) General Rules and Forms,
1956.
2. Minor as a nominee- In case a nominee appointed
by a shareholder or debenture holder of the company is a minor, it will be
lawful for the holder of shares or the holder of debentures to make the
nomination to appoint in the prescribed manner any person to become entitled to
shares in, or debentures of the company in the event of his death during
minority.
Transmission of shares
S. 109B-Transmission of shares-Board Resolution.
WHEREAS the company has
received a notice in writing from Mr. ABC, a nominee of the deceased
shareholder for equity shares of Rs. 10/-
each along with death certificate of the deceased shareholder a copy of which
is placed before this meeting;
AND WHEREAS the said nominee
elected to be registered himself as holder of the said shares;
AND WHEREAS the said nominee
has sent to the company the required evidence as to the death of the said
shareholder and also the proof of his being the nominee of the deceased
shareholder.
NOW, THEREFORE, IT IS RESOLVED that number of shares of Rs. 10/- each standing in the name of Mr who has expired on 2002 be transmitted to and registered in the name of Mr. ABC being the nominee of the said shareholder.
RESOLVED FURTHER that the.
Secretary of the. company be directed to do the needful in connection therewith or ancillary or incidental thereto.
PRACTICE NOTES
1. New section inserted by the Companies (Amendment) Act-Section 109B
has been inserted by the Companies (Amendment) Act 1999 with retrospective
effect from 31st October, 1998 providing for the nominee of a deceased
shareholder or debenture holder either to elect himself to be registered as a
holder of a share or debenture or to make such transfer of the share or
debenture as the deceased shareholder or the debenture holder could have made.
In case the nominee elects to have himself registered as the shareholder of the
company he should send a notice in writing along with death certificate of the
deceased shareholder or the debenture holder stating that he wants to be so
elected. The Board of Directors has the power to make the nominee to produce
any such evidence as it may deem fit before accepting his notice for
transmission and registration.
2. Board's right to decline registration-Whether the nominee of
the deceased shareholder or the debenture holder elects himself to be registered
as the shareholder or debenture holder or makes a transfer of shares or
debentures transmitted in his favour by operation of law, the Board of
Directors of a company in either case has the same right to decline or suspend
registration as it would have had if the deceased shareholder or debenture
holder as the case may be had transferred the shares or the debentures before
his death. Although the nominee is required to send the notice to the Board
informing it about his decision to be registered as a shareholder or a
debenture holder in place of the deceased shareholder or debenture holder, the
Board of Directors of the company can at any time give notice to the nominee
requiring him to elect either to be registered himself or to transfer the
shares or debentures. If the said notice is not complied within ninety days,
the Board may thereafter withhold payment of all the dividends, bonuses or
other monies payable in respect of the shares or debentures until the
requirements of the notice have been complied with.
Registration of
share transfer etc. (S. 111)
By the Companies (Amendment)
Act, 1988-Section III has been recast and accordingly the provisions
contained in sections III, 155 and 156 prior to the amendment regarding
registration of share transfer and rectification of register of members have
been merged in section III itself. The Company Law Board has been vested with
the appellate powers of the Central Government against refusal to transfer
shares and High Court's power to rectify register of members. The amended
provision has not yet been put into force.
Refusal of registration of shares without assigning reasons (S. 111)
After the coming into force
of the Companies (Amendment) Act, 1988, with effect from 15th June, 1988, it
has become obligatory for a company to give reasons for its refusal to register
transfer of shares lodged with it. The reasons should be such as are likely to
prejudice the company as a whole and not for perpetuating the hold of the
present management over the company. It is also necessary that refusal to
register transfer of shares in communicated to the transferor and the
transferee along with reasons for refusal within two months from the date on
which instrument of transfer is lodged with the company or the intimation of transmission
is given to the company. The amendment has not yet been put into force.
Refusal to register transfer/transmission of shares (S. 111)
The Board will be within its
rights to refuse registration of a transfer in favour of a person whose activities
are prejudicial to the interest of the company. Amrithalingain v. Gudiyathanz Textile Ltd., (1972) 42 Comp Cas 350.
Only the Board of Directors can refuse the transfer of shares. Moodi v. W & J. Shephere Ltd., (1949)
2 All ER 1044.
The exercise of the power to
refuse to register transfer of shares is that unless the articles confer any
such power, the Board cannot exercise such power and a refusal to register a
transfer would be set aside by the Court; Nandit
Investment Co. Pvt. Ltd. v. Prem Chand Jute Mills Ltd., 1981 Tax LR 2557
(Cal). now Company Law Board. Even though the articles may give the Directors
absolute and uncontrolled discretion to refuse to register a transfer, a
fiduciary power of this sort must be exercised bonafide in the interest of the company. Re Smith and Fawcett, (1942) 1 All ER 542 (CA). Where the articles
permitted refusal only on personal grounds, it was held that a refusal on the
ground that the transferee was not a member of shipping companies was not
justified. Re, Bade Steam Shipping Co.
Ltd., (1917) Ch 123 (CA). If the Directors decline to register the transfer
with an ulterior motive or arbitrarily, the Court can interfere and direct the
company to enter the name of the transferee in the Register of Members. Matheran Steam Tramway Co. v. B.N. Lang, (1931)
1 Comp Cases 206. When a person seeks to become a member of a company with
ulterior motive, then it cannot be said that the decision of Directors to
refuse to a register transfer of shares is unjustified. Feroz S. Wadia v. Kutch Salt & Allied Industries Ltd., (CLB
decisions page 131). Where the succession certificate has been granted in
respect of the shares, the company would not be justified in insisting upon the
production of probate or letters of administration. Thenappa Chettiar v. Indian Overseas Bank Ltd., (1943) 12 Comp
Cases 203. The power to refuse cannot be exercised once a transfer has been
recognised and registered. Iron Traders
(P) Ltd. v. Hiralal Mithal, (1962) 32 Comp Cases 1022 (Punj). Where of the
two Directors, one refused to attend the meeting in order to prevent the other
from proceeding with the transfer, it was held that the transfer must be
registered. Re. Gopal Varnish Co. Ltd., (1917)
2 Ch 349. A private limited company will be justified in refusing to register a
transfer of its shares, if the contract for sale violates the provisions of the
Securities Contracts (Regulation) Act, 1956. BX Holding (Pvt.) Ltd. v. Prent Chand Jute Mills Ltd., (1982) 1
Comp LJ 288.
which were of a detailed
nature, were intended to ensure that transactions in securities by banks were
conducted in an orderly manner.
Banks were enjoined to frame
and implement a suitable investment policy to ensure that operations in
securities are conducted in accordance with sound and acceptable business
practices. While evolving the policy, they were required to keep in view the
following guidelines:
(i) "Under no circumstances, the bank
should hold a oversold position in any security, that is to say that no sale
transactions should be put through without actually holding the security in its
investment account.
(ii) All the transactions put through by bank
either on outright basis or ready forward basis and whether through the
mechanism of SGL Account or bank receipt should be reflected on the same day in
its investment account, and accordingly, for SLR purpose, wherever applicable.
(iii) Transactions between one bank and another
bank should not be put through the brokers' account. The brokerage on the deal
payable to the broker, if any, (if the deal is put through with the help of a
broker) should be clearly indicated on the notes/memorandum put up to the top
management seeking approval for putting through the transaction and separate
account of brokerage paid brokerwise should be maintained.
(iv) For issue of BRs, the banks should adopt
the format prescribed by the IBA and should strictly follow the guidelines
prescribed by them in this regard subject to the above, the banks should not
issue BRs covering their own sale transactions only and should not issue BRs on
behalf of their constituents including brokers.
(v) The banks should be circumspect while
acting as agents of their broker clients for carrying out transactions in
securities on behalf of brokers.
(vi) Any instance of return of SGL Form from
the Public Debt Office of the Reserve Bank for want of sufficient balance in
the account, should be immediately brought to the Reserve Bank's notice with
the details of the transactions".
A copy of the policy
framework for undertaking transactions in securities approved by the bank's
Board was to be forwarded to the Reserve Bank.
Refusal of Transfer of shares
S. 111 Refusal of Transfer of shares-Board Resolution
"WHEREAS an application
for registration of transfer of shares held by the member Mr. A. Arunachalam
was made by the said Mr. Arunachalarn in favour of Mr. S. Murlidharan;
AND WHEREAS only Rs. 5/-per
share of Rs. 10/-is so far paid on the shares;
NOW THEREFORE IT IS RESOLVED
that a notice by registered A.D. post be served on Mr. Murlidharan and it is
further resolved that the said transfer shall not be registered until the
expiry of two weeks from the date of receipt of the said letter sent by
registered A.D. post."
PRACTICE NOTES
1. Application for transfer.-An application
for the registration of a transfer or other interest of a member of a company
can be made either by the transferor or by the transferee in Form No. 7B.
2. Notice to the transferee.- If the shares involve in
the transfer are partly paid shares, the transfer will not be registered unless
the company gives notice of the application to the transferee of the shares and
the transferee gives no objection to the said transfer within two weeks from
the receipt of the notice.
3. Notice to be duly given.- Notice to the transferee as
mentioned above will be deemed to be duly given if it is despatched by the
company by pre-paid registered post at the address of the transferee
given in the instrument of the transfer and will also be deemed to have been
duly delivered at the time at which it would have been delivered in the
ordinary course of post.
4. Penalty for default.-If default
is made in complying with any of the provisions of section I 11, the company
and every officer of the company who is in default will be punishable with fine
of up to-Rs. 500/- for every day, during which the default
continues.
Refusal to register transmission
S. 111-Refusal to register transmission-Board Resolution
"RESOLVED that the transmission of equity shares bearing distinctive Nos ……to ……to Mr. A.B. as the executor of the estate of late Mr. C.D., be and is hereby rejected in the absence of an order of Court granting probate of the will of the deceased in favour of the said Mr. A.B. and the Secretary is directed to inform him accordingly."
PRACTICE NOTES
1. Grounds of refusal to be intimated.-Notice of
refusal to register the transfer along with reasons thereof has to be sent to
the transferor as well as the transferee or the person giving intimation of
transmission, as the case may be, giving reasons for such refusal.
2. Appeal to Company Law Board.-Within two months of
receipt of notice of transmission or of the receipt of notice under (1) above,
the applicant has a right to prefer an appeal to the Company Law Board, under
section 111 of the Act.
3. Refusal by listed companies only on confirmation by Company Law
Board.-In the case of a listed company
this can be done only after it is confirmed by the Company Law Board on a
reference made to it in this regard.
Refusal to register transfer with reasons
S. 111-Refusal to register transfer with reasons-Board
Resolution
"RESOLVED that the transfer of ……equity shares, having consecutive numbers ……to ……both inclusive, from Mr. XYZ to Mr. ABC, submitted to this meeting, be and is hereby refused on the ground that the aforesaid transfer requires full stamp duty chargeable under the usual transfer and not the nominal amount of stamp under which the transfer instruments, in question, are executed, and that the transfer be not registered and that the Secretary of the company be instructed to give notice to the transferor and the transferee about the decision of the Board."
PRACTICE NOTES
1. Company under obligation to give reasons for refusal.-Under the
amended S. 111 of the Act, it has become obligatory for a company to give
reasons for its refusal to register transfer of shares lodged with it. The
reasons should be such as are likely to prejudice the company as a whole and
not for perpetuating the hold of the present management over the company. It is
also necessary that refusal to register transfer of shares is communicated to
the transferor and the transferee along with reasons for refusal within two
months from the date on which instrument of transfer is lodged with the company
or the intimation of transmission is given to the company. The section has not
yet been put into effect. Shares allotted under an oral agreement without any
written application being given to the company for such allotment, it was held
that the said allotment did not comply with the requirement of section 41 and
therefore that was a sufficient cause for ordering rectification of the
register of members. Indglobal Investment
& Finance Ltd. v. Rajasthan Breweries Ltd., (2001) 107 Com Cases 525 (CLB).
2. Grounds on which company may refuse to register transfer.-Registration of transfer of shares is commonly refused in the following cases:
(i) Instrument of transfer not lodged within the period
prescribed under section 108;
(ii) Prescribed instrument of transfer is not used (unless the same
is dispensed with under section 108 (IC));
(iii) Instrument of transfer is not completed in all respects;
(iv) Instrument of transfer is not duly stamped;
(v) Stamps used are of appropriate value but are not defaced;
(vi) Shares transferred are partly paid and the transferee is a
minor;
(vii) Shares are partly paid and the transferee
has refused to become a member on receipt of the notice under section 110(2);
(viii) Instrument of transfer is not accompanied
by all the necessary documents;
(ix) Instrument of transfer or any of the
documents had contained mistakes and they were sent back for correction but had
not been returned to the company;
(x) The company is statutorily prohibited
from registering the transfer by virtue of any order of the Central Government
or the Court.
3. Directors to act bona fide and
not arbitrarily.-The Supreme
Court has observed that in the exercise of their discretion, the Directors had
to act for the paramount interest of the company and for the general interest
of the shareholders because the Directors were, in a fiduciary position, both
towards the company and towards every shareholder. The Directors were,
therefore, required to act bona fide and
not arbitrarily and not for any collateral purpose. The discretion of the
Directors had to be tested as the opinion of fair and sensible men in the
interest of the company. Bajaj Auto Ltd.
v. NX Firodia, (1971) 41 Com Cases 1 (SC).
4. Period within which appeal to be preferred.-Under section 111(3) an appeal may
be preferred within two months of the receipt of the notice of such refusal or
where no notice has been sent by the company within four months from the date
on which instrument of transfer or the intimation of transmission, as the case
may be, was delivered to the company.
5. Appeal
against whom lies.-Appeal against refusal to transfer share lies
(a) against a public company under section 43A;
(b) against a private company which is not a
subsidiary of a public company for non-transmission of shares as a result
of Court sale under sub-section (11);
(c) against a private company whether it is
a subsidiary of a public company or not on any ground not stated in restriction
contained in its articles of association.
6. Procedure for filing petition.-A petition to the Bench shall
be prepared in Form No. 1 in Annexure II, Company Law Board Regulations, 1991
and presented by the petitioner in person or through authorised representative
to the office of the concerned Bench or be sent by registered post with acknowledgment
due addressed to the Secretary or Bench Officer of the concerned Bench. (Regn.
No. 14(t)).
7. Contents of petition.-The petition shall set forth the name of
the company with its status, date of incorporation, the address of its
registered office, authorised capital, paid up capital with division of
different classes of shares and terms of issue, if any, in the case of
preference shares, main objects in brief, for which the company was formed,
present business activities of the company, and shall also set forth concisely
under distinct heads, the grounds for such petition and the nature of relief(s)
prayed for.
8. Documents to be attached to the petition: Where the company is the
petitioner
(1) Certified true copy of the Memorandum and Articles of Association.
(2) Certified true copy of the latest
audited balance-sheet and profit and loss account, auditors' report and
directors' report.
(3) Authenticated copy of the extract of the Register of Members.
(4) Certified true copy of the resolution of the Board or
Committee of Directors (where applicable).
(5) Any other relevant documents.
(6) Affidavit verifying the petition.
(7) Bank draft evidencing payment of application fee.
(8) Memorandum of appearance with copy of the or the executed
Vakalatnama, as the case may be.
(9) Two extra copies of the petition.
9. Where the
petition is made by any other person,
1. Documentary evidence in support of the
statements made in the petition including the copy of the letter written by the
petitioner to the company for the purpose of registering the transfer of, or
the transmission of the right to, any shares or interest in, or debentures as
also a copy of the letter of refusal of the company.
2. Copies of the documents returned by the company.
3. Any other relevant documents.
4. Affidavit verifying the petition.
5. Bank draft evidencing payment of application fee.
6. Memorandum of appearance with copy of the executed
Vakalatnama.
7. Two
extra copies of the petition.
10. Fee payable.-The fee payable on the petition
is Rs. 500/-.
11. Mode of payment of fee.-Fees may be paid also by
means of a Bank Draft drawn in favour of the Pay and Accounts Officer,
Department of Company Affairs, New Delhi/ Mumbai/ Kolkata/ Chennai.
Refusal to register transfer on account of delayed presentation
S. 111-Refusal to register transfer on account of delayed
presentation-Board Resolution
"RESOLVED that the
transfer of ……equity shares, of Rs ……each bearing distinctive Nos ……to from Mr ……to Mr ……be and is
hereby rejected on the ground that the transfer was lodged with the company
after the expiry of the prescribed period, and the Secretary is directed to
inform the transferee accordingly."
PRACTICE NOTES
1. Transfer not to effected on defective instrument.-Where
there is a defect
in the instrument, or it is presented after the expiry of the period prescribed
under section 108, it is the duty of the company not to give effect to the
transfer.
Refusal to register transfer due to anticipated change of management
"RESOLVED that the
application for transfer of 30,000 equity shares of Rs. 10/-each of the
company (distinctive Nos. 14000 to 43999) lodged by Mr. ABC for transferring these
shares in the joint names of XYA and LMP be and is hereby rejected on the
ground that the transfer of these bulk shares is likely to result in the change
of management of the -company and the Board feels that such a change will
be prejudicial to the interest of the company."
PRACTICE NOTES
1. Company under obligation to give reasons for refusal.- Notwithstanding any provisions in
the Articles of Association of the company empowering the Board of Directors of
the company to refuse transfer of shares without assigning any reasons after
the coming into force of the Companies (Amendment) Act, 1988 on 15-6-1988,
it has become obligatory for a company to give reasons for its refusal to
register transfer of shares lodged with it. The reasons should be such as are
likely to prejudice the company as a whole and not for perpetuating the hold of
the present management over the company.
2. Reasons for refusal to be
bona fide.- Right to transfer shares is one of the essential ingredients of a public company
and transfer of shares cannot be refused only on the ground that the transferee
has acquired shares with a view to get control over the management of the
company. It is the right of every shareholder to aspire for directorship in the
company. Therefore, the reasons to be given for refusal should be such which
are bona fide.
3. Refusal to register transfer to be communicated both to transferor and
transferee.-It is also necessary that refusal to
register transfer of shares is communicated to the transferor and transferee
along with the reasons for refusal within two months from the date on which
instrument of transfer or the date on which the intimation of transmission is
delivered to the company.
4. Right of transferee/legal heirs to Company Law Board against refusal.-Within two
months of the receipt of the refusal of the company to approve
transfer/transmission, the transferee/legal heirs of the deceased may appeal to
the Company Law Board against the decision of the Board of Directors of the
company and on the Company Law Board accepting his appeal shall have to approve
the transfer and note the transmission as the case may be.
5. Person aggrieved/Company may apply to Company Law Board for
rectification of Register of Members.-Powers for
ordering rectification of the Register of Members of the company vested in the
High Courts under section 155 of the
Act have also been transferred to the Company Law Board and section 155 of the
Act has been deleted by the Companies (Amendment) Act, 1988. Any person who is
aggrieved by the fact that his name is omitted from the Register of Members
without sufficient cause or name of any person is entered therein without
sufficient cause may apply to the Company Law Board for the rectification of
the Register of Members. Whenever such an application is made by the person
aggrieved, the Company Law Board shall issue notice thereof to the company and
if after hearing the parties the Company Law Board orders rectification of the
Register of Members of the company, such rectification shall be carried out.
Bond holders making application to a company for rectification of the register
of bond holders and for payment of redemption value of bonds were aggrieved
persons and were entitled to interest for the period between the Company Law Board's
order and the date of actual payment. Canara
Bank v. NTPC, (2002) 110 Com Cases 107 (CLB).
6. Company may appeal to High Court against order of Company Law Board.-If the
company is aggrieved by the order of the Company Law Board, it may file an appeal
to the High Court pursuant to section lOF which has been inserted in the
statute by the Companies (Amendment) Act, 1988.
7. Company Law Board empowered to pass interim order or grant injunction, The Company Law Board has
been empowered even to pass interim order or grant injunctions or any other
order e.g. order to pay dividend, or
allotment of bonus or right shares etc. while hearing an appeal preferred
against the company's refusal to register/transmission of shares. The company
will have to comply with this order/ direction of the Company Law Board.
8. Power of Company Law Board to pass interim order even while hearing
application for rectification of Register of Members.-Interim orders/directions
can be passed even while hearing an application seeking rectification of the
Register of Members of the company.
9. Articles to be checked up while refusing transfer of shares.-Before refusing
the application of transfer of shares, it may be checked up that the articles
of the company empower the Board to refuse registration. If there is no such
power given by the articles, the company is bound to register the shares.
10. Principles laid by Supreme Court to be borne in mind while refusing
transfer of shares.-The principles for the exercise of this
power by the company has been laid down by the Supreme Court in the case of BqJqJ Auto Limited v. NX Firodia and others,
(1971) 41 Comp Cases. These
principles should be borne in mind while the Board exercises its powers.
11. Right of Board to refuse transfer.-The Board will be
within its rights to refuse registration of a transfer in favour of a person
whose activities are prejudicial to the interest of the company. Anirithalingain v. Gudiyathain Textile Ltd.,
(1972) 42 Comp Cases 350.
12. Power of refusal vests in Board of Directors.-Only the Board of Directors can refuse the transfer of shares. Moodi v. W. & J. Shepherd Ltd., (1949) 2
All ER 1044.
13. Company within its rights to refuse transfer where instrument not
properly stamped.-If the share transfer application is not
valid in that it is not properly stamped or stamps are not cancelled or the
application is on a form whose validity has expired or the essential
particulars are not given, the company shall be within its right to refuse
registration of transfer.
14. Time-limit for appeal to Company Law Board.-Appeal to the Company Law Board under section 111(3) has to be made within two months of the notice of refusal by
the appellant or where no notice has been sent by the company within four
months from the date on which the instrument of transfer or the intimation of
transmission, as the case may be, was delivered to the company. An application
for condonation of delay should be considered in the interest of justice, where
no gross negligence or deliberate inaction or lack of bona fides is imputable to the parties seeking condonation of
delay. Bombay Deying & Mfg. Co. Ltd.
v. Arun Kumar Bajoria, (2001) 107 Corn Cases 535 (CLB). Also it was held that if there is any delay in filing
the appeal the Limitation Act, 1963 was
applicable and therefore delay could be condoned provided such delay is bona fide. Khurshid Alam v. P. Pagnon Co.
(P) Ltd., (2002) 108 Com. Cases 523 (CLB).
15. Articles must confer on Board power to register transfer.-The exercise of the power to refuse to register transfer of shares is
that unless the articles confer any such power, the Board cannot exercise such
power and a refusal to register a transfer would be set aside by the Court. Nandit Investment Co. Pvt. Ltd., v. Prem
Chand Ate Mills Ltd., 1981 Tax LR 2557
(Cal).
16. Board to exercise power of refusal bona
fide in the interest of Company. Even though the articles may give the
Directors absolute and uncontrolled discretion to refuse to register a
transfer, a fiduciary power of this sort must be exercised bonafide in the interest of the company. Re, Smith and Fawcett, (1942) 1 All ER 542 (CA).
17. Refusal to transfer shares
on personal ground not justified.- Where the articles permitted
refusal only on personal grounds, it was held that a refusal on the ground that
the transferee was not a member of shipping companies was not justified. Re, Bade Steam Shipping Co. Ltd., (1917) Ch
123 (CA).
18. Court (Company Law Board) can order transfer of shares where transfer
refused arbitrarily.-If the Directors decline to register the
transfer with an ulterior motive or arbitrarily, the Court can interfere and
direct the company to enter the name of the transferee in the register of
members. Matheran Steam Tramway Co. v.
B.N. Lang, (1931) 1 Comp Cases 206.
19. Penalty for default.-If default is made in giving effect to
the orders of the Company Law Board under section I 11, the company and every
officer of the company who is in default will be punishable with fine of upto
Rs. 10,000/- and with further fine of upto Rs. 1,000/- for every
day after the first day after which the default continues.
20. Directors justified in refusing transfer when person seeking membership
with ulterior motives.-When a person seeks to become a member of a
company with ulterior motive, then it cannot be said that the decision of
Directors to refuse to register transfer of shares is unjustified. Feroz S. Wadia v. Kutch Salt & Allies
Industries Ltd, (CLB decisions page 131).
21. Company not justified in insisting probate/Letter of Administration
where succession certificate granted.-Where the succession
certificate has been granted in respect of the shares, the company would not be
justified in insisting upon the production of probate or letters of
administration. Thenappa Cliettiar v.
Indian Overseas Batik Ltd., (1943) 12 Comp Cases 203.
22 Once transfer recognised and
registered power of refusal not exercisable, The power to refuse cannot be exercised once
a transfer has been recognised and registered. Iron Traders (P) Ltd. v. Hiralal Mithal, (1962) 32 Comp Cases 1022
(Punj).
23. Transfer register able where one of directors refused to attend
meeting, Where of the two Directors, one refused to attend the meeting in
order to prevent the other from proceeding with the transfer, it was held that
the transfer must be registered. Re,
Gopal Varnish Co. Ltd., (1917) 2 Ch 349.
24. Private company justified in refusing transfer if contract of sales
violates provisions of Securities Contracts Act.-A private limited
company will be justified in refusing to register a transfer of its shares, if
the contract for sale violates the provisions of the Securities Contracts
(Regulation) Act, 1956. BX Holding (Pvt.)
Ltd. v. Prem Chand Jute Mills Ltd., (1982) 1 Comp LJ 288.
25. Order of Company Law Board appeasable to High Court on question of Law.-The orders passed by the Company Law Board under this section are
appeasable to the High Court on any question of law under section 10F.
26. Finding of fact by Company Law Board not to be interfered with by
Supreme Court.-The powers exercised by the Company Law
Board under this section being judicial, any finding of fact will not be
reopened by the Supreme Court. Amalgamated
Electricity Co. Ltd. v. Naval Sarabjee Bliathena, (1963) 33 Comp Cases 568
(SC).
27. Inserted by the Depositories Act 1996.-With the
insertion of sub-section (14) to section III by the Depositories Act,
1996, company used in this section means a private company and includes a
private company which had become a public company under section 43A. Appeal
against refusal to register transfer or transmission of shares of a public
company listed or unlisted is to be made under section III A which is also
inserted by the Depositories Act, 1996.
Rectification of register on transfer. (S. 111A)
Section 111A has been
inserted by the Depositories Act 1996 with effect from 20th September, 1995 to
provide for free transferability of shares or debentures of a company other
than a private company or Section 43A company. The Company Law Board has been
empowered to direct the company to register transfer of shares of a public
company in case it refuses to register a transfer without sufficient cause
within two months from the date of delivery of the instrument of transfer or
the intimation of transfer to the company on the appeal of the transferee under
proviso to sub-section (2) of section 111A. Under sub-section (3)
to this section Company Law Board has also been empowered to direct
rectification of register of members or records of a depository in case a
transfer has been made in contravention of the provision of SEBI Act, 1992 or
any regulation made there under or Sick Industrial Companies (Special
Provisions) Act, 1985 on an application made by a depository, company,
participant, investor or the SEBI itself.
The changes have been made
by the Depositories Act 1996 by way of insertion of Section 111A with a view to
deal with transfer through depositories entrusted with the responsibility of
maintaining ownership records of securities in a book-entry form. The
Depositories Act provides for dematerialisation of shares in the depository
mode under which the securities held in a depository should be reflected
through book entry through computerised electronic data without physical
delivery of share certificates, transfer deeds etc. This section not only
allows rectification of register -of members of the concerned company but
also rectification of register or records of depositories holding shares in
dematerialised form. Mere entry in register of name of transferee would not
entitle him to shares where consideration is not paid. The company would be at
liberty to rectify the register in respect of them who did not pay
consideration. American Remedies Ltd. v.
Prakash Chandra Gupta, (2002) 111 Com Cases 777 (CLB).
Certification of transfers. (S. 112)
This section allows
companies to make certification of any instrument of transfer of shares or
debentures of the company. The said certification will be taken as a representation
by that company to any person acting on the faith of the certification that
there have been produced to the company such documents as on the face of them
show a prima facie title to the
shares or debentures in the transferor mentioned in the instrument of transfer.
But such certification will not mean as a representation that the transferor
has any title to the said shares or debentures as the case may be. The
instrument of transfer will be deemed to be corticated under this section if it
bears the words "certificate lodged" or words to the like effect. A
company can make certification of an instrument of transfer only by any officer
or servant of the company or any other person authorised to certificate
transfers on behalf of the company and in case a body corporate has been given
the authorisation to make certification on the instrument of transfer of a
company such certification can be made by any officer or servant of that body
corporate duly authorised by it do so.