Transfer of

Shares
Week 11 & 12
Transfer
• Shares are Denoted by Share Certificate (S. 46) – which means they are
movable property – S. 2(7) Sale of Goods Act, 1930
• – ‘goods’ means every kind of movable property other than actionable claims
and money; and includes stock and shares
• - mostly held in physical form by shareholders in a private companies
• - or by promoters of a company as they do not intend to trade on stock
exchange but maintain control
• For a listed company, the shares can be dealt only on a stock exchange
through a demat a/c, when making a public offer
• Transfer for a private or unlisted company works by transfer of share
certificate.
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Transfer
• Section 4 of the Sales of Goods Act, 1930 – Sale and agreement to sell –
• (1) A contract of sale of goods is a contract whereby the seller transfers or agrees to
transfer the property in goods to the buyer for a price. There may be a contract of sale
between one part owner and another.
• (2) A contract of sale may be absolute or conditional.
• (3) Where under a contract of sale the property in the goods is transferred from the seller to
the buyer, the contract is called a sale, but where the transfer of the property in the goods
is to take place at a future time or subject to some condition thereafter to be fulfilled, the
contract is called an agreement to sell.
• (4) An agreement to sell becomes a sale when the time elapses or the conditions are
fulfilled subject to which the property in the goods is to be transferred.
• Therefore, under Sale of Goods Act, 1930, intention and delivery is necessary –
registration is not as in the case of an immovable property

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Transfer
• Since shares are movable property – they can be mortgaged/pledged to raise a loan –
the mortgagee can have the shares transferred in his name if the mortgagor fails to pay
• Shares can be forfeited – If a member having been called upon to pay, defaults, the
company may forfeit his shares if the Articles permit the company to do so- forfeited
shares become the property of the company and it results in reduction of capital
• Surrender – has been accepted as a principle by the courts – Just like forfeiture – the
difference being here it is done with the assent of the shareholder who cannot pay
future calls on the shares
• Lien on shares - A lien is the first right of the company on a share which is unpaid for -
means that the member would not be permitted to transfer his shares unless he pays
his debt to the company. The articles may give the right of lien over share either for
unpaid calls or for any other debt due by the member of the company. Must be in AoA.

Presentation Title 4
Transfer & Transmission
Basis Transfer Transmission
Nature Transfer takes place Transmission is the
by a voluntary act of result of the operation
the transferor of law
Instrume An instrument of No instrument of
nt transfer is required transfer is required in
in case of transfer case of transmission
Circumst As and when Transmission takes
ance the transferor place on death or
wishes insolvency of a holder
of securities
Presentation Title 5
Consider Usually with Without consideration
Procedure for transfer
• Section 56 of Act + Rule 11 of Companies (Share Capital & Debentures) Rules
2014 + Provisions in the model AoA - Table ‘F’ of Sch.-I
• S. 56 (1) - A company shall not register a transfer of securities of the
company, or the interest of a member in the company in the case of a
company having no share capital, other than the transfer between persons
both of whose names are entered as holders of beneficial interest in the
records of a depository, unless:
• a proper instrument of transfer, in such form as may be prescribed, [Form
SH.4]
• duly stamped, dated and [Stamp duty is Rs. 0.25/- per Rs. 100 value of
share]
• executed by or on behalf of the transferor and the transferee; 6
Transfer
• Transferring shares to private limited companies can be restricted by the Articles of
Association.
• There are usually two forms of restrictions concerning the right of shareholders to
transfer shares. These are:
• Rights of preemption: When a shareholder is eager to sell some of his shares, these
shares must first be offered to the existing members of the private limited corporation at
a price outlined by the Auditors and the Directors of the organization. The share’s value
can be depicted considering the method or formula prescribed in the AOA. If the existing
shareholders are not interested in buying those shares, they can then be freely
transferred to any outsider.
• Refusal by the Directors: The Directors possess the power to refuse registration of the
transfer of shares considering definite circumstances marked in the Articles of
Association (AOA).
Presentation Title 7
Refusal of registration – S.58
• 58(1)- if a private company limited by shares refuses to register the
transfer of, or the transmission by operation of law of the right to, any
securities of a member in, the company, it shall, within a period of thirty
days from the date on which the instrument of transfer, or the intimation of
such transmission, as the case may be, was delivered to the company,
send notice of the refusal to the transferee and the transferor or to the
person giving intimation of such transmission, as the case may be, giving
reasons for such refusal.

• 58(2)- Without prejudice to sub-section (1), the securities or other interest

of any member in a public company shall be freely transferable:
• Provided that any contract or arrangement between two or more persons in respect
of transfer of securities shall be enforceable as a contract. [Shareholders Agreement]
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Refusal of registration
• 58(3)- The transferee may appeal to the Tribunal:
• against the refusal within a period of 30 days from the date of receipt of the notice or
• in case no notice has been sent by the company, within a period of 60 days from the
date on which the instrument of transfer or the intimation of transmission, as the
case may be, was delivered to the company.
• 58(4)- If a public company without sufficient cause refuses to register the
transfer of securities within a period of 30 days from the date on which the
instrument of transfer or the intimation of transmission, as the case may be,
is delivered to the company, the transferee may, within a period of 60 days
of such refusal or where no intimation has been received from the company,
within 90 days of the delivery of the instrument of transfer or intimation of
transmission, appeal to the Tribunal.

Presentation Title 9
Refusal of registration
• 58(5)= The Tribunal, while dealing with an appeal made
under sub-section (3) or (4), may, after hearing the
parties, either dismiss the appeal, or by order—
• Direct that the transfer or transmission is registered
with the company
• Direct rectification of the register and also direct the
company to pay damages, if any.

Presentation Title 10
Messer Holdings Limited v. Shyam
Madanmohan Ruia, [2010] 159 Comp.
Cas. 29 (Bombay High Court)
• a private agreement between the shareholders of a public limited company
relating to restrictions on share transfer (Right of first refusal) as valid agreement
and not violative of Sec. 111A of the Companies Act, 1956.
• The expression "freely transferable" in Section 111A does not mean that the
shareholder cannot enter into consensual arrangement/agreement with the third
party (proposed transferee) in relation to his specific shares.
• Further, such consensual agreements between particular shareholders relating to
their shares can be enforced like any other agreements.
• The expression "freely transferable" in S. 111A is in the context of the mandate
against the Board of Directors to register the transfer of specified shares of the
members in the name of the transferee, unless there is sufficient cause for not
doing so.
Presentation Title 11
Bajaj Auto
Ltd vs Western Maharashtra Development (MANU/MH/082
0/2015, Bombay HC)

• Bajaj Auto Ltd. and Western Maharashtra Development Corporation Ltd. (“WMDC”) had set up a joint
venture in the form of Maharashtra Scooters Ltd., in which Bajaj Auto held 24%, WMDC 27% and the
public 49%. The dispute arose out of a share transfer restriction contained in clause 7 of a Protocol
Agreement between Bajaj Auto and WMDC, which is in the nature of a right of first refusal. A dispute
related to the price at which Bajaj Auto could exercise the right to acquire WMDC’s stake.
• The matter resulted in arbitration for determination of the price, wherein an award was issued. The
single judge set aside the arbitration award on the ground that clause 7 was in violation of section
111A of the 1956 Act, which provided for free transferability of shares in a public company. It is
against this order that Bajaj Auto preferred an appeal.
• HELD: of section 22A of SCRA as it stood then, it is clear that the provisions therein applied only to
public companies whose shares were listed on the recognised Stock Exchanges. The provision in
section 22A(2) that securities of public companies shall be freely transferable, was made only as the
basis for the consequential provisions in sections 22A(3) to (9) to provide for free transferability by
restricting the entitlement of public companies (through their Board of Directors) to
refuse registration of transfers only in four stipulated circumstances [section 22A sub-section (3)].

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Bajaj Auto
Ltd vs Western Maharashtra Development (
MANU/MH/0820/2015, Bombay HC)
• Section 111 A is intended to regulate the powers of the Board of Directors of
public companies regarding transfer of shares in a public company. The
proviso to Section 111 A (2) of the Act makes it clear that the “Board
of Directors of a public company can refuse transfer of shares only if sufficient
cause is made out.” Hence, it is not a provision to curtail the rights of the
shareholders to enter into a consensual arrangement with a purchaser in
relation to their specific shares.
• Further, if the legislature intended to take away the right of shareholders
to enter into consensual arrangement with the purchaser in relation to their
specific shares, it could have made an express provision in that regard. The
fact that the shares of a public company can be subscribed to by the public,
unlike a private company, does not in any way whittle down the right of a
shareholder of a public company to arrive at a consensual arrangement with 13a