What do yOU understnnd by trnnsfer of shares

‘shares’ the ownership of which is transferable. Tlus right to transfer

shares is given to the shareholders by Section 82 of the Companies’ Act. .

1956, which states that “the shares or the interest of any member in a company shall re a movable property. transferable in the manner prescribed 111 the

Articles rJf the company”. Commenting on transferability of the shares of a Company, Justice Noonan MacLeod observed. “shares are a peculiar kind of

movable property which cannot pass from hand to hand like bales of cotton. The property in the shares belongs to the registered shareholders and cannot

be transferred to another except according to the articles of the company [AIR 1923 Born. 423]. The Articles may impose

certain restrictions or lay down the manner in vhkh shares can be transferred, but it cannot take away this right of the shareholders right away.

A transfer of share is said to take place” When a registered shareholder transfers his shares voluntarily to another either by sale or otherwise”. Thus,

involuntary transfers by way of court auction or sale of forfeited shares do not fall within the purview of transfer of shares [Unity Co. Pvt. Lid r,-:,. Diamond

Sugar Mills).Shares and Del)Stories. With a view to ensuring free transferability of securities of public companies, The Depositories Act 1996 has

inserted a new section III A in the Companies Act. This section provides that the shares debentures of a public company whether listed or not shall be

freely transferable. The Board of Directors or the concerned depository does nt

have any discretion whether ur not to register the transfer of the security if the company will register the transfer as soon as it receives instrument of

transfer. If securities are in depository mode, the transfer will be effected by the depository immediately on receipt of the intimation iu appropriate form

from the participants. Under both the cases, the transferee shall be entitled to every right, including voting right associated with the security as soon as the

intimation about the transaction is received by the company or depository.

Procedure for the tenser of Shares. Ordinarily shares can be transferred by a person whose name appears in the Register of members and who is

holder thereof. As per Section 109, a legal representative of a deceased member, although not a member at the time of transfer, can also

transfer shares. Oral transfers are not recognized by the Act. Transfers. made during winding up are void unless sanctioned by the liquidator. in case of

voluntary winding up, or by the court in other types of winding up (Section 536).

In addition to complying with the provision of the Articles relating to the transfer of shares the following procedure must be followed before a company can

Section 150 of the Companies Act requires every company

a register of its members and enter therein the following particulars: 1. the name and address, and the occupation, if any, of each member; 2.. In the

case of a company having a share capital, tlle shares held

by each member with distinctive numbers of such shares, except where such shares are held with a depository; and the amount paid or agreed to be

considered as paid on tIlose shares;

3. the date at which each person was entered in the register as a member; and

4. tlle date at which any person ceased to be a member.

Where the company has converted any of its shares into stock and notified this conversion to the Registrar, the Register of Members must. show the

amount of stock held by each member instead of the shares so converted which were previously held by him.

In the case of joint shareholders, names of all the joint shareholders must be entered in the register and the notices, etc; be sent to the first named joint

shareholder. Who has to Maintain Register of Members? The duty to maintain register of members is that of tIle company and the person incharge oi the

secretarial department as Section 150 (2) provides that in the event of failure to maintain the register, the company, and every officer who is in default,

shall be punishable with fine which may extend to Rs. 500 for each day during which the default continues.

The managing director” of a company

company had power to me money upto Rs. 30,000 without the consent of mumbles in general meeting. They theme’s lent Rs. 50,000 to the company against debentul”es. Is the company liable Solution. On the facts of the case, directors could be imputed with the knowledge of irregularity in the transaction. The doctrine of indoor management
cannot be invoked in this case. The company is liable only upto Rs. 30,000.

of the company. The Airtimes pended that the managing dh”Cctol” could do so only on a l”Csolution of the general meeting. No such approval had hen taken. Is the company liahle on the bill ‘!

Yes, the company IS liable on the basis of rule in Truant’s CHse. An outsider is not obliged to look into the regularity of internal proceedings [Royal

Briti,h Bank Company issued a share certificate in favor of ‘A’ which appal’ently complied with the company’s articles as it was pUI’plll1cd to be signed hy two

directors and the and it had company’s seal affixed to it. In fact, the secl’etl1l’Y had forged the signatures of the and affixed the seal without .authority. Is the cel1ificate binding on the company?

No. The certificate issued is a mere forgery. Forgery is nullity. A company ClIO never be held bound by forgeries committed by its ofticers.

The doctrine of indoor management only applies to irregularities that otherwise might elect a genuine transaction, but it cannot apply to a forgery. Can the Powel’ to alter” articles be taken away by any provision in the memorandum or lII.ticles 01’ by a contract ?No. The power to alter articles is a statutory power given by Section 31 nod it cannot be neat by a contract or any provision in the memorandum or articles.

Doctrine is not applicable where a precondition is to be fulfilled

Doctrine is not applicable where a precondition is to be fulfilled before company itself can exercise a particular power Pacific Coast Coal Mines Vs.understand by Constructive Notice of the Memormdum and Articles of Association of a limited Company ADs. The Memorandum and Articles of Association becomes public documents when they are registered with the Registrar of Companies. The office of the Registrar of Companies is a public office. Anybody can inspect these documents by paying a nominal fee. Every person dealing with a company is
deemed to have notice of the contents of these documents, and is presumed to have understood them properly. This is known as Constructive Notice of Memorandum and Articles. The legal effect of this doctrine is that if a person deals with a company in a mane unhitch is inconsistent with the provisions of these documents, he cannot acquire any rights hereunder. The doctrine operates against outsider dealing with the company. It prevents an outsider from alleging that he did not know the Memorandum or the Articles of the company. Freeman & Luckier Vs. Buckhurst Park Properties Ltd.] whether or not he actually reads them, he is presumed to have read them as well as understood them properly. Oak Bank Oil Co. Vs. Crum]. If person enters into a contract with the company, he must ensure before hand that such contract falls within the powers of the company otherwise he camlet enforce it later on, it being ultra virus.
The doctrine of constructive notice of tile Memorandum and Articles, however, is not a positive doctrine but a negative one. It is like doctrine of estoppal. It does not operate against the company. It operates only against an outsider dealing with the company. However, there is one exception to the doctrine of constructive notice.

Reduction of Number of Members below statutory minimums

1. Reduction of Number of Members below statutory minimums (Sec. 45). If at any time the number of members of a company is reduced below seven (in


case of a public company) or below two (in case of a private company) and the company carries on business for more than 6 months while the number is
so reduced, every person who is a member of the company during that time (i.e., after that 6 months) and is aware of this fact shall be severally liable for
the repayment of the whole debts of the company contracted during that time and may be severally sued therefor.
2. Section 147 requires that the name of the company met be fully and properly mentioned in all documents issued by it. If an
officer of the company, or any person on its behalf, enters into any contract or Accepts any bill of exchange or orders for goods, etc. without mentioning
the name of the company as per the requirements of Sec. 147 lofter's Ac., or without an indication that he is making the contract on behalf of the company,
such a person will be personally liable for such an act, contract," etc., unless it is duly paid by the company.
3. To Establish the Relationship of Holding and Subsidiary Company. Where one company controls the management of another company. the formers
called a 'holding company' and the latter a 'subsidiary company'. Legally, they are considered .to be separate entities. In certain cases, however, a
subsidiary company may lose its separate entity. At the end of the financial year, a holding company is required to present its final accounts, together with
the final accounts of its subsidiaries, to its shareholders in accordance with provisions of Sees. 212 and 214 of the Companies Act, 1956. Thus, for
purposes of accounts, a holding company and its subsidiaries are treated as one entity. Similarly, the court may refuse the separate entity of the
subsidiary company where profits of the subsidiary company are treated as those of the holding company or where the business of the subsidiary
company is controlled by the nominees of the holding company.
4. For Investigation of Ownership of Company. Sec. 239 and Sec. 247 authorities the Central Government to appoint one or more inspectors to investigate


and report on the membership of any company for the purpose of determining the time persons who are financially interested in the company and who
control or materially influence its policy.
5. Fraudulent Trading. (Sec. 542). If in the course of winding up of a company, it appears that any business of the company has been carried on with intent
to defraud creditors of the company or any other persons or for any fraudulent purpose, those who are knowingly parties to such conduct of business may


be held responsible for all or any of the debts of the company.
6. Failure to Refund Application MO Iiey. Where the company fails to allotthe shares to the shareholders within 120 days of the issue of prospectus, it must
refund the application money to the unsuccessful applicants within the next 10 days or within 130 days of the issue of prospectus. If the company fails to
refund the application money within 130 days of the issue of prospectus, the directors of the company shall be jointly and severally liable for such refund.
7. Mis-statement in the Prospectus [Sec. 62]. The prospectus of a
company must represent to the public the true facts relating to the affairs of the company. In the case of any misrepresentations (untrue statement) in the
prospectus, then every director, promoter of the company and every other person who is responsible for such mis-statement and who authorized the
issue of prospectus shall be liable to pay compensation to the subscribers who purchased the shares on the faith of such untrue statement contained in
the prospectus. .
8. Non,.payment of Income Tax [Sec. 179 of the Income Tax Act]. When a private company is wound up and the income tax assessed on the
company whether before, or in the course of or after liquidation, in respect of any income of any previous year is unpaid, then every person who was
director
of that company at any time during the relevant previous year shall be jointly and severally liable for the payment of such tax.
9. Liability of Promoters for Pre-incorporated Contracts. Promoters of the company are persoJ1jJly liable for all those pre-incorporated contracts which are


not adapted by the company after incorporation.
10. Ultra-vireos Acts. Ultra vireos acts are those acts which are not authorized or are beyond h powers of the company. The directors of the company are
personally liable for all ultra vires acts even if they are done on behalf of the company. The ultra vires acts may be
(a) VIta-vires.the company, (b) ultra-vires the directors, if the company does not adopt those acts, and (c) if such acts are in the nature of costs.