A freely transferable except where the company holds a

A private limited company is by the act, in terms of
section 3 required among other things to restrict the right to transfer its
shares. But in a public limited company shares are freely transferable except
where the company holds a lien on the said shares. It is generally the practice
to include a provision in the articles reserving the right with the board of
directors, as its absolute and uncontrolled discretion, to decline to register
any transfer of shares without assigning any reason.

Board to exercise its discretion bona
fide

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

There were several cases where it was held that the
action on the part of the directors to refuse registration of transfers was on
wrong principles and was tainted with an oblique motive. Ajay Publishers Ltd
Bangalore. The court held that though the articles may give the directors an
absolute and uncontrolled discretion to refuse registration of transfer, this
is a fiduciary power and must be exercised bona fide in the interest of the
company.

Section 22A of securities contracts (regulation)
act, 1956 deleted

With the enactment of the depositories act 1996,
which was passed by the parliament during july 1996 and which was deemed to
have come into effect on 20-09-1995, section 22A of the securities contracts
(regulation) act, 1956 has been deleted. This said section 22A was specially
introduced in order to promote the free transferability of the shares in a
public limited company, particularly in a listed company and companies were
allowed to refuse registration of shares only on certain specified grounds and
to seek the direction of the erstwhile company law board.

Provision for free transferability
re-introduced

The above procedure under erstwhile section 22A of
SCRA, 1956 will no longer hold gold. Instead, along with the enactment of the depository’s
act 1956, inter alia, a new section 111A has been added to the company’s act
1956 which has amended by the depository’s related laws.

Transfer procedure of section 108 not
applicable under the depositories system

By amendment to section 108 of the act, it is now
provided in sub-section (3) therein that the provisions of section 108 shall
not apply to transfer of securities under the depositories system. Accordingly,
the instrument of transfer and the connected formalities in section 108 do not
apply to the transfer of securities held under the system of depositories.

Existing section 111 made applicable only
to private companies

Incidentally it may be noted that at the time of the
enactment of the depositories act 1996, an amendment has been made to section
111 by sub-section (14) so as to make it clear that the said provision would
only apply to a private limited company and erstwhile deemed public limited
company by virtue of section 43A.

 

Automatic transferability of shares and debentures
under depositories act 1996

One of the significant advantages in the
depositories system is that once the securities of a company are held in a
depository, the registration of transfer of a security is automatically carried
out by the depository and there is no possibility of the issuer company transferring
with the registration of transfer of a security.