Qualification Shares

Here I am trying to explain some concepts of the Indian Companies Act through "Q & A" approach, which I believe that more helpful for understanding. I am trying to include one or two relevant case laws also. Expecting valuable suggestions and recommendations from the readers. I like criticisms also. Readers are requested to comment their views also.

The Articles of Association of a company provides for qualification shares. A newly appointed Director held the required shares within the prescribed time but did not get it registered in his name within two months of his appointment.

The Companies Act, 1956 never ask for a Director to hold shares to qualify himself to be a Director. But, if the Articles of Association of the company provides for such a share holding by a Director, then the Companies Act, 1956 grants two months time for acquiring those shares (Section 270 of the Companies Act, 1956). In order to be a Director, one should obtain shares within two months of his appointment. In spencer v. Kennedy,  it was held that, a person cannot be said to be qualified in respect of qualification shares unless he is  registered as a holder thereof. So here in this case, the Director has ceased to hold his office of Director even though he holds the shares because those are not registered in his own name.

Some important points:

1.   A Director appointed under Section 408 of the Act need not hold qualification shares.

2.   Nominee Directors of the financial institutions established by separate statute of Parliament are not required to hold qualification shares.

3.   The Directors who by the Articles of Association of the company are not required to hold qualification shares, need not hold such shares.

4.   For the purpose of Section 270, holding of share warrants are not sufficient.