Rectification of registers.

Since the share holdings determine the ownership of a company , the share transfer often become a matter of controversy. That is why, it is   instructed to provide restrictions to transfer of shares in their Articles of Association of private limited companies. Shares of public limited companies are freely transferable.

If Articles of Association provides, then the company can refuse the registration of transfer of shares. At the same time the Companies Act provides safeguards against wrongful refusal to a register of a transfer of shares. Prior to Companies(amendment) Act, 1988, there are two options  for an aggrieved person.

1. make an appeal under section 111 to the Central Government, and
2. move to court under section 155 for rectification of registers to include his name in the Register of Members.

By the amendment of the Companies Act in 1988, section 111 has been recast by incorporating the above said two sections into new section 111 and section 155 has been omitted.

Under section 111, if a company refuses to register a transfer

-      it has to give notice of refusal within 2 months of receipt of the instrument with  reasons for refusal

-      then the aggrieved person can make an appeal to the CLB within two

 months of receipt of notice.

The CLB has the power to direct the company to rectify the Register of Members by registering the share transfer.

The company has to comply with the order of the CLB within 10 days of the receipt of the order.

Then power granted by the Articles of Association to the Board of Directors should be exercised for the benefit of the company and its members and they are expected to act fairly, properly and bonafide.

If a default is made or unnecessary delay takes place in entering the name in the Register of Members including refusal to register share transfer, the aggrieved person can approach CLB for rectification of Registers.

Case Laws

I.       The Articles of Association of a company provides absolute, uncontrolled discretion to refuse to register any transfer of share. ‘A’ presented an application for transfer of shares. But the Board refused the transfer on the reason that on allowing such a transfer, passing of a special resolution become difficult.

The court will upheld a refusal only if

-directors acted in the interest of the company

-they did not act on a wrong principle

-they did not act with a motive for collateral purpose.

Here in this case, the court found that the refusal was based on a wrong principle and ordered to rectify the register.

This is a case between Bajaj Auto Ltd Vs. Firodia.

II.           The Articles of Association of a company provides absolute, uncontrolled discretion to refuse to register any transfer of share. “ M” applied for transfer of certain shares in his name. The same was refused on the contention that he in the past attempted to get the company wound up more than once.

Court held that

This contention is not based on any principle. Court would not order winding up on an application by a share holder and it is not a valid reason for refusal.

Rungpur Tea Association Ltd Vs. Makkanlal Samaddar