[This article was originally published on 2 August, 1999 in the leading financial daily, Financial Express. See the link below.]
Free transferability of shares of public companies ensures permanent capital to the company, while at the same time ensuring liquidity of shareholder’s investment. Shares of public companies are made generally freely transferable without the need to take permission from the company or any other agency. To facilitate this, shares or any other interest of a shareholder in a company has been declared by law as movable property in Section 82 of the Companies Act, 1956. Till recently, companies were permitted to place reasonable restrictions on transferability of shares, however, a company could not completely prohibit transfer of shares. The Companies Act did not restrict the grounds on which a company could refuse to register a transfer of shares. However, in the case of listed companies, Section 22A of the Securities Contracts (Regulation) Act, 1956, the board of directors could refuse to register a transfer on only one or more of the following four grounds: The instrument of transfer is not proper or has not been duly stamped and executed or the certificate relating to the security has not been delivered to the company or that any other requirement of law relating to such transfer has not been complied with; or the transfer is in contravention of any law or rules made thereunder or any administrative instructions or conditions of listing agreement; or the transfer is likely to result in such change in the composition of board of directors as would be prejudicial to the interest of the company or to the public interest; or the transfer is prohibited by any order of any court or tribunal or other authority under any law for the time being in force.
Read the full article in Financial Express.
