12.9.4 (Notice of Refusal )

Where a company refuses to register a transfer, whether in pursuance of any power of the company under its Articles or otherwise; it shall, within two months from the date on which the instrument of transfer was delivered to the company, send notice of refusal to the transferee and the transferor, giving reasons for such refusal.

Refusal by the company on the ground that the registration of transfer will create share certificates of less than marketable lot and would be in contravention of Articles shall not be valid. Company Law Board in Dipak Kumar jayantilal Shah v. The Atul Products Ltd. [Decided on 18.9.1992, Reported in Chartered Secretary , February 1993 issue] held, that there is no prohibition under the Companies Act or any other Act for holding share certificates below marketable lots. The provisions of law will override the provisions of Articles.

In this case, the appellant was holding five shares in the respondent company. He requested the company to transfer one share each in the names of four groups of joint holders. He submitted all the relevant documents for the purpose. The company refused registration of transfer on the ground that it would result in creating share certificates of less than marketable lot which would be in contravention of the provisions of the transferability as contemplated by the Articles. However, since the appellant had lodged four transfer forms alongwith one share certificate, the company was directed to register the transfer of share in the transfer form first considered by the Board.

Appeal against refusal. The transferor or transferee may appeal to the Company Law Board (CLB) against any refusal of the company to register the transfer or against any failure on its part within the period of 2 months, either to register [he transfer or to send notice of its refusal to register the same [s.111 (2)]. An appeal shall be made within two months of the receipt of the notice of such refusal or, where no notice has been sent by the company, within four months from the date on which the instrument to transfer was delivered to the company.

The CLB while dealing with an appeal against refusal to register the transfer may, after hearing the parties, either dismiss the appeal or, by order, direct that the transfer shall be registered by the company and the company shall comply with such order within ten days of the receipt of the order. However, the CLB may, at its discretion, make (a) such interim order, including any orders as to injunction or stay, as it may deem fit and just; (b) such orders as to costs as it thinks fi| and (c) incidental or consequential orders regarding payment of dividend or the allotment of bonus or rights shares.

If default is made in giving effect to the orders of the CLB under s.111, the company and every officer of the company who is in default shall be punishable with fine which may extend upto Rs 10,000 and with a further fine which may extend upto Rs 1000 for every day after the first day after which the default continues. Further, if default is made in complying with any of the provisions of s.111, the company

and every officer of the company who is in default, shall be punishable with fine which may extend upto Rs 500 for every day during which the default continues.

Applicability of s.111 to priuate companies. In Dr. Jitendra Nath Seha and Another v. Shymal Mondal [decided by CLB on 25.8.1992], it was observed that all the provisions of s.111 are applicable to a private company except to the extent provided in sub-s.(13).

Transfer of shares on the basis of pre-incorporation transfer deeds. A director of a company, prior to its incorporation, signed a transfer deed, as if the company was in existence at the relevant date. When later on the shares were submitted with the company for the purpose of registration of the transfe4, the company refused to register the same. On an appeal to the C.L.B, it was held that the transfer deed was not properly executed and the company was justified in refusing to register the transfer Ltd. [lnlec lnuestment (P) v. Dynamatic Hydraulics Ltd. (1989) 3 Comp. L.I. GLB)2421.

SaIe of shares by tax recovery officer. Who should sign the transfer deed?. In Swadeshi Polytex Ltd.v. Swadeshi Mining and Manufacturing Co. Ltd. (1987) 62 Comp. Cas.683 (All), it was held, that when the Tax Recovery Officer is required to transfer shares to a person who has purchased them, the Tax Recovery Officer may execute such documents or make such endorsement as required and in that event the execution and the endorsement made shall have the same effect as an execution,/endorsement made by the party.

Therefore, when shares are acquired from the Tax Recovery Office1, he is competent to execute the document of sale.

Transfer of shares after winding up - whether valid? The question was considered in the case of H.L. Seth a. Wearwell Cycle Co. (lndia) Ltd. (In liquidation) (1988) 64 Comp. Cas.497 (Delhi). The Delhi High Court held that as between transferor and transferee, a transfer of shares executed after the commencement of winding up is valid, whether it was executed in performance of a contract made before or after ' that time.