Sec. 206A provides that in case of share transfers pending registration, the dividend accruing on such shares shall be transferred to the ‘Unpaid Divi

Account’ unless the transferor authorizes the company in writing to pay the same to the transferee specified in the instrument of transfer. Further,

the company shall keep in abeyance, in relation to such shares, the offer of right shares and ‘bonus shares’ unless the transfer is duly registered in the

name of the transferee. The rule in this regard is that the transferor is a trustee of the transferee for such benefits and the transferee may file a suit against

the transferor to enforce his right. This section aims to protect the lawful right of the transferee pending registration by making it obligatory on

the part of the company to withhold payment of dividend.

.REFUSAL FOR TRANSFER

Q. 2. When can a com I) any refuse to register a transfer of shares? What are the remedies available to the aggrieved party when the trainer of shares

is wrongly refused by the company?

Ans. Shares of private company are not freely transferable. A private company, by its Articles restricts the transfer of its shares. However, shares of a

public company are freely transferable. The Articles of Association can restrict the right of transfer, but absolute restriction on the right of transfer, is ultra

vires the Companies Act. Usually the Articles empower the directors to decline transfer of shares. Where the transfer is against the. company law or

SEB1, or FEMA or any other law. Otherwise a public company cannot refuse the registration of transfer. Share transfer can be said to be against the

provisions of the company law or any other law in the following circumstances.:.

1. Where there is no proper instrument of transfer. Instrument of transfer should be in Form 7B. The transfer deed must be lodged for registration within its

validity period.

2. Where the instrument of transfer contains some apparent irregularity i.e. (i) transfer deed should be duly executed by the transferor and transferee

or by a person authorized on their behalf. (ii) Name, address and occupation

of the transferee must be specified on the deed. (iii) In case of joint holding, all joint holders must sign the deed and their signatures should be Witnessed.

10,000 when no public offer is made and allotment

been made without filing “ith the Registrar, the statement in lieu of prospectus . at least three days before the first allotment of shares [Sec. 70 (4)].

Allotmcnt Proccdurc. The procedure of allotment of shares or

debentures is given bclow

1. Sorting nut of Applications. After the close of the subscription list. the company sorls out the alJldications for shares or debentures received according

to different kinds of shares or debentures issued. Usually the applications along ,,:ith the application money are received by the company baukers and

enterc:! in the Application and Allotment Register either serially or alphabetically.

2. Allotmcnt PoliC)’. When applicati(jns are received equal to or less than the shares issned, there is no problem of allotment policy because everybody

applied for the shares shall get the share applied for. But where the issuc is O’cr-subscribcd. the policy of allotment is needed or on what basis should

the company allot the shares? In such a case the following policy

may be adopted- .

(0) Whc..c shares are listcd on a stock cxchangc, the board of directors of the company. a small sub-conllnittee of directors is fonned to decide the basis

of allotment of shares in accordance with the guidelines issued by the Securities and Exchange Board ofIndia (SEBI) in this regard. In terms qfthe

allotment policy so decided, the secretary shall prepare a provisional statement of allotment and submit the smne to the board of directors for

consideration. The board will then pass an allotment resolution and shall issue instructions to the secretary to write a letter of allotment or letters of regret,

as the case may be. to the applicants.

Statement in lieu of ProslJectuS.

The statement must be filed at least three days before the allotment.

It must be signed by every person named therein as a director or a

proposed director. A company which does not issue a prospectus, is not allowed

to allot shares or debentures without filing a statement in lieu of prospectus.

The protozoa of the statement in lieu of the prospectus is given in the

Third Schedule of the Companies Act. The statement contains more or less.

the same detail!:” as me given in a prospectus.

Section 70 does not apply to private company.

Penalty. The consequence of miss-statement in the document is also

serious. If the statement in lieu of prospectus contains amounted statement, every person who authorized its delivery to the Registrar for registration shall

be punishable with imprisonment unto two years or with fine unto Rs. 50,000 or both. unless he Can prove that the mis-statement was immaterial or that

he had reasonable ground to believe the statement to be true upto the time of the delivery of the document for registration. [Section 70(5)].

If a company acts in contravention of Section 70, the company and every director of the company, who willfully authorizes or Penn its the contravention,

shall be punishable with fine which may extend to Rs.

10,000.(B) ABRIDGED PROSPECTUS [SEC. 56(3)]

Section 56(3), as amended by the Amendment Act of.1988, states that

no application fom1 can be issued for shares and debentures of a company

unless it is accompanied by an abridged prospectus which complies with the requirement of the Act. However, the full prospectus is to be tl.trnished on a

request being made by any person before the closing of the subscription list. If a person acts in contravention of this provision, he shall be punishable with

fine which may extend to Rs. 50,000.

changing the object clause of the Memorandum of a Company

What legal formalities must be complied with for changing the object clause of the Memorandum of a Company
The object clause (and also the registered office clause where the registered office is to be shifted to another State) of the Memorandum can be altered
only if the change enables the company
(i) to carry on its business more economically and more efficiently;
(ii) to attain its main purpose by new or improved means;
(iii) to enlarge or change the local area of its operation; (iv) to carry on some business which can be suitably combined with the present business of the
company;
(v). to restrict or abandon any of its objects specified in the Memorandum; .
(vi) to amalgamate the company with any other’ company; and (vii) to sell or dispose of the whole or any part of the undertaking of the company Sec. 17
(1)]. If any of the above purposes can be achieved, a company may alter its objects clause by passing a special resolution only Section 17(2) as
amended by the Companies (Amendment) Act, 1996]. A copy of special resolution authorizing the alteration together with a printed copy of the
memorandum as altered must be filed with the Registrar within thirty cays of passing such a resolution. The Registrar shall register the same and issue a
certificate of registration within one month. The alteration will be effective only on getting this certificate of registration. Section 17, 18 and 19).
It is important to note here that prior to the passing ofthe Companies (Amendment) Act, 1996, companies were also required to seek the approval of the
Company Law Board for alteration of the objects clause. Confirmation of the Company Law Board required under Section 17(2) shall no longer be
necessary.
If a company wants to alter the objects clause of its memorandum to take up an entirely new business activity (which is neither incidental or ancillary to its
main objects nor included in its 'other objects') by insertion of new objects, it would be necessary, in addition to adopting the procedure stated above, to
pass another special resolution at the same general meeting, according approval to the commencement of new business Section 149 (2 A) (i)]. This
section does not apply to a private company. A copy of this second special resolution must be filed with the Registrar within thirty days of passing the
resolution.

Section 70 makes it obligatory for every public company

Section 70 makes it obligatory for every public company to take either of the following steps:
(i) Issue a prosecution in case the public is to be invited to subscribe to its capital, or .
(ii) Deliver a statement in lieu of prospectus where the company has either not issued a prospectus or though it has issued a prospectus it has not
proceeded to allot any of the shares offered to the public for subscription.
'Statement in lieu of Prospectus' must be filed with the Registrar at least three days before the directors proceed to pass the first allotment resolution.
After confirming to the "guidelines for disclosure and investor protection" issue by SEBI regarding public issue of capital, the directors file a copy of the
prospectus with the Registrar and invite the public to subscribe to the shares of the company by putting the prospectus in circulation. Applications for
shares are received from the public through the company's bankers. If the subscribed capital is at least equal to minimum subscription of 90% of capital
issue, and other conditions of valid allotment are fulfilled, the director pass a formal resolution of allotment. Allotment letters are then posted, return of
allotment is filed with the Registrar and share detruncates are issued to the allotted in exchange of the allotment letters. In case the minimum subscription
is not received, the entire amount with application would have to be refunded to the applicants at the end of 120 days from the opening of the issue. In
case the application money is not returned within the next 10 days (i.e. within 130 days from
the date of opening of the issue), the company and the directors shall be . liable to return the same with interest at the rate of 15% per annum and no
allotment of shares and debentures can be made.