Restriction on Transfer of Shares [Section 108 B

(1) Every body corporate under the same management holding, wl)ether singly or in aggregate, 10 per cent or more of the nominal value of the subscribed equity share capital of any other company, shall, before transferring such shares, give an intimation to the Central Government of their proposal to transfer one or more shares. On receipt of such intimation, if the Central Government is satisfied that as a result of such transfer, a change in the Composition of the Board of Directors of the Company is likely to take place and that such a change would be prejudicial to the interest ofthe company or the public interest, it may by order, direct that

(i) no such share shall be transferred to the proposed transferee, or

(ii) where such shares are held in a company engaged in any industry

specified in schedule XV, shares shall be transferred to the Central Government or to such corporation owned or controlled by that Government as may be Specified in the direction. In such a case the Government will pay the market value prevailing on the date on which direction is made or as may be mutually agreed upon. In case of dispute, value as estimated by the Central Government or the corporation, as the case may be, shall be paid forthwith and the balance, if any, within 30 days from the date when the market value is determined by the Court. If the Central Government does not make any direction within 60 days from the date of receipt by it of the intimation, the provisions with regard to the transfer of such shares shall not apply. The market value shall be paid forthwith if there is no dispute as to such value.

3. Restrictions on the transfer of shares of foreign companies. [Section108C]A body corporate (or bodies corporate under the same management) which holds in the aggregate ten per cent or 1l10re of the nominal value of the equity share capital of a forei3n company, having an established place of business in India, shall not transfer such shares to any citizen of India or any body corporate incorporated in India without the prior approval of the Central Government. The Government will not refuse the approval, unless it is satisfied that

the transfer would be prejudicial to the public interest.

4. Power of Central Government to direct Companies not to give effect to the transfer. Section 108 D provides that if the Central Government is satisfied that as a result of the transfer of any share or block of shares, a change in the controlling interest of the company may be likely to take place and that such change is prejudicial to the interests of the company or to the public interest, it may direct the company not to give effect to the transfer of any such share or block of shares. Where the transfer of such share or block of shares has already been registered, the company shall not permit the transferee to exercise any voting or other rights, attaching to such share or block of shares. Where the transfer of such share or block of shares has not been registered, the company shall not permit the transferor to exercise any voting or other rights attaching to such share or block of shares.

Where any direction is made by the Central Government (as stated above), the share or the block of shares shall stand re-transferred to the transferor who shall refund the price to the transferee. If the refund is not made within thirty days from the date of the direction, the Central Government shall, on the application of the person entitled to get the refund, order the refund of such amount and such order will be enforced as a decree of a Civil Court. On making such refund, the transferor shall be eligible to exercise voting or other rights attaching to such share or block of shares.

5. Time within which refus,1 to be Communicated. [Section 108 E) Where the Central Government does not communicate its disapproval of the request

for according its approval to the proposal for the acquisition of any share referred to in Section l08-A or the transfer of any share referred to in I08-C within a period of si”,1y days from the receipt of request, it shall be presumed to have been granted.

. 6. Exemptions. [Section 108-F). The restrictions envisaged by Section 108-A shall not apply to the transfer of any share to, and nothing in Section I08-B,

Section 108-C or Section 108-D shall apply to the transfer of any share by,

(a) any company in which not less than fifty-one per cent of the share capital is held by the Central Government;

(b) any corporation (not being a company) established by or under any Central Act; and© any financial institution.

Devan Singh Vs. Minerva Films Ltd. [AIR 1956 Punjab 106],

Devan Singh Vs. Minerva Films Ltd. [AIR 1956 Punjab 106], the Punjab High Court held that there is no legal bar to a minor

becoming a member of a company by acquiring shares provided the shares

are fully paid-up and no further obligation or liability is attached to them. 2. Company. A company, being an artifical person, can become the member of

another company, if so authorised by its Articles or Memorandum. However, by Section 372, some restrictions have been placed on the power of a

company to invest in shares or debentures of other companies. A company cannot be its own member as purchase of own shares by a company is

prohibited under Section 77 of the Companies Act, 1956. A subsidiary company carmot be a member of its holding company as any allotment or transfer

of shares in its name in the holding company is void except ,;hen it acts as a legal representative of a deceased member of the holding company or as a

trustee but is not beneficially interested in the trust or wlen allotment or transfer is by way of security for purposes of a transaction entered into in ordinary

course of business. 3. Partnership. A partnership firm cannot be a member of a company as it is not a person in the eyes oflaw. The partners may acqliire

membership In a company individually. Partners may be registered as Joint holders in which case each of them becomes a member. I However, a firm

can be a member in a company if formed for charitable purposes under Sec. 25.

4. Hindu Undivi(‘ed Family. A Hindu undivided family can purchase shares in a company through its Karta, i. e., the karta only shall become the member of

contemplated is invitation by negotiation as opposed to invitation by advertisement

Domestic concern, however, has not been defined, but what is contemplated is invitation by negotiation as opposed to invitation by advertisement. The Amendment Act 2000 has put a limit to the number of persons by adding a proviso to Sec. 67 (3) by which an invitation to 50 or more persons will be treated as an invitation to the public to subscribe for shares or debentures. Summing up the overall effect of Section 67 it may, tills, be stated that the important point to be considered, while deciding as to what constitutes an offer is that if. an offer makes the shares and debentures available for subscription by persons other than those receiving tile offer, it is deemed to have been made to the “public”. Again, if the invitation to subscribe for share or debentures is made to 50 or more persons, it is deemed to be made to the public even though the offer is a specific offer to be accepted by those to whom it is made.

Nither thc Compamy nor thc Members are bound to Outsiders

Nither thc Compamy nor thc Members are bound to Outsiders. The Articles or Memorandum do not give a right to outsiders i.e:, vendors, solicitors, secretary etc. against the company or the members. An outsider cannot claim a right on the basis-of any provision in the Articles. Even a member enjoying certain rights in capacity other titan tIlat of a member cannot enforce tI1em against the company. In the case of Eley Vs. Positive Life Assurance Company, the Articles of tile company provided that Eley should be tle solicitor of the company for life and should not be removed from office except for misconduct. Eley acted as solicitor to the company and also became a member of the company. After some time the company dismissed him without
alleging misconduct. E sued the company for damages for breach of illations of Articles in a capacity other than that of a shareholder. Held, Articles did not .constitute any contract between the company and an outsider and as such no action would lie.
The principle laid down in Eley's case proved to be rather harsh. Therefore, the court modified the rule by developing the doctrine of implied contract between the company and an outsider in terms of Articles. In New British Iron Co. on the basis of the clause in the Articles to be paid 100 as his remuneration. The term of the Articles becomes a part of the contract which the director could enforce against the company. The said decision was ratified in Gulah Singh J\'.. Punjab Zamindara Bank Ltd. In this case Gulab Singh was appointed as managing director under the Articles and he acted in that capacity for eleven years. Later on he was removed. It was held that the articles constituted an implied contract between the company and Gulab
Singh and hence his removal was invalid.

The illegality of the association

It may be noted that once an association becomes illegal, it remains illegal until it is registered under the Companies Act or conned under any other Indian law. The illegality of the association cannot be cured by any subsequent reduction in the number of its members.
Rules for Counting Number of Persons. In counting the number of persons, every person human, legal or otherwise who holds an independent position in law and is capable of entering into contract shall be regarded as one person. Accordingly, a joint stock company (legal entity), or a Hindu undivided family (separate entity in Hindu law) managed by a karta shall be counted as one person irrespective of varying number of individual members. But, where two or more joint families form a partnership, all their adult members shall be counted as partners of the firm (not the number offamilies). Two or more persons holding the shares jointly are treated as one person. A person holding shares both in his own and in the name of the minor shall be counted as one
person. Non-al)))licability of Provision of Sc. 11.