Q.Can a company refuse to register a transfer of shares? Explain the position for a private company and a public company.

A company's freedom to refuse a transfer is real, but it is far from unlimited, and it works differently for private and public companies.

Registering a transfer of shares is generally expected of a company, but the Companies Act, 2013 does allow a company to decline to do so in certain circumstances, under Section 58, and the extent of this power differs sharply between a private and a public company.

Private company. Since restricting the transfer of its shares is one of the very features that defines a private company under Section 2(68), Section 58(1) explicitly permits a private company limited by shares to refuse, in exercise of a power given by its own articles, to register a transfer or transmission of securities. A common ground is a breach of a pre-emption clause — the shares were not first offered to the existing members before being sold to an outsider. Whatever the ground, the company must send a notice of refusal, stating its reasons, to both the transferor and the transferee within thirty days of the instrument being delivered to it. …

Students often state that companies can refuse transfers for 'any reason', without distinguishing the wide, articles-based discretion of a private company from the narrower, cause-based …