Refusal to Register Transfer and Right of Appeal

Registering a transfer is not always automatic. Section 58 of the Companies Act, 2013 gives a company a limited, but real, power to refuse to register a transfer of its securities, and it also gives the person aggrieved by such refusal a clear right of appeal — the exact scope of both differs for a private company and a public company.

Refusal by a private company. Section 58(1) provides that if a private company limited by shares refuses, whether in exercise of a power under its articles or otherwise, to register a transfer or transmission of securities, it must send a notice of refusal to the transferor and the transferee (or to the person giving intimation of transmission) within thirty days of the date on which the instrument of transfer, or the intimation of transmission, was delivered to the company. Common grounds a private company's articles may permit include a genuine breach of the pre-emption clause — the shares were not first offered to existing members — or a wish by the Board to keep control of the company within a defined group, since restricting transfer is, after all, one of the defining features of a private company under Section 2(68).

Refusal by a public company. Section 58(4) governs a public company. If the Board refuses to register a transfer, it must communicate the refusal, and the reasons for it, to the transferee and the transferor within thirty days of the date on which the instrument of transfer was delivered to the company. Because a public company's securities are, under Section 58(2), meant to be freely transferable, refusal by a public company is expected to be rare and must rest on a genuine, communicable reason — for example, that the instrument of transfer is not properly executed or stamped, or that the transfer is otherwise not in accordance with the law.

Right of appeal to the Tribunal. Sections 58(3) and 58(4)-(5) give the aggrieved transferee, or transferor, the right to appeal to the National Company Law Tribunal (NCLT):

• For a private company, the transferee may appeal to the Tribunal within thirty days of receiving the notice of refusal, or, if no notice was sent at all, within sixty days from the date the instrument of transfer was delivered to the company. …