111A. Rectification of register on transfer

In this section, unless the context otherwise requires, "company" means a company other than a company referred to in sub-section (14) of section 111 of this Act.

(2) Subject to the provisions of this section, the shares or debentures and any interest therein of a company shall be freely transferable:

Provided that if a company without sufficient cause refuses to register transfer of shares within two months from the date on which the instrument of transfer or the intimation of transfer, as the case may be, is delivered to the company, the transferee may appeal to the Tribunal, and it shall direct such company to register the transfer of shares.

(3) The Tribunal], may, on an application made by a depository, company, participant or investor or the Securities and Exchange Board of India, if the transfer of shares or debentures is in contravention of any of the provisions of the Securities and Exchange Board of India Act, 1992, or regulations made thereunder or the Sick Industrial Companies (Special Provisions) Act, 1985 or any other law for the time being in force, within two months from the date of transfer of any shares or debentures held by a depository or from the date on which the instrument of transfer or the intimation of the transmission was delivered to the company, as the case may be, after such inquiry as it thinks fit, direct any depository or company to rectify its register or records.

(4) The Tribunal, while acting under sub-section (3), may at its discretion make such interim order as to suspend the voting rights before making or completing such enquiry.

(5) The provisions of this section shall not restrict the right of a holder of shares or debentures, to transfer such shares or debentures and any person acquiring such shares or debentures shall be entitled to voting rights unless the voting rights have been suspended by an order of the Tribunal.

(6) Notwithstanding anything contained in this section, any further transfer, during the pendency of the application with the Tribunal, of shares or debentures shall entitle the transferee to voting rights unless the voting rights in respect of such transferee have also been suspended.

(7) The provisions of sub-sections (5), (7), (9), (10) and (12) of section 111 shall, so far as may be, apply to the proceedings before the Tribunal, under this section as they apply to the proceedings under that section.

Bombay High Court, Appeal No. 855 of 2003 in Notice of Motion No. 534 of 2002 in Suit No. 509 of 2001 and Notice of Motion Nos. 1308 and 3956 of 2005, 4118 of 2007 and 1973 and 1418 of 2008 Decided On: September 1, 2010

Western Maharashtra Development Corporation Ltd. Vs. Bajaj Auto Ltd , (2010) 154 Comp Cases 593 (Bom)

V.B. Rangaraj v. V.B. Gopalakrishnan, AIR 1992 SC 453

Mafatlal Industries Ltd., v. Gujarat Gas Co. Ltd. and Ors, (1998) 2 GLR 1436

M.S. Madhusoodhanan v. Kerala Kaumudi Pvt. Ltd., (2004) 9 SCC 2004

Pushpa Katoch v. Manu Maharani Hotels Limited, [2006]131CompCas42(Delhi)

Western Maharashtra Development Corporation Ltd. Vs. Bajaj Auto Ltd, (2010) 154 Comp Cases 593 (Bom)

Clause 6.1 of the Share Purchase Agreement was as follows:

Right of first refusal: With effect from the date this Agreement becomes effective, neither party shall sell any shares in the Company held or acquired by it without first offering the Shares to the other party. The offer shall be in writing and shall set out in the price and other terms and conditions. If the offeree does not agree to purchase the Shares so offered the offerer shall be free to sell the Shares to any person (other than a competitor of the offeree), but at the same price and on the same terms as offered to the offeree. This right of first refusal does not apply to any sale of shares by the Purchaser to a company of the Moachst Group. In a company directly or indirectly controlled by or under direct or indirect common control with the Maochst Group. For the purposes of this definition "control" means ownership, directly or indirectly, or more than 50 percent of the issued and outstanding voting stock or ownership interest of the Company

Prior to its deletion, Section 22A of the SCRA provided that the shares of a registered company are freely transferable. However, the company could refuse transfer only on four specified grounds. The said provision was introduced in the backdrop of a series of complaints regarding arbitrary powers exercised by the board of directors of companies in refusing or non-consideration of request for transfer/transmission of shares in favour of the transferee. It thus follows that the provision of Section 22A of the SCRA was intended to regulate the right of the board of directors of companies to refuse transfer of members shares. This was not a provision to restrict the right of shareholders to deal with their shares or to enter into consensual arrangement/arrangement regarding their shares (by way of pledge, preemption, sale or otherwise). Section 111A of the Act was introduced in place of Section 22A of the SCRA.