Company Law Board. As per Sec. III as

amended by the Depositories Act 1996, if refusal is above the provisions of the Articles, the transferor or transferee.may prefer an appeal to the Company

Law Board against the refusal within two months of the receipt of the notice of such refusal, or where no notice has been sent by the company within four

months from the date on which the instrument of transfer was delivered to the company. The appeal shall be made by a petition in writing and shan be

accompanied by the prescribed fee.

.After receiving the petition, the Company Law Board shall issue notices to the company, the tmnsferor and the transferee in order to provide them an

opportunitY to make their representation. Considering the whole case, if the refusal does not seem to be justified, the company Law Board will issue an

order to the company t9 register the transfer within 10 days of the receipt of the order. The Company Law Board shall also give such consequential order

as to make the payment of dividend or the allotment of bonus or right shares as it thinks fit and just.

Fine [Sec. 111 (9)1. If default is made in giving effect to the orders of the Company Law Board? the company and every defaulting officer of the company

shall be liable to a time extending to Rs. 10,000 with a further fine extending to Rs. 1,000 per day during which the default continues.

The provisions of Sec. III apply to transfer of debentures or transmission of shares and debentures.

(ii) Appeal to the court. The decision of the directors cannot be challenged so long as the directors act within the scope of the Articles. If the decision is

agc:inst the Articles and not in good faith for the benefit of the company, the trar.sferee may appeal to the court and if the court thinks fit, it may set aside

the decision ofthe directors and orderfor the registration of the transteree’s name as a member of the company. [Bajaj Auto Ltd. Vs. N.K. Firodia & Ailother]

Damages. In addition to setting aside the decision of the directors, the transferee will also be entitled for the damages which shall be equal to the

difference in the market price of the shares on the date of refusal

MEMBER OF A COMPANY

State with reasons whether any of the following can become member of a company:

(i) a minor, (ii) a foreigner, (iii) a partnership firm, and (iv) a company.

The Companies Act does not specifically lay down as to who can become a member of the company. It also does not prescribe any disqualification for

any person which would debar him from becoming a member of the company. In Section 41, the Act only provides that every person who agrees in writing

to become a member of a company may become a member. Thus, for becoming a member, the essential requirement is an agreement in this regard. As

such, the provisions of the Indian Contract Act, 1872, will he the guiding principle in deciding who can be a member. According to Section 10 of the Indian

Contract Act, every person is competent to contract who is of the age of majority, who is of sound mind and is not disqualified from contracting by any law

to which he is subject. Therefore. any person who is competent to contract can be a member of a company The capacity of certain persons to become

member of a company may be discussed as wIder:

1. A Minor. A minor is not competent to become the member of a company because ‘an agreement with a minor is absolutely void (Mohiri Bibi Vs.

Dharamodas Ghose, (1903) I.L.R. 30 Ca!. 539]. A minor, being

incompetent to enter into a contract, cannot he allotted shares of a company. “If directors, in ignorance of the fact of minority, allot shares to a minor, and

enter his name on the register of members, the company can repudiate the allotment and remove his n:Jme from the register, when the fact of applicant’s

minority comes to its knowledge. The minor can also repudiate the allotment at any time during his minority. In either case, the company

must repay to a minor all the money received from him in respect of the allotted shares, and whether or not the minor should restore to the compan

the benefits he might have derived from the shares would be for the court to decide in view of the facts and circumstances of each case.”!

In case of transfer of partly-paid shares to a minor, the company may refuse to register him as member.

In case of fully paid up shares, a minor’s name (through his lawful guardian) may be entered in the register of members, if he (or she) happens to acquire

the share by way of transfer or transmission. The Company Law Board held invliss Nandita .lain Vs. Bennet Coleman and Co. Ltd., that a minor, acting

through his or her guardian, can be admitted as a member of a company limited by shares by means of transfer or transmission of shares in hisher name

provided the shares in question are fi1l1y paid-up. The Company Law Board has again held in Saroj (minor) through her

father & naturul guardian s.L. Bagree and Mrs. Tara Devi Bagree v..,.. Britannia Industries Ltd., that there can be no objection to fully paid-up shares being

transferred to a minor and such transfer being registered in favour of the minor, if he (or she) is properly represented and acted by a lawful guardian.

Non-Banking Finance Companies (NBFC) and Public Financial Institutions (PFI)

The stipulation laid down in Sec. 67 (3) ski11 not applies to Non-Banking Finance Companies (NBFC) and Public Financial Institutions (PFI) specified in Sec. 4A of the Companies Act [Sec. 67 (3A)].Subsection or Purchase. The word subscription means taking or agreeing to take the shares for cash. Hence. a circular by a company offering new shares to the shareholders of two existing companies in exchange for their shares in these companies was not an offer for subscription within the definition of Use term prospectus [Government Stock Investment Co Ltd. Vs.

The Legal adjournments as to the issue of Prospectus arc IS follows: I. The” guidelines for disclosure and investor protection” issued by SEBI (Securities and Exchange Board of India) as amended from time to time regarding capital issues to the public must have been complied with for The’ proposed issue of shares or debentures to the public, and a statement to that effect must be made in the. prospectus.2. A copy of the prospectus, duly dated and signed by all the directors must have been registered with the Registrar of Companies. The copy for registration must be accompanied with:

the consent in writing of the expert of his report is to be published in the prospectus. The expert should not be connected with the formation or management of the company.

a copy of every material contract and of every contract relating to

appointment and remuneration of a managing director or manager.

(ii) a written statement by the persons making any report relating to the adjustment. if any, as respects the figures of any profits or losses or assets and liabilities dealt with by the report set out ia the prospectus.

the consent in writing of the person, if any, named in the prospectus as the auditor, legal advisor, attorney, solicitor, banker or broker of the company to act in that capacity.

3. The prospectus must be issued within 90 days of the date on which a copy thereof is delivered for registration. If a prospectus is not issued within this period. it is deemed to be a prospectus, a copy of which has not been delivered to the Registrar Penalty for non-registration of Prospectus. If a prospectus is issued without a copy thereof being delivered to the Registrar for registration, or without the

necessary documents or the consent of the experts, the company and every person, who is knowingly a party to the issue of the propel;, shall be punishable with fine which may extend to Rs. 50,000. (Sec. (0)CONTENTS OF PROSPECTUS

Prospectus is the window through which an investor can look into the soundness of a company’s ycnture. The investor must, therefore. be given a complete picture of the company’s intended activities and its position. Section 56 oi the Companies Act lays down that the matters and reports stated in Schedule II to the Companies Act must be included in a prospectus.

Members are bound to the company to observe

The Members arc Bound to thc Company. Members are bound to the company to observe and follow the provisions of the memorandum and articles,
just as if every one of them had contracted to confound to them. If the members do not follow the provisions of these documents, the company may apply
to the court and may take remedial action. In Hickman V... Kent, the Articles of a company provided for the reference of disputes between the members
and the company to arbitration. H, a member, brought an action against the company. The company applied to the court for stay of proceeding as H was,
by agreement, bound to go to arbitration. Held, the court granted a stay of action on the pica of the company. Each member is not only bound by the
covenants of the Memorandum and Articles as originally framed but altered from time to time in accordance with the provisions of the Companies Act.
Binding Members inter .'I.e. As between the mel11brs themselves, they are bound by the provisions of the Articles. The Memorandum and Articles of
Associ1tion do not constitute express agreement among the members of the company, but each member is bound by these documents on the basis of
the implied contract. The Articles regulate their right inter .'Ie. But such rights can be enforced only through the company. Lord RCI'shcll in Welton v:...
Suffery. said: "The Article.,- constitute a contract between each member and the company. and there is no contract in terms between the individual
members of the company; but the articles do not. any the less. in lIV opinion. regulate their right inter .'Ie. Such right can only be enforced by or against a
member through the company or through the liquidator representing the company:' A member may, however, sue in his own name to restrain another,
or others from doing fraudulent Of ultra vires acts Rayfield J,-:... Hands and others]. In this case, the Articles required a shareholder to inform the directors
of his intention to transfer shares and’ the directors were to take those shares equally between themselves at a fair value. The \1laintiff
notified the directors who refused to take the plaintiff could force the. directors, his fellow members, to purchase the shares in view of the provisions of the

Articles.

Companies Act does not apply

In the following cases, Sec.11 of the Companies Act does not apply (i) An association consisting of less than the maximum number prescribed (20 for
general business and 10 for banking business). (i i) An association carrying on an activity with an object not for earning profits but for some other purposes


i.e. for promoting art, science, culture, religion etc. (iii) A joint Hindu family even it consists of more than the number prescribed U/S II.In the above cases,
the association is not an illegal association even if the number of its members is above the number prescribed and it is not registered under Companies
Act or not Offiled under any other Indian law.Consequences of an Illegal Association Consequences of an illegal association are as follows- .
1. No Legal Existence. Illegal association has no legal existence. Such an association therefore, (i) cannot enter into a binding contract, (ii) neither the
association nor its Alembert's in their personal capacity cannot see any outsider who has dealt with it, (iii) members also cannot sue inter-se for any
. matter connected with the association, (iv) the association cannot be sued either by a member or an outsider because it cannot enter into a contract or
cannot contract a debt, (v) an association cannot be dissolved through the court, (vi) it cannot be wound up under the Act either at the instance of a
creditor, or a member or the association itself as there is nothing to disclose. The association has no legal existence at all.