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The Companies Act, 1956

Title : The Companies Act, 1956

Year : 1956

Sec 250    -    Imposition of restrictions upon shares anddebentures and prohibition of transfer of shares or debentures in certain cases.

    (1) Where it appears to the Company Law Board, whether on a reference made to it by the Central Government in connection with any investigation under section 247 or on a complaint made by any person in this behalf, that there is good reason to find out the relevant facts about any shares (whether issued or to be issued) and the Company Law Board is of the opinion that such facts cannot be found out unless the restrictions specified in sub-section (2) are imposed, the Company Law Board may, by order, direct that the shares shall be subject to the restrictions imposed by sub-section (2) for such period not exceeding three years as may be specified in the order.

    (2) So long as any shares are directed to be subject to the restrictions imposed by this sub-section-

      (a) any transfer of those shares shall be void ;

      (b) where those shares are to be issued, they shall not be issued ; and any issue thereof or any transfer of the right to be issued therewith, shall be void ;

      (c) no voting right shall be exercisable in respect of those shares ;

      (d) no further shares shall be issued in right of those shares or in pursuance of any offer made to the holder thereof ; and any issue of such shares or any transfer of the right to be issued therewith, shall be void ; and

      (e) except in a liquidation, no payment shall be made of any sums due from the company on those shares, whether in respect of dividend, capital or otherwise.

    (3) Where a transfer of shares in a company has taken place and as a result thereof a change in the composition of the Board of directors of the company is likely to take place and the Company Law Board, is of the opinion that any such change would be prejudicial to the public interest, it may, by order, direct that-

      (a) the voting rights in respect of those shares shall not be exercisable for such period not exceeding three years as may be specified in the order ;

      (b) no resolution passed or action taken to effect a change in the composition of the Board of directors before the date of the order shall have effect unless confirmed by the Company Law Board.

    (4) Where the Company Law Board has reasonable ground to believe that a transfer of shares in a company is likely to take place whereby a change in the composition of the Board of directors of the company is likely to take place and the Company Law Board is of the opinion that any such change would be prejudicial to the public interest, the Company Law Board may, by order, direct that any transfer of shares in the company during such period not exceeding three years as may be specified in the order, shall be void.

    (5) The Company Law Board may, by order at any time, vary or rescind any order made by it under sub-section (1) or sub-section (3) or sub-section (4).

    (8) Any order made by the Company Law Board under sub-section (5) shall be served on the company within fourteen days of the making of the order.

    (9) Any person who:

      (a) exercises or purports to exercise any right to dispose of any shares or of any right to be issued with any such shares when to his knowledge he is not entitled to do so by reason of any of the said restrictions applicable to the case under sub-section (2) ; or

      (b) votes in respect of any shares whether as holder or proxy, or appoints a proxy to vote in respect thereof, when to his knowledge he is not entitled to do so by reason of any of the said restrictions applicable to the case under sub-section (2) or by reason of any order made under sub-section (3) ; or

      (c) transfers any shares in contravention of any order made under sub-section (4) ; or

      (d) being the holder of any shares in respect of which an order under sub-section (2) or sub-section (3) has been made, fails to give notice of the fact of their being subject to any such order to any person whom he does not know to be aware of that fact but whom he knows to be otherwise entitled to vote in respect of those shares, whether as holder or as a proxy,

    shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to fifty thousand rupees, or with both ;

    (10) Where shares in any company are issued in contravention of such of the restrictions as may be applicable to the case under sub-section (2), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to fifty thousand rupees.

    (11) A prosecution shall not be instituted under this section except by, or with the consent of, the Central Government.

    (12) This section shall apply in relation to debentures as it applies in relation to shares.


Last updated on May, 2015

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