India: Is Restriction On Transfer Of Shares Valid Under Companies Act, 2013?

Last Updated: 19 June 2017
Article by Sharad Tyagi

Sometimes investor(s) investing in a company, in India, prefer restrictions on transfer of shares by the promoters / shareholders under the shareholders' agreement / consensual arrangement with an intent to protect their interest or for any other reason. Therefore, it is imperative to understand the legality of such restrictions on transfer of shares in India under Companies Act, 2013 ("CA 2013"). We have analyzed the relevant provisions of CA 2013 regarding transfer of shares, as applicable to a public as well as private company below.  

Public Company

Section 58 (2) of CA 2013 provides that the securities or other interest of any member in a public company shall be 'freely transferable' (emphasis supplied). Further, proviso to Section 58 (2) of CA 2013 provides that any contract or arrangement between two or more persons in respect to transfer of securities shall be enforceable as a 'contract'. The aforesaid provisions of Section 58 (2) of CA 2013 are similar to the provisions of Section 111A (2) of the erstwhile Companies Act, 1956, except the aforesaid proviso to Section 58 (2) of CA 2013.

In the erstwhile Companies Act, 1956, there were some debatable issues with respect to the expression 'freely transferable'. However, in the matter of Messer Holdings Limited vs. Shyam Madanmohan Ruia & Others [2010 159CompCas29(Bom)], the Hon'ble Bombay High Court held that any contract or arrangement between two or more persons with respect to transfer of securities can be enforced like any other contract and does not impede the free transferability of shares at all. Therefore, the aforesaid proviso to Section 58(2) of the CA 2013 has been incorporated in line with the aforesaid judgment of the Bombay High Court.

In view of the above, any restriction on transfer of shares under the shareholders agreement / consensual arrangement as executed amongst the shareholders shall be valid and binding as a 'contract' inter-se the shareholders. If any public company is also being made party to such shareholders agreement / consensual arrangement, then such contract will also be enforceable against the public company like any other contract. In case of breach of such contract by any party, the aggrieved party may avail such legal remedies as available in case of 'breach of contract' including the specific performance of such contract under the Specific Relief Act, 1963.

It is also important to analyze the expression 'freely transferable', which has not been defined under CA 2013. The expression 'freely transferable' is a mandate against the board of directors to register the transfer of the specified shares and such expression should be given wider interpretation. Any consensual arrangement / contract providing restriction on transfer of shares or providing pre-emptive rights pertaining to transfer of shares should not be construed as violation of the expression 'freely transferable'. Had that not been the intention of the legislature, the proviso to Section 58(2) of the CA 2013 would not have been specifically inserted and appropriate restriction would have been placed in CA 2013 in relation to transfer of shares in terms of consensual arrangement. However, such expression does not in any way restrict the power of the board of directors of a public company to refuse the registration of transfer of such shares on 'sufficient cause'.

The board of directors, upon 'sufficient cause' being seen, may refuse to register the transfer of shares. The words 'sufficient cause' in Section 58(4) takes within its ambit not only those contingencies contemplated under sub-section (3) but also circumstances and reasons other than which might require the company to refuse to register the transfer of shares. Thus, there can be various reasons, though it is not possible to enumerate all of them and may depend on the facts of each case, which would constitute 'sufficient cause' for a company to refuse the registration of transfer of shares.

Private Company

In terms of the provisions of CA 2013, a private company is required to restrict the transfer of its shares through its articles of association ("AoA") [Section 2(68) of CA 2013]. Hence, any restriction on transfer of shares as agreed under the shareholders agreement / consensual arrangement and duly incorporated in its AoA shall be valid and binding on such a private company and may be enforced against the shareholders of a private company. However, if a private company refuses to register the transfer of any securities or interest of a member, whether in pursuance of any power of the company under its AoA or otherwise, it is required to intimate the transferor and transferee within the stipulated time period [Section 58 of CA 2013].   

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.