Concept of free transferability

Supra Society Black, The question before Messer Holdings Ltd. (supra) was whether pre-emptive right can be said to be violative of free transferability of shares provided by section 111A. In this context reference may be made to the provisions of sub-section (2) of section 111A which opens with the expression \"subject to the provisions of this section, the shares or debentures and any interest therein of a company shall be freely transferable\". In other words, it is a provision restating that the shares or debentures and any interest Supra Society Black therein of a company shall be freely transferable subject, however, to the stipulation provided in the other part of section 111A. The proviso to sub-section (2) reinforces the position that section 111A is to regulate the powers of the Board of directors of the company regarding transfer of shares or debentures and any interest therein of a company. The Board of directors cannot refuse to register transfer of shares unless there is sufficient cause to do so.

4.1 The concept of free transferability of shares of a public company is not affected in any manner if the shareholder expresses his willingness to sell Supra Society Black the shares held by him to another party with right of first purchase (pre- emption) at the prevailing market price at the relevant time. So long as the member agrees to pay such prevailing market price and abides by other stipulations in the Act, Rules and articles of association there can be no violation. For the sake of free transferability both the seller and purchaser must agree to the terms of sale. Freedom to purchase cannot mean obligation on the shareholder to sell his shares. The shareholder has freedom Supra Society Black to transfer his shares on terms defined by him, such as right of first refusal, provided the terms are consistent with other regulations including to repurchase the shares at the prevailing market price when such offer is made.

The fact that shares of public company can be subscribed and there is no prohibition for invitation to the public to subscribe to shares, unlike in the case of private company, does not whittle down the right of the shareholder of a public company to arrive at consensual agreement which is otherwise in conformity with the extant regulations and the governing laws.