Imposition of restrictions upon shares and debentures and prohibition of transfer or shares or debentures in certain cases (Section 250 of the Companies Act, 1956)

Imposition of restrictions upon shares and debentures and prohibition of transfer or shares or debentures in certain cases (Section
250 of the Companies Act, 1956) :

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. Such restrictions shall be for such period not exceeding three years as may be specified in the order.

Restrictions that may be imposed under sub-section (2) are as follows:

(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;

(d) no further shares shall be issued in respect of those shares;

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

As per sub-section (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.

The Company Law Board may, by order at any time, vary or rescind any order made by it. Any order made by the Company Law Board in this regard shall be served on the company within fourteen days of making the order.

Any person who exercises or purports to exercise any right to shares issued or to be issued or votes or appoints proxy where he is the holder of shares or transfers any shares, which are subject to Company Law Board’s order, he shall be punishable with imprisonment for a term that may extend to six months or with fine up to Rs Fifty thousand or with both. A failure by any holder of shares which are subject to restrictions as above to give notice to a person who otherwise may act on the rights in those shares without having knowledge of the restrictions is also exposed to the same punishment.

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.

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

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

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