Companies Act Section 378ZD — Transferability of shares and attendant rights
CHAPTER XXI
Commercial / Corporate
Summary
Sub-section (1) states that, except as provided in sub-sections (2) to (4), the shares of a Member of a Producer Company cannot be transferred.
Sub-section (2) allows a Member to transfer all or part of their shares, along with any special rights attached to them, to an active Member at par value, but only after getting the previous approval of the Board.
Sub-section (3) requires every Member to nominate a person, within three months of becoming a Member, in the manner specified in the articles, to whom their shares will go in the event of their death.
Sub-section (4) says that on the death of a Member, the nominee becomes entitled to all the rights in the shares, and the Board must transfer the shares of the deceased Member to the nominee. However, if the nominee is not a producer, the Board must direct the surrender of the shares, along with any special rights, to the Producer Company at par value or at such other value as the Board decides.
Under clause (a) of sub-section (5), if the Board is satisfied that a Member has ceased to be a primary producer, it must direct the surrender of the shares, along with any special rights, to the Producer Company at par value or at such other value as the Board decides.
Under clause (b) of sub-section (5), if the Board is satisfied that a Member has failed to retain the qualifications required to be a Member as specified in the articles, it must direct the surrender of the shares, along with any special rights, to the Producer Company at par value or at such other value as the Board decides. The proviso to sub-section (5) states that the Board cannot direct such surrender of shares unless the Member has been served with a written notice and given an opportunity to be heard.
Official Text
(1) Save as otherwise provided in sub-sections
(2) to (4), the shares of a Member of a Producer Company shall not be transferable.
(2) A Member of a Producer Company may, after obtaining the previous approval of the Board, transfer the whole or part of his shares alongwith any special rights, to an active Member at par value.
(3) Every Member shall, within three months of his becoming a Member in the Producer Company, nominate, in the manner specified in articles, a person to whom his shares in the Producer Company shall vest in the event of his death.
(4) The nominee shall, on the death of the Member, become entitled to all the rights in the shares of the Producer Company and the Board of that Company shall transfer the shares of the deceased Member to his nominee:
Provided that in a case where such nominee is not a producer, the Board shall direct the surrender of shares together with special rights, if any, to the Producer Company at par value or such other value as may be determined by the Board.
(5) Where the Board of a Producer Company is satisfied that—
(a) any Member has ceased to be a primary producer; or
(b) any Member has failed to retain his qualifications to be a Member as specified in articles, the Board shall direct the surrender of shares together with special rights, if any, to the Producer Company at par value or such other value as may be determined by the Board:
Provided that the Board shall not direct such surrender of shares unless the Member has been served with a written notice and given an opportunity of being heard. PART VI FINANCE, ACCOUNTS AND AUDIT