Section 82, before the amendment, read as follows:- "82 Nature of shares- The shares or any other interest of any member in a company shall be movable property, transferable in the manner provided inthe articles of the company." Now it is provided that, in the section, for the word "shares", the words "shares or debentures" shall be substituted. Let us now consider the nature and objective of this section and the implications of the amendment. A share of a company, though represented by a share certificate and which, in case of a listed company, is freely tradeable on the stock markets, is, by itself not a commodity like chairs or vegetables. A share, rather, represents a bundle of rights that the shareholder has against the company and, to some extent, other shareholders.

In that sense, it is a chose in action, rather than a chose in possession. However, several statutes, including the present Act, have equated it with movable property. The Sale of Goods Act includes shares in the term movable property. The Transfer of Property Act excludes shares and debentures from the requirement of the procedure for transfer of actionable claims.

Finally, section 82 treats shares (and now debentures) withmovable property and permit their transferability subject only to the articles of association and, of course, the provisions of the Act. A debenture is also a chose in action. Section 130 and other subsequent sections of the Transfer of Property Act provide for a special procedure for transfer of debentures.

Principally, transfer of such a claim requires an instrument in writing in the prescribed manner. Further, it is stated that the claims of the debtor against the creditor hold good against the transferee of the actionable claim also. However, Section 137 of that Act exempts shares, debentures, etc. from the special requirements of the preceding sections. Thus, even otherwise, as far as transferability is concerned, debentures are similar in many respect to shares. In fact, shares may face lesser freedom over transferability. In case of private companies, for example; shares are statutorily required to face restrictions over transfer under Section 3(1)(iii) of the Act. Presently, the procedure fortransfer of shares or debentures is contained in sections 108 to 111A.

In essence, these sections provide that transer be shall be vide a duly stamped and executed instrument of transfer. Remedies for non-registration of the transfer by the company are also provided for. In case of public companies, the shares and debentures are explicitly made freely transferable. Interestingly, the requirements of (i) the instrument of transfer to be in the prescribed form, (ii) the instrument form to be duly stamped by the prescribed authority for determining the last date by which the instrument is to be lodged with the company, etc, apply only to shares and not to debentures. Section 82 provides that shares and debentures are transferable in the manner provided in the articles of association of the company.

In other words, the restrictions, if any, may be contained in the articles only and not elsewhere. Consequently, restrictions contained in, say, a private agreement, would not be binding on the company and themembers (Rangaraj VB v. VB Gopalkrishnan (1992) 73 Comp. Cas. 201 (SC); Gujarat Bottling Co. Ltd. v. Coca Cola Co. (1995) 84 Comp. Cas. 618 (SC)). This general principle will now have to be applied in case of debentures also.

Debentures, like shares, are now treated as movable property. Accordingly, they can be sold, assigned, pledged, mortgaged, etc. in the same way as shares. There is no need for there being a specific power in the articles permitting transfer of debentures and they are transferable subject only to the articles of association of the company (see Sadashiv Shanker Dandige v. Gandhi Seva Samaj Ltd. (1958) 28 Comp. Cas. 137 (Bom.). In this context, one should also note the very wide definition of debentures under the Act. In fact, a mere acknowledgement of a debt may be a debenture. There is no necessity that the debentures be secured. Debentures may be convertible, partly or fully. At the same time, all loans are not debentures. Fixed deposits also, as the Department of CompanyAffairs has opined, are not debentures. As in case of other provisions in the Ordinance, the drafting of the amendment leaves much to be desired. Firstly, while the section itself has been amended, the title of the section continues to be "nature of shares". Further, note the placement of the word "debentures". The amended section reads "The shares or debentures or any other interest of any member in a company...". A plain reading reveals that the debentures should be held by a member of the company, i.e., a shareholder. The wording was appropriate earlier since "shares" were in any case held by a member.

However, since the words "of any member" qualify all of the earlier part of the section, the absurdity of the debentureholder having to be a member results, which is clearly not the intention. In conclusion, it may be said that the amendment fills in the marginal gap between shares and debentures.

(The author is a Mumbai-based Chartered Accountant)